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While Saskatchewan Premier Lorne Calvert begs for more equalization money from Paul Martin — looking for a deal like those that have-not provinces Nova Scotia and Newfoundland secured — he forgets that some problems faced by his province are its own doing. Were it not for labour and tax policies hostile to businesses, perhaps Saskatchewan could enjoy a lot more prosperity, making equalization unnecessary.
In 1905, when Alberta and Saskatchewan were created, the two provinces were of similar population and per capita incomes. One hundred years later, Saskatchewan has a third of Alberta's population and little more than a fifth of its GDP. In the past three decades alone, Saskatchewan has lost 700,000 residents to other provinces, close to half of them to Alberta. Alberta certainly prospered from its rich oil and gas deposits, but Saskatchewan also has a good share of oil, gas, uranium and potash resources. Yet Saskatchewan is a below-average province, with a handful of large corporations operating there — Potash Corp., Cameco, IPSCO and assorted Crown corporations.
Something has gone wrong, and it is not just a matter of bad breaks for agriculture. Saskatchewan has failed to grow because its policies have made it infertile land for business investment.
As a start, Saskatchewan has the second-most-restrictive labour policies in Canada, next to British Columbia, according to a recent study published using 1998 information. While labour policies are important in protecting the rights and incomes of workers, Saskatchewan is especially protectionist when it comes to overtime work, workers' compensation and collective bargaining. In a recent C. D. Howe Institute report, Michael Huberman shows that jurisdictions with more protectionist employment policies have less growth in GDP per capita. Although a province might find that an acceptable trade-off, it imposes a burden on the whole economy and helps erode its standard of living.
Recently, Saskatchewan introduced new labour legislation that will only worsen its appeal to business. The Saskatchewan business community is up in arms over the expanded powers of the chair and vice-chair of the Labour Relations Board — including rights to search and seizure, the imposition of a collective agreement 90 days after issuance of a certification order and part-time work mandated according to seniority. Also unnerving is that the director of labour standards can investigate and render an opinion on allegations of wrongful dismissal, and any appeal has to go to an adjudicator — not to the courts.
If that is not enough to ward off the evil eye of business, Saskatchewan's tax policies are the most punitive in the country for medium-sized and large businesses. Its corporate income and capital taxes, and sales taxes on capital purchases, impose a burden equal to 37% of profits — 4.4 percentage points more than in Ontario and 13 percentage points more than in Alberta.
Saskatchewan's approach to business seems to be to make sure it is the most highly unattractive jurisdiction in all of North America. No wonder many Saskatchewan businesses, growing beyond their small size, eventually migrate to Alberta and other provinces as they get larger.
There is a better way — and Ireland has proven it. Long a poor cousin in Europe, Ireland used European regional subsidies to educate its people and make itself attractive for large businesses by reducing taxes and easing regulations. In two decades, its standard of living soared and its unemployment rate plummeted. It became a haven for migrants rather than a source of them. The move was smart economic strategy.
Saskatchewan could do the same. A good dose of business-friendly policies could help make it grow faster. Saskatchewan should relax its labour legislation, cut the corporate income tax rate by half, eliminate capital taxes and remove sales taxes on capital goods. It should also make sure its fast-growing aboriginal population gets a good education and has opportunities to work for businesses that are attracted by a much more friendly regime.
Lorne Calvert is right to push for a special deal for equalization, but he would be wise to use the money to turn the province into Canada's Ireland. To do otherwise would be foolish.
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