Fraser Institute Praises NDP & Saskatchewan

Commentary, Taxation, Frontier Centre

A sometimes harsh critic of the NDP government is heaping it with praise for what it calls a historic transformation of economic policy. On Thursday, the conservative Fraser Institute think-tank released its 2007 report on the investment climate of Canadian provinces.

Saskatchewan ranked as having the third-best climate for investment, trailing only Alberta and British Columbia.

Jason Clemens, the Fraser Institute’s director of fiscal studies, said the province’s strong showing is due to changes in its income tax and corporate tax structure implemented by the NDP government in recent years.

“The personal income tax reforms that began in 2000 coupled with the critically important business tax cuts that were announced in the last budget, that period of economic policy change is probably the most important period in Saskatchewan’s economic history in the last 50 years,” he said in a telephone interview from Vancouver.

“People are now talking not only about B.C. and Alberta booming but it’s now Western Canada.”

The Fraser Institute and the province’s social democratic NDP government have often clashed in the past over issues such as public auto insurance, private health care, health waiting lists and the institute’s “Tax Freedom Day.”

But NDP Industry Minister Eric Cline said Wednesday he was pleased with the institute’s latest report, saying it validates much of what the government has been saying about Saskatchewan’s competitiveness.

“There is sometimes the mythology or perception that is out there about Saskatchewan and then there is the reality … the Saskatchewan economy has fundamentally changed,” he said in a telephone interview from Saskatoon.

“When the Fraser institute says this, although I don’t always agree with the Fraser Institute on every point, I do think people outside … tend to say ‘oh, there really is something different in Saskatchewan these days. It is significant to get this kind of third-party validation.”

The report is based on an index of seven criteria that surveys of investment managers and research determined were the most important in making a province attractive to investment. They include: corporate income tax, fiscal prudence, personal income tax, transportation infrastructure, corporate capital tax, labour market regulation and burden of regulation for businesses.

Saskatchewan ranked third on the corporate capital tax and personal income tax scale, fourth in business regulation and fifth on corporate income tax.

With the state of Saskatchewan’s highways a perennial political issue, provincial residents may be surprised to hear the province was rated first in terms of transportation infrastructure, which is based on rail, highway, air and seaport capacity.

“What Saskatchewan residents have to realize though is that that is equally true in almost every province. What we recognized when we started delving into the area of transportation is how weak the networks are generally across the province,” said Clemens.

But Clemens said that area of the report needs more work and Cline himself acknowledged the ranking is more a reflection of the amount of highway per capita, not its relative condition.

The Fraser Institute gives Saskatchewan the lowest mark of all 10 provinces in the area of labour market regulation, based on such criteria as the ease of union certification.

Saskatchewan also ranked seventh in terms of fiscal prudence, with Clemens suggesting the government has to put restraints on spending if it continues to cut taxes.

“I wouldn’t want to be too negative. I think today’s report and the study we’ve done is a very good news story for the people of Saskatchewan. And, I think, kudos to the provincial government for having the courage to undertake personal income tax cuts and business tax cuts. Particularly as in terms of political philosophy, the tax cuts implemented in last year’s budget are not normally associated with the government in power right now,” he said.

Cline said he disagrees with the Fraser Institute’s concept of the value of labour laws and as for spending, he pointed out the government continues to receive credit upgrades from bond rating agencies.

Saskatchewan Party Industry critic Lyle Stewart said the institute report was good news but the province’s strong showing was based on tax cuts the Opposition had been calling for years before they were implemented by the NDP.

“If they used all of our ideas they would probably be the best,” he said in an interview. Saskatchewan ranked fifth in the Fraser Institute’s investment climate report in 2006, the first year an empirical study was done.

In previous years when the report was based on the survey of investment managers, Saskatchewan usually ranked in the bottom three, said Clemens.