Ontario Risks Losing ‘Fat Cat’ Status

OTTAWA — Ontario’s budget mirrors a grim economic outlook for 2008, but though the province is by far the biggest economy in Canada, its pain will largely remain contained within its borders, economists say.

Yesterday’s budget shows an economy at a standstill, driven to a halt by a stagnant export sector, a contraction in home building, deteriorating corporate profits and a lethargic labour market. Government spending will barely grow this year, and there will be no surplus to speak of.

While many economists believe the Ontario economy is hovering on the brink of recession, the provincial government projected real growth of 1.1 per cent this year, followed by a recovery to 2.1 per cent in 2009 and 2.7 per cent in 2010.

“The biggest risk [that the government’s numbers are too optimistic] is in 2009,” said Derek Burleton, director of economic studies at Toronto-Dominion Bank.

The province uses an average of private sector forecasts as a basis for its own forecast, but the private sector is quickly revising its expectations downward as trade with the United States falters.

Traditionally, a province with Ontario’s economic heft could drag down much of the country with it, by spreading its troubles in two key ways: through economic channels, and by cutting into the equalization payments.

This time around, the economic problems hampering Ontario’s growth are so tied to trade with the United States that the spillover beyond the trade sector will be limited, economists say, unless the U.S. downturn deepens significantly.

And changes to the equalization formula over the past few years mean that Ontario’s economic weight is no longer the key determinant for how much other provinces receive.

“Ontario is no longer king of the castle,” said equalization expert Tom Courchene, director of the Institute for Intergovernmental Relations at Queen’s University in Kingston. “It used to be that people would watch the Ontario budgets more than their own budgets, in terms of equalization. And now they’re probably watching Alberta’s oil revenues, instead of Ontario’s income level.”

The old equalization formula excluded the richest and poorest provinces from its calculations, and then dished out federal funds to bring the poorest up to same level of fiscal capacity as the average determined by five median provinces. In reality, Ontario, by its sheer size, usually determined the average. But now, Ottawa uses a 10-province formula to determine the average, diluting the sway of Ontario. The new formula also increases the importance of resource revenues to provincial economies.

As well, with the lags needed to calculate the complex equalization payments, Ontario’s weakness won’t affect the size of the pool of money until about three years from now, when the slowdown will likely be over, Mr. Courchene added.

At that time, it’s quite possible that the formula will put Ontario on the receiving end of equalization, and turn Newfoundland and Labrador into a contributor, he said.

“This Ontario hit won’t show up until three years from now … Ontario will likely be a have-not when the lag catches up,” he said. “Everyone still believes that Ontario is the fat cat of Confederation. That’s not the case any more.”

While the equalization formula has subdued fiscal contagion, economic contagion is also contained because of the nature of Ontario’s slowdown, economists said. The province’s problems are concentrated mainly in the trade sector, while the consumer side of the economy continues to fare well, said Pedro Atunes, director of forecasting for the Conference Board of Canada.

Triggered by a rising currency and compounded by a U.S. slump, output in Ontario’s wood, construction and manufacturing sectors is declining, as are jobs in those sectors, he said. The auto sector is heading into tougher times, too, as U.S. consumers hunker down.

But Canadian consumers are in good shape, and should be able to bolster Ontario’s services sector as long as the U.S. downturn doesn’t deepen significantly, he added.

Data released yesterday about consumers on both sides of the border are a case in point, he said. Consumer confidence in the U.S. plunged to its lowest level since 1973. In Canada, retail sales grew strongly in January, even in Ontario and Eastern Canada.

HEATHER SCOFFIELD

From Wednesday’s Globe and Mail

March 25, 2008 at 9:13 PM EDT

With files from reporter Kevin Carmichael in Ottawa

Workers offered yoga, PlayStations as companies face labour crunch in the West

14 hours ago

REGINA — It used to be that Christmas marked the time when employees might look to their boss for a bonus, but a growing labour shortage in Western Canada has prompted some businesses to offer extra goodies no matter the season.

Workers are being wooed with everything from pet insurance to PlayStations to yoga.

Twice a week, office staff at Scott Plastics Ltd. in Sidney, B.C., can slip away from the tensions of the day-to-day workplace and into a yoga class. It’s an idea that the company launched about a year ago to help keep workers happy.

“We started doing it just for a small group of office staff, really for a bit of break,” said Robin Richardson, Scott’s vice-president of operations. “Whilst they go out and have walks at their break time, I felt that some additional relaxation … was a good idea.”

“They seem to really enjoy it and the net result of it was after a while a number of the male office staff asked if they could join as well.”

It might seem like an odd incentive for a company that manufactures the Scotty range of sport fishing, marine, outdoor and firefighting equipment and makes custom injection moulding.

But Richardson said it’s been good for employees - and for business.

“We were basically looking for something that was going to be beneficial to them and at the same time basically probably improve the work performance. I think they’d all say that it does both,” he said.

It’s just one example of what a company is doing to help keep staff in a tight labour market.

The shortage of staff is “hitting hard right across the West,” said Laura Jones, vice-president for Western Canada for the Canadian Federation of Independent Business.

The federation estimates that almost 40 per cent of Saskatchewan employers had trouble finding workers last year. In Alberta the number rose to half.

The group recently asked small business owners in Manitoba, Saskatchewan, Alberta and British Columbia if they’ve done anything different to retain or attract employees over the past three years as a result of labour shortages.

More than 50 per cent said they had.

“I was floored, frankly, by how many people said yes,” Jones said from her Vancouver office. “It’s pretty neat some of the things they’ve tried.”

“Many are going beyond the obvious and doing things like signing bonuses or adding perks like golf trips, family days, dinners out.”

Jones said employees aren’t just looking for more money - they want things that enhance their quality of life.

“They are looking for things like ‘Can I bring my dog to work?’ and in some cases in a small business that’s possible.”

Yes, even Fluffy and Fido are getting attention. Home Depot, for example, offers pet insurance to its employees.

Other companies, like Regina-based NorthPoint Energy Solutions Inc., have stepped up with something more tangible. The subsidiary of SaskPower offered all 35 employees the choice of a PlayStation 3, a television or a GPS unit at the end of last year.

“Essentially people can look at that, they’ll probably have it for several years, and they’ll be able to take pride in saying, ‘My company gave that to me,’ ” said Grant Ring, NorthPoint’s chief executive officer.

“By and large, people get so little recognition in companies that I think the average person is surprised if they get a couple of good thank yous every so often.”

NorthPoint competes with companies outside of Saskatchewan across Canada and in the United States. Ring said he thinks the incentive makes a difference in helping to keep workers.

“People feel that they belong, that they can develop and grow within the company and that they’re appreciated,” he said.

“We’re not at all competing per se on bonus plans and other incentive plans; we just don’t have that in our structure. So what we want to do is show other ways that we can recognize our employees.”

While workers use the PlayStations, it’s employers who may have to up their game as the labour crunch grows.

Alberta’s government estimates that by 2016, the province could experience a shortage of up to 109,000 workers across all sectors. Saskatchewan Labour Minister Rob Norris said if his province’s economic boom continues on its current path, it will be short as many as 12,000 workers in just three to five years.

On the other hand, places hit hard by the loss of manufacturing jobs are trying to come up with ways to take advantage of the western shortage.

Eddie Francis, the mayor of Windsor, Ont., is touting a plan to help residents of his city commute to jobs in Western Canada. Francis wants mayors from Regina, Saskatoon, Edmonton and Calgary to put their heads together to develop a program to eliminate or reduce the cost of travel between the cities.

“If we’re able to do that, effectively what we’re doing is creating a shuttle where employees can go work .. then come back home on the weekend,” said Francis.

Francis called it “a win-win situation.” Western cities would get highly skilled workers and Windsor would benefit when they brought their paycheques home.

One day after floating the idea, Francis said he was inundated with calls from companies in Saskatchewan.

In the meantime, employers like Richardson in B.C. are concentrating on making work a little nicer for those workers they do have.

“If you’ve got a happier workplace, then you’re less likely to lose staff.”