THE BOTTOM LINE
All Eyes On
GOVERNMENT SPENDING
BY PAUL MARTIN
Keynesian economic theory, a widely recognized mod-el
embraced by many in the industrial world, calls for
government to act as a stimulant – to spend – in tough
times and to withdraw from the economy when times are good. And
while often governments find it difficult to pull back during buoyant
periods, they are up to the job on the spending side.
Saskatchewan is a case in point.
Government capital spending, which is also known as invest-ment,
through the expansionary period of 2004 to 2014 grew sig-nificantly,
well ahead of inflation. Of course, there were legitimate
reasons for that course of action. It came after a period of stagnation
when government revenues barely met operating expenditures with
little if anything left over for capital renewal. In short, we lived off
depreciation for much of the ‘90s and the first few years of this cen-tury.
Much of the boom period was “catch-up” time as the govern-ment
invested in updating capital assets that had gone waiting due
to fiscal realities in the previous decade. Coupled with that catch-up
was the need for investment to meet expansion needs – water and
sewer, roads and infrastructure to accommodate the 15 per cent in-crease
in population that highlighted the first decade and a half of
21st century.
But, what goes up must come down, and along came the down-side
of the commodity cycle. Oil and potash prices weakened as
slowing global demand compounded excess capacity that resulted
from the expansion of the resource-extraction system. New oil wells,
new mines and expansion of existing mines – while attracting bil-lions
in fresh capital – produced excess capacity that will take time
to work through.
With the capital spending binge largely over – most of the mines
have been updated and a couple are still under construction or
nearing the production stage, so we are on the backside of the in-vestment
wave – all eyes turn to government spending.
John Maynard Keynes would be proud of the latest Saskatchewan
numbers on the capital investment front. They show a retrenchment
by the private sector and the government stepping in to fill the void,
ensuring his concept of aggregate demand – that all sectors have a
role to play in bolstering economic performance. When one is up,
the other is down, and so on.
According to Statistics Canada’s figures on non-residential in-vestment
or capital deployment in the first half of this year,
Saskatchewan’s commercial sector contribution declined by just
over eight per cent and the industrial component reported a con-traction
of 14 per cent compared to the previous year.
Government – or institutional – spending on assets rose in the
same period by 90 per cent. Some of this was schools and similar
areas, but a big chunk was basic infrastructure, such as roads and
highways, which are critical to the economic health of a province
that relies more heavily on trade than any other.
In large measure, this has helped buffer the provincial economy
against the downturn in commodity prices and eased recessionary
forces. Most economists are now saying Saskatchewan’s economy
contracted 1.5 per cent in 2015, and will experience a more modest
reduction of roughly a half point in 2016 before rebounding signifi-cantly
– improving by more than two percentage points compared
to this year – in 2017.
That is considerably better than Alberta’s performance over the
same period but, more importantly, is a solid reminder that infra-structure
investment can be a strong catalyst in economy building,
helping to fill the valleys in difficult times.
With the capital
spending binge largely
over, all eyes turn to
government spending.
DAVID CARILLET / SHUTTERSTOCK.COM
60 Think BIG | Quarter 4 2016 | saskheavy.ca
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