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A tiny spark of hope in another soul-crushing round of CRTC hearings: Peter Menzies

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From the MacDonald Laurier Institute

By Peter Menzies

It was as if the internet — the most democratizing, weird, wonderful, frightening and important technological development in communications since the printing press — had never been invented.

Earlier this month, halfway through answering a question from the House of Commons Industry committee, Annette Verschusen abruptly removed her headphones, stood up, unplugged, and walked out.

It was shocking.

And yet, in a rascally sort of way, I admired it. Yes, yes, the former head of Home Depot Canada and the chancellor of Cape Breton University recently had to resign as chair of Sustainable Development Technology Canada and is under investigation by the Ethics Commissioner for approving hundreds of thousands of dollars in Green Fund grants to her own company, NRStor Inc. But still, who among us hasn’t fantasized about acting out in similar fashion when the blinding light of revelation strikes and it suddenly dawns on you: “WTF am I even doing here? I don’t need this shit.”

And, in your fantasy, you just get up and leave. Like Verschusen did.

I confess I once harboured a similar impulse towards the end of an arduous Canadian Radio-television and Telecommunications Commission (CRTC) hearing along the lines of the three-week-long epic that concluded Dec. 8.

Part of my despair was likely due to being tired. Everyone who appears before a CRTC panel (I was a Commissioner for a decade) deserves one’s full attention and there are thousands of pages of required reading in the weeks leading up to and in the evenings during a hearing.

Then there’s the hearing room. Seemingly designed by Dante Alighieri to sap the will to live from those condemned to work within it, the room’s about the size of an elementary school gym. There are no windows or art and the ambiance complements the soulless mid-century Soviet architectural style of Gatineau’s public buildings.

But — and I hesitate to confess this — it was the relentless rent-seeking that made my mind wander during breaks and impishly imagine what would happen if I just unplugged my laptop, got up, walked out through the crowds, got a cab straight to the airport and never came back. Because eventually, most CRTC hearings devolve into two broad categories. One is a series of presentations from large, protected and profitable companies explaining the dire consequences if they don’t get their way. The other is a seemingly endless parade of well-meaning groups begging for the large companies’ money lest their roles as cultural saviours are diminished. It’s predictably tiresome, tedious and exhausting. But the stakeholders know that commissioners come and go on a regular basis, so no cause to worry about them getting wise to the game.

I was reminded of that inappropriate thought while monitoring the final week of this most recent hearing. When I wasn’t watching, I was reading transcripts and experiencing it all in a mildly PTSDish sort of way.

This hearing was the first of three scheduled to implement the Online Streaming Act (Bill C-11) which amended the Broadcasting Act for the first time since 1991 in order to “modernize” it by — absurdly, in my view — defining the internet as broadcasting and putting it lock, stock and barrel under the authority of the CRTC, which was first formed in 1968 to make sure Anne Murray and Terry Jacks got fair play on the radio airwaves.

This first phase — in which offshore streamers such as Netflix and Disney+ made their regulatory debut — was supposed to be about three things:

  • Defining the cutoff line — $10 million, $25 million or $50 million in annual revenue — the CRTC would use to study which companies must buck up and fund Canadian content;
  • Deciding how much those companies would have to pay;
  • Determining how many different funds should get the loot and how many groups would be involved — BIPOC, Indigenous, LGBTQ2S, etc.

It wasn’t the debilitating boredom of it all that was the most difficult to overcome. Nor was it the acronym-laden banter between the panel and stakeholders that rendered the discourse incomprehensible to ordinary Canadians. And while the manner in which consumers’ interests were disregarded was beyond frustrating, that wasn’t the worst part.

The seriously soul-crushing aspect was that this hearing looked, sounded and felt exactly like CRTC broadcasting hearings have looked, sounded and felt for 30 years.

It was as if the internet — the most democratizing, weird, wonderful, frightening and important technological development in communications since the printing press — had never been invented.

It was a funereal procession of grim-faced presenters from large, often outrageously profitable domestic companies involved in providing telephone, mobile, internet, cable and broadcasting crying woe are we, declaring the industry to be in “crisis,” demanding “urgent” relief from their regulatory burdens and threatening the jobs of thousands of workers should they not get their way. They even got the ball rolling on a whole new fund for local news production lest democracy die. Because, without them, of course it will.

This was followed by a chorus line of vested interests explaining how important it is for the regulator to ensure lotsa cash flows in their direction lest the nation’s creative aesthetic dies under the jackboot of American cultural imperialism. And — OMG! — whatever happens don’t make me have to move to Hollywood. You know, like poor old Ryan Reynolds did.

There were, to be fair, bright parts when the companies and workers that have built success on the internet politely explained, with respect, that what the CRTC was talking about makes no sense in 2023. None whatsoever. Some even begged the panel of Commissioners to please “do no harm.”

Welcome as something — anything — “modern” was during what otherwise was a bad acid flashback to decades past, it was not enough to revive any sense of optimism. At least not until YouTuber J.J. McCullough — the penultimate presenter — showed up.

In words everyone can understand, he said that we are in “a time when there’s a huge thriving sort of forward‑looking modern youthful wing of the Canadian cultural economy and cultural space in the form of online content creators who are often very entrepreneurial, very self‑directed people that have started from very little and have become very successful.”

And that there is concern with “the idea that those people are perhaps in some way like a problem that now needs to be solved in order to sort of subsidize people that, you know, god bless them, are sort of clinging to perhaps a dream of success in a medium that there just isn’t market or public demand for any more.”

It offered a small flicker of hope that, somehow, the 21st century and all its possibilities might yet survive the CRTC’s smothering embrace.

Then again, as the saying goes, it’s the hope that kills you.

Peter Menzies is a senior fellow with the Macdonald-Laurier Institute, past vice-chair of the CRTC and a former newspaper publisher.

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Business

Broken ‘equalization’ program bad for all provinces

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From the Fraser Institute

By Alex Whalen  and Tegan Hill

Back in the summer at a meeting in Halifax, several provincial premiers discussed a lawsuit meant to force the federal government to make changes to Canada’s equalization program. The suit—filed by Newfoundland and Labrador and backed by British Columbia, Saskatchewan and Alberta—effectively argues that the current formula isn’t fair. But while the question of “fairness” can be subjective, its clear the equalization program is broken.

In theory, the program equalizes the ability of provinces to deliver reasonably comparable services at a reasonably comparable level of taxation. Any province’s ability to pay is based on its “fiscal capacity”—that is, its ability to raise revenue.

This year, equalization payments will total a projected $25.3 billion with all provinces except B.C., Alberta and Saskatchewan to receive some money. Whether due to higher incomes, higher employment or other factors, these three provinces have a greater ability to collect government revenue so they will not receive equalization.

However, contrary to the intent of the program, as recently as 2021, equalization program costs increased despite a decline in the fiscal capacity of oil-producing provinces such as Alberta, Saskatchewan, and Newfoundland and Labrador. In other words, the fiscal capacity gap among provinces was shrinking, yet recipient provinces still received a larger equalization payment.

Why? Because a “fixed-growth rule,” introduced by the Harper government in 2009, ensures that payments grow roughly in line with the economy—even if the gap between richer and poorer provinces shrinks. The result? Total equalization payments (before adjusting for inflation) increased by 19 per cent between 2015/16 and 2020/21 despite the gap in fiscal capacities between provinces shrinking during this time.

Moreover, the structure of the equalization program is also causing problems, even for recipient provinces, because it generates strong disincentives to natural resource development and the resulting economic growth because the program “claws back” equalization dollars when provinces raise revenue from natural resource development. Despite some changes to reduce this problem, one study estimated that a recipient province wishing to increase its natural resource revenues by a modest 10 per cent could face up to a 97 per cent claw back in equalization payments.

Put simply, provinces that generally do not receive equalization such as Alberta, B.C. and Saskatchewan have been punished for developing their resources, whereas recipient provinces such as Quebec and in the Maritimes have been rewarded for not developing theirs.

Finally, the current program design also encourages recipient provinces to maintain high personal and business income tax rates. While higher tax rates can reduce the incentive to work, invest and be productive, they also raise the national standard average tax rate, which is used in the equalization allocation formula. Therefore, provinces are incentivized to maintain high and economically damaging tax rates to maximize equalization payments.

Unless premiers push for reforms that will improve economic incentives and contain program costs, all provinces—recipient and non-recipient—will suffer the consequences.

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Alberta

Alberta’s fiscal update projects budget surplus, but fiscal fortunes could quickly turn

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From the Fraser Institute

By Tegan Hill

According to the recent mid-year update tabled Thursday, the Smith government projects a $4.6 billion surplus in 2024/25, up from the $2.9 billion surplus projected just a few months ago. Despite the good news, Premier Smith must reduce spending to avoid budget deficits.

The fiscal update projects resource revenue of $20.3 billion in 2024/25. Today’s relatively high—but very volatile—resource revenue (including oil and gas royalties) is helping finance today’s spending and maintain a balanced budget. But it will not last forever.

For perspective, in just the last decade the Alberta government’s annual resource revenue has been as low as $2.8 billion (2015/16) and as high as $25.2 billion (2022/23).

And while the resource revenue rollercoaster is currently in Alberta’s favor, Finance Minister Nate Horner acknowledges that “risks are on the rise” as oil prices have dropped considerably and forecasters are projecting downward pressure on prices—all of which impacts resource revenue.

In fact, the government’s own estimates show a $1 change in oil prices results in an estimated $630 million revenue swing. So while the Smith government plans to maintain a surplus in 2024/25, a small change in oil prices could quickly plunge Alberta back into deficit. Premier Smith has warned that her government may fall into a budget deficit this fiscal year.

This should come as no surprise. Alberta’s been on the resource revenue rollercoaster for decades. Successive governments have increased spending during the good times of high resource revenue, but failed to rein in spending when resource revenues fell.

Previous research has shown that, in Alberta, a $1 increase in resource revenue is associated with an estimated 56-cent increase in program spending the following fiscal year (on a per-person, inflation-adjusted basis). However, a decline in resource revenue is not similarly associated with a reduction in program spending. This pattern has led to historically high levels of government spending—and budget deficits—even in more recent years.

Consider this: If this fiscal year the Smith government received an average level of resource revenue (based on levels over the last 10 years), it would receive approximately $13,000 per Albertan. Yet the government plans to spend nearly $15,000 per Albertan this fiscal year (after adjusting for inflation). That’s a huge gap of roughly $2,000—and it means the government is continuing to take big risks with the provincial budget.

Of course, if the government falls back into deficit there are implications for everyday Albertans.

When the government runs a deficit, it accumulates debt, which Albertans must pay to service. In 2024/25, the government’s debt interest payments will cost each Albertan nearly $650. That’s largely because, despite running surpluses over the last few years, Albertans are still paying for debt accumulated during the most recent string of deficits from 2008/09 to 2020/21 (excluding 2014/15), which only ended when the government enjoyed an unexpected windfall in resource revenue in 2021/22.

According to Thursday’s mid-year fiscal update, Alberta’s finances continue to be at risk. To avoid deficits, the Smith government should meaningfully reduce spending so that it’s aligned with more reliable, stable levels of revenue.

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