As I gaze into my economic crystal ball the fog is starting to clear on the Ottawa outlook for the next two years as both the Federal and Provincial (Ontario) budgets draw near.
The most immediate impact on Ottawa it is becoming increasingly clear is the federal level job cuts are coming. The budget announcement has been pushed out until April ... IMHO to prepare the necessary paperwork and options for workforce adjustment that will happen. The level of cuts will vary by department; however, the reduction in force will vary from 10% to 25% in the federal civil service. There is a report from the left leaning Centre for Policy Alternatives “The cuts behind the curtain” that delves into various scenarios regarding the details of how the cuts will be made.
Federal civil service cuts will affect Ottawa on a number of fronts. First and foremost will be the impact on the people displaced by the downsizing. The vast majority of these people will be knowledge workers with significant skills and talent. The challenge for Ottawa will be to retain these skilled people. Alberta beckons with high salaries a hunger for educated people and a great quality of life. Ottawa can easily match the quality of life aspects, however, where in the 1993 federal government cuts by Paul Martin Ottawa had a technology sector with a voracious appetite to absorb talent ... that does not exist in 2012. Ottawa’s tech sector while rebounding does not have anywhere near the capacity to absorb the number of people being displaced. A key challenge for Ottawa in the short term will be to retain these workers.
Also on the near term horizon is the looming prospect of an even more significant cut to the provincial budget ... rumours of up to 30%. The Drummond Report outlines 362 recommendations that if implemented will enable Ontario to meet its deficit reduction targets without a tax increase. The reality is not all of the 362 recommendations will be implemented and therefore there will be new taxes put in place.
IMHO there are some positive aspects to all of this in that the government is diligently looking for opportunities to save money without impacting service. There is talk of eliminating $345M in subsidies to horse track racing in Ontario ... the more of these subsidy boondoggles they can find the better in my opinion.
Chapter 11 of the Drummond Report is dedicated to Business Support ... my key take away from reading this section is that the Innovation Ecosystem in Ontario will be shifting from job creation to productivity. This is a significant paradigm shift and I am somewhat unclear on what “job creation to productivity” means but it sounds like far less direct support for business. The concern would be adding more business taxes on an already sputtering economy will limit or even reverse any economic growth. The second aspect of this I find somewhat concerning was talk of removing a $15M subsidy to buy Senators hockey tickets. Which on the surface sounds good but, if you consider the value of the Senators to the Ottawa community the loss of the organization could take much more than the $15M out of the local economy. We live in interesting times.
Short term outlook: 2012 will be a challenging year for Ottawa on the human capital front
Mid-term outlook: - 2013 will be more challenging for Ottawa than 2012 o Transfers from the province will be significantly reduced o The City of Ottawa will need to implement an austerity budget
Long term prognosis - Depends most on how the city deals with the short term
“once we understand nature's transformative powers, we see that it is our powerful ally, not a force to feared our subdued." Thomas Kuhn
Next Post – Surfing in a Tsunami or more importantly finding the opportunities ... If life gives you lemons make lemonade.
- Ian Graham