Response to last week’s column, direct and published was somewhat vehement. Some suggested bias, others suggested pending reward.

None debated fundamentals of the provincial budget or offered a situational alternative.

This week, we were treated to a federal budget. It was a beauty – tons of money for Quebec and a relative pittance for New Brunswick or indeed the other Maritime provinces.

The budget abandons Newfoundland and Nova Scotia agreements with the federal government that exempted offshore oil and gas royalties from the calculation of equalization benefits.

The provinces will receive $39 billion over the next seven years to address the so-called fiscal imbalance. In the first year alone, Quebec will receive an additional $2.9 billion over what it received in 2006-07 in social transfers and equalization payments, allowing Premier Jean Charest to announce an immediate $700 million tax cut.

Umm, I wonder if New Brunswick had received 10% of Quebec’s windfall (New Brunswick’s population is 10% of Quebec’s) whether Victor Boudreau might have been able to offer us a tax cut.

The Globe & Mail makes a wonderful case for Quebec’s endowment. “Quebec spends more per capita than its next-door neighbor.... on social programs. It maintains low daycare rates and provides extraordinarily generous breaks on tuition fees, even though they do nothing to improve access to university. All this leaves Quebec with higher taxes, a relatively underperforming economy and a chronic need for federal funds”.

In other words, they are a model of independence.

The federal budget favours the two central Canadian provinces and Alberta. They have enough seats to give Harper a majority government –damn the Atlantic Canadians and damn the rest of the west. This is a budget with electoral vision, a budget that seeks to purchase the affections of suburban, central Canadian voters with a $2,000 child tax credit (worth about $341) and $8.8 billion for urban transit and water treatment facilities.

The budget offers New Brunswick $26 million in additional equalization over last year, slightly less than the paltry $35 million offered to Aboriginal peoples and about three percent of the amount directed to Quebec. But don’t worry, there’s $3.1 billion for the military and $4.1 billion for foreign aid.

I wonder if New Brunswick’s self-sufficiency program would qualify for foreign aid. Oh, by the way there is $300 million for a cancer immunization program, $64 million for an anti-drug strategy and $612 million for a “patient-wait-time” guarantee trust, umm, a trust-fund to guarantee that hospital wait-times will be shorter. I wonder who will benefit from that one!

Now here’s a kicker! The federal budget promises action to preserve Canada’s natural beauty.

There’s $15 billion for projects that cut air pollution and greenhouse gas emissions but no targets to measure performance. There’s a promise to phase out the capital cost allowance for investment in Alberta’s oil sands by 2015 – in other words –the tar sand operators will be encouraged to pollute for the next eight years with impunity.

There’s $2 billion over seven years (that’s a measly $285 million a year) to support renewable fuel production but no mention of research and development to develop alternative energy technologies. There’s $22 million over two years for a law and order initiative to protect the environment. Oh, and there is a National Water Strategy worth $93 million over two years.

That will be used to improve the “quality of our waters in lakes, rivers and oceans”. Wow, we’re going to clean up our oceans in just two years with $93 million. The best part of the environmental budget is the $324 million dedicated over 10 years to patrol of our waters by the Canadian Coast Guard. I presume they will be searching for illegal emissions of underwater greenhouse gases.

Hidden in the Harper budget is a move to further decentralize power from the federal government to the provinces. Increasing transfers to the provinces (read Ontario and Quebec) further denigrates the balance between the federal and provincial governments.

Tom Axworthy, Chair of the Centre for the Study of Democracy at Queen’s University, opines that the provinces and the federal government have access to the same revenue sources, so not to worry. What he does not say is that most of the smaller provinces do not have access to a resource (tax) pool sufficient enough to fund programs that meet standards affordable in more populous provinces.

The national government of Australia retains 69% of all government revenues as compared to Canada with 44%. In the United States, the figure is 67% while in South Africa, it’s 95%. “Most federations allocate the largest percentage of revenues and expenditures to their national governments because they need the taxing and spending powers to influence the performance of their economies, to harmonize taxes and to redistribute income”.

The Harper budget does the opposite. It encourages tax disparity between the provinces, does nothing to stimulate the economy and distributes money primarily to those whose vote may be for sale.

By increasing transfers to the provinces, the Feds have made it more difficult for future governments to scale back those transfers in order to provide money for federal initiatives.

Automatic escalators have been built in to allow transfers to rise 3% a year starting in 2009/10 thus reducing Ottawa’s room to manoeuvre in the event of a crisis. The Harper government has spent virtually every available dime in their inherited surplus to buy votes.

After setting aside debt repayments of $3 billion for each of the next two years, this budget will reduce the surplus to a picayune $300 million a year, providing for a point zero, zero one percent (.001%) margin of error. That is one percent of one percent.

How would that make you feel in a time of financial crisis?

W.E. (Bill) Belliveau is a Shediac resident and Moncton business consultant. He can be contacted at bill.bellstrategic@nb.aibn.com Atlantic Insight is a published Blog inventory of opinion articles published weekly in New Brunswick's print media as written by W.E. (Bill) Belliveau, who is a resident of Shediac, New Brunswick, and small business owner, operating his Moncton-based marketing consultancy, Bell Strategic. He can be reached by e-mail at bill.bellstrategic@nb.aibn.com

Reaganomics or ''supply-side'' economics... is the general principle that taxes must always be reduced, independent of the effect on the deficit, because all taxes have disincentive effects?

This is a nonsense principle...” said University of Chicago economist Robert Lucas in the New York Times August 26 and August 28, 1981. Nonetheless, George Bush subscribes to this maxim today and so do Stephen Harper and Jeannot Volpé, interim Leader of the New Brunswick Conservative Party.

Keynesian economics (economist John Maynard Keynes) or demand-side economics is an alternative economic theory which advocates government intervention, or demand- side management of the economy to achieve full employment and stable prices. Supporters of Keynesian economics believe it is the government's job to smooth out the bumps in business cycles.

Interventions come in the form of government spending and tax breaks in order to stimulate the economy and government spending cuts, combined with tax hikes in good times, in order to curb inflation. The recent New Brunswick Budget mimics the Keynesian model

The distinction between supply-side and demand-side economics, taught in Economics 101, seldom makes it into media sound-bites.

• A demand-side cut rests on the Keynesian theory that public consumption spurs economic activity.
• Government puts money in people's hands, as a temporary measure, so that they'll spend it.
• A supply-side cut sees business investment as the key to growth.

The immediate effects of a tax cut are generally, a decrease in the real income of the government and an increase in the real income of those whose tax rate has been lowered.

In the longer term, however, the effect on government income may be reversed, depending on the response that tax-payers make. Supply-siders argue that tax cuts for corporations and wealthy individuals provide them with an incentive for investments which stimulate so much economic activity that even at the lower rate more net tax revenue will be collected.

Huge and recent tax cuts in the United States benefit the wealthy but the cuts combined with increased military spending are driving the U.S. towards bankruptcy or at the very least towards a circumstance where countries like China (a huge holder of U.S. debt) will be able to manipulate the economic fortunes of the country.

Consider these tax-cutting scenarios:

Government cuts its expenditures and taxpayers increase their spending, using their tax-savings to purchase goods and services within the province.

• The problem here is that most of New Brunswick’s goods and many of its services are imported from outside the province so the spending of tax savings doesn’t fully return to the province.
• $100 from an income tax saving used to purchase goods manufactured in Japan, purchased from a national or international retailer generates an income contribution for a local worker (let’s say on average about $10) and $8.00 for the province in direct sales tax. You would have to grow sales volumes by more than 500% to recover the full cost of a tax-cut and that would be hard to do in a province saddled with stalled growth in population.

Government cuts taxes but maintains its expenditure levels (thus incurring more debt), and taxpayers increase their expenditures, spending their tax-savings on goods and services sourced from within the province.

• The problem is that New Brunswick does not produce sufficient goods to take advantage of this scenario.
• A government making tax cuts and incurring debt usually hopes that the economic stimulus of the tax cut will be large enough to produce a long-term increase in tax revenues, allowing the debt to be paid off in the future.
• If that does not occur, then the government can be left with a severe budgetary crisis.
• That was the New Brunswick of December 2006, according to international accounting firm Grant Thornton.
• The counter-point is that tax-cuts attract outside investment – maybe so, but the difference between last week’s tax-rate and this week’s tax rate will not fundamentally influence a legitimate investment decision.

If government reduces expenditures to accommodate tax cuts, there must necessarily be reductions in government services and there may also be a reduction of the government's capacity to redistribute income to reduce income inequalities.

Critics of tax cuts argue that this leads to a fall in overall economic welfare because the effects fall disproportionately on those with the lowest incomes.

This week's Provincial Budget has drawn predictable, sometimes hysterical reactions from elements of the business-speak community and the media – shock that a new government would initiate tax increases after ten years of tax-cutting. Critics ignore the warnings of Grant Thornton that previous tax cuts were unsustainable and would produce a potential deficit of $300 to $400 million that would grow exponentially over the next few years.

Sprinkled through the Budget speech, are references to self-sufficiency - the capacity to manage one’s own affairs and provide for one's self. In my view, balanced budgets and self-sufficiency are inter-dependent. You can’t be one without the other. Finance Minister Boudreau’s budget is not perfect but it is responsible. It’s hard-nosed but sensitive to the most needy in our province and it allows us to realistically contemplate a self-sufficient future.

If I have a criticism of the Budget, it would be that it taxes income rather than spending power.

I would have added a point or two to the provincial sales tax rather than to income tax. People and businesses generating income and profits are more able to pay sales tax. Sales tax also has the added value of generating income from non-residents, thereby expanding the tax-base.

The front-line critics of tax increases are the first people to criticize deficit budgets. They subscribe to the thesis that tax-cuts are more important than responsible management because they "stimulate" the market.

The United States has created a monumental deficit through tax-cuts and increased (military) spending. We don’t need to follow their lead.

W.E. (Bill) Belliveau is a Shediac resident and Moncton business consultant. He can be contacted at bill.bellstrategic@nb.aibn.com Atlantic Insight is a published Blog inventory of opinion articles published weekly in New Brunswick's print media as written by W.E. (Bill) Belliveau, who is a resident of Shediac, New Brunswick, and small business owner, operating his Moncton-based marketing consultancy, Bell Strategic. He can be reached by e-mail at bill.bellstrategic@nb.aibn.com

This past week saw demolition of the old Shediac Outfitters Building.

Now ordinarily that might escape the notice of most people except for one thing – it used to be the Shediac Post Office. I’m not sure when it was built but likely sometime in the 1950s or maybe it was the sixties. It wasn’t a heritage building but I’m certain it had some lush secrets hidden in its walls.

What’s most disturbing is that apparently it’s going to be replaced by a wonderful Dollarama store. Now here we have a prime, downtown building space in a beautiful resort town and all we can do with it is put up a Dollarama – maybe it will be the new showcase for the Town’s exotic frog collection.

Dollarama is a franchised retail chain with more than 400 stores in Canada. Most of them are in Quebec and their head office is in Montreal. A good number of their stores are located on sites formerly occupied by the now defunct Bi-Way stores, a chain of Canadian discount retailers. Few of these Dollarama stores sit on the gravestone of a deceased Post Office. A little over two years ago, in November 2004, the firm was sold to a U.S. equity firm in Boston for a billion dollars U.S.
In June 2006, the Financial Post reported that Dollarama was undergoing a major transformation to bulk up for a possible re-sale. Earlier in the year, Dollarama had posted revenue of $743-million boosted by 51 new store openings. The company has averaged 31 new stores per year since 2000 and is projecting fifty new stores a year for the next three years.

They occupy some 3.7 million square feet of selling space in this Country and command an estimated 40% plus market share of dollar store sales in Canada.

The company has succeeded by being one of the earliest Canadian retailers to extensively source product from the Far East (India, China, Taiwan and other low wage countries), offering merchandise that appears to be a great deal for the price. While other dollar-store operators went the franchise route, now billionaire and former owner Larry Rossy retained corporate ownership of his stores and developed his own sourcing and distribution capabilities.

According to Toronto-based retail consultant Len Kubas "Rossy used to say, 'I don't need cash registers, all I need is a box that holds dollars". Judging by the absence of debit card scanners, price tags and bar codes in his stores, one might assume success, comes from cheap labour and shelves stocked with low-cost junk.

Mr. Rossy, the grandson of a Syrian-born peddler, who ran a modest chain of variety stores in Quebec before getting into the dollar store business, is working for Bain Capital Partners.

According to the Financial Post, the Boston-based buyout firm paid him $1.03-billion for 80% of Dollarama in November, 2004, and then saddled the retailer with more than $600-million in long-term debt from the leveraged buyout.

According to its Securities and Exchange Commission filing, there is one dollar store for every 18,000 people in the United States, and one for every 26,7000 in Canada. That implies there is room for another 729 dollar stores in Canada if we want to reach the U.S. store-to-people ratio.

Wow! Instead of being overrun by Wal-Mart, Shediac will be able to boast its Main Street Dollarama store.

So why should we care about a Dollarama store?

Well, I for one care because apparently this discounter is going to occupy a prime landmark site in downtown Shediac across Main Street from the town park and site of the old Shediac Inn.

This is a place frequented by tourists, artists and residents. It should be a place for upscale heritage development not home to a discount retailer. I’m not aware of any public discussion concerning permission to demolish the old Post Office building or any public conversation regarding permits for the construction of a low-end retail outlet in a spot that by virtue of its location, visibility and traffic will come to characterize the town as a down-scale retail destination rather than a high-end resort town for tourists and visitors.

This unhappy event comes amidst the noise from chambers of Town Council this week concerning the passing of Shediac’s Town Manager and the importation of exotic frogs to populate one of the Town’s most important heritage sites – the Pascal Poirier House.

The Pascal Poirier House is the oldest house in Shediac. The one and a half storey wood frame house was the birthplace and home of the great Acadian patriot, Pascal Poirier (1852-1933). In 1885, he was chosen by Prime Minister John A. Macdonald to serve as the first Acadian Senator in Canada.

For more than 150 years, the house remained in the Poirier family. When the town of Shediac acquired the house to preserve it as an historical museum, there was no mention of turning it into an exotic, Amazonian zoo. A fine dining establishment or a mini-reenactment theatre would be more appropriate.

Most Dollarama stores stand ugly in the corner of a shopping mall. If we have to live with one, full Monty in downtown Shediac, surely we could demand that its external facade replicate the character and values of the Pascal Poirier House or the original Shediac Inn.

That’s the least our amphibian-loving Council could do for the Town.

The standard for renovation and reconstruction has been set by the owners and renovators of the Poirier House, the Tait House, Bogarts, the Caisse Populaire, Restaurant Gabrièle, Greenhouse on Main, the Old Fisherman, the new optical shop on East Main and some of the restored heritage properties along Main.

We should demand nothing less from our esteemed Dollarama group.

W.E. (Bill) Belliveau is a Shediac resident and Moncton business consultant. He can be contacted at bill.bellstrategic@nb.aibn.com Atlantic Insight is a published Blog inventory of opinion articles published weekly in New Brunswick's print media as written by W.E. (Bill) Belliveau, who is a resident of Shediac, New Brunswick, and small business owner, operating his Moncton-based marketing consultancy, Bell Strategic. He can be reached by e-mail at bill.bellstrategic@nb.aibn.com

In writing about our beer wars last week, I was reminded by an ardent reader that Ontario/Halifax brewer Sleeman Breweries is no longer Canadian owned.

This past October, it was sold to the Japanese firm Sapporo Holdings Ltd. owners of Sapporo Breweries. Sapporo’s businesses generate close to $4 billion U.S. a year in sales so they’re not little guys.

With this information, I decided to dig a little deeper into the beer industry.

InBev, the Belgian amalgam of Interbrew and Brazilian brewer AmBev together with John Labatt Ltd. is the largest brewer in the world with more than 200 brands world-wide. Anheuser Busch, owners of the Labatt-brewed Budweiser brand is number two in the world.

Coors-Molson is the world’s fifth largest brewery. Three weeks ago, InBev announced that Labatt had entered into an agreement to purchase Ontario brewer Lakeport.

Hamilton’s Lakeport Brewing produces nine proprietary beer brands, two of which, Lakeport Honey Lager and Lakeport Pilsner, are among the top selling brands in the Province of Ontario.

I don’t know what market share Lakeport has but this purchase will likely make Labatt, Canada’s largest brewer. They certainly don’t need government protection in the form of tariff shields nor does Japanese owned Sleeman Breweries need such protection.

Now here’s the twist.

I’m told by another reader that Molson has been granted tariff-free entry to the Nova Scotia market if they ship product directly from their Montreal plant to Nova Scotia. The $1.32 per case tariff would only be levied against products shipped to Nova Scotia from Molson’s Moncton plant. Wow, that’s heavy, if it’s true.

Last week, I wondered why Molson would spend $35 million to build a relatively small brewery in Moncton (capacity 250,000 hectolitres) to gain “local brewer status in three small provinces.

Population growth has stalled in this region. The beer market is shrinking as the population gets older and more health-conscious, cuts down on its beer-drinking and turns to alternative drinks like wine, bottled water and fruit drinks.

Add the fact that the world’s beer industry is consolidating, not decentralizing. Ten companies own close to 50% of the global beer market. In Western Europe and North America, demand for beer is flat or declining as lifestyle trends encourage a shift away from beer and stricter drink-driving laws reduce consumption out of home.

Growth is most prominent in developing countries, especially in China which has overtaken the United States as the largest beer market in the world.

In North America, value sales are growing faster than volume sales, primarily due to the market success of premium and imported specialty beers at the expense of traditional products. Labatt spokesman Jean Lepine has been quoted as saying there is a lot more brewing capacity in the Maritimes than there is consumer demand. It doesn’t sound like a growth or an opportunity market to me.

Molson was granted local brewer status in New Brunswick at the time of its Moncton plant announcement in 2004 and before the plant was constructed. That grant saves them $2.64 a case and is worth an estimated $2.5 million a year. Two and a half years later, its Moncton plant is still not operational and its opening could be delayed until September.

Local brewer status in Nova Scotia would save Molson $1.32 a case and be worth about $1 million a year. It would appear that combined savings in the two provinces would pay back the plant investment in about ten years.

However, if Nova Scotia insists on charging the $1.32 handling fee on Molson products, payback of the plant investment could be delayed by another five years. That’s a long time in today’s beer business.

I’ve been racking my brain trying to figure out what’s really going on in the minds of Nova
Scotia’s politicians. Some have suggested that it is payback time for the Province because it didn’t win the bidding war for Molson’s Maritime production facility. Premier MacDonald says it’s about the need to protect his micro breweries.

The Canadian Beer Index lists five microbreweries in Nova Scotia (one has closed) including the Maritime Beer Company (Japanese owned Sleeman) and Oland Breweries (odd given the fact it is owned by Labatt). We have two independent micro-breweries in New Brunswick, one in Moncton, the Pumphouse Brewery.

Halifax’s Propeller Microbrewery distributes products through 85 licensed outlets in Nova Scotia and has limited distribution of its popular India Pale Ale in New Brunswick. One might assume it would like to have “local brewer” status in this Province. One might also assume that Moncton’s Pumphouse Brewery has its eyes on the Nova Scotia market.

It is my understanding that Sleeman was granted "local brewer" status in 2002 but newspaper reports suggest the brewery waved that status because it required construction of a distribution warehouse in New Brunswick.

As a result of its waiver, New Brunswick is charging Sleeman a $2.64 “distribution fee” as distinct from the $2.64 import fee charged to outside brewers. Molson does not pay that fee on products it brings into New Brunswick from Montreal.

I suspect that Nova Scotia is using Molson’s circumstance to leverage exemption for Sleeman in New Brunswick - good bargaining ploy.If you put on our Canadiana hat, you might argue that the three multi-national breweries (Labatt, Sleeman and Molson) should pay distribution fees in both provinces.

However, in a free trade environment, that doesn’t make sense.

In my opinion, there should be no trade barriers on beer trade within the Maritimes and there should be no trade barriers in Canada for Canadian owned breweries.

A free trade zone in the Maritimes for multi-nationals Labatt, Molson and Sleeman should translate to unfettered access to the Ontario market for Moosehead and the region’s microbreweries.

W.E. (Bill) Belliveau is a Shediac resident and Moncton business consultant. He can be contacted at bill.bellstrategic@nb.aibn.com Atlantic Insight is a published Blog inventory of opinion articles published weekly in New Brunswick's print media as written by W.E. (Bill) Belliveau, who is a resident of Shediac, New Brunswick, and small business owner, operating his Moncton-based marketing consultancy, Bell Strategic. He can be reached by e-mail at bill.bellstrategic@nb.aibn.com