Lasting Prosperity Within Reach For Saskatchewan: TD Economics



    But "heavy lifting remains" as province confronts an array of challenges

    Key findings of the Saskatchewan report will be delivered by TD's Chief
    Economist, Don Drummond, at two luncheon (12 noon to 1:15 pm) addresses:
    Regina Chamber of Commerce (June 4) and Saskatoon Chamber of Commerce
    (June 5). He is available to media following both speeches.

    REGINA, June 4 /CNW/ - Economists from TD Bank believe Saskatchewan has
never been in a better position to enjoy long-term prosperity. In a report
published today, co-authors Don Drummond and Derek Burleton examine the
province's opportunities and challenges for growth.
    "The dream of lasting prosperity is clearly within reach but a lot of the
heavy lifting remains," said Mr. Drummond, TD's Chief Economist, who was at
the Regina Chamber of Commerce to launch the TD Economics report. "The
province faces an array of challenges such as aging infrastructure, skills
shortages and poverty. Given the government's limited resources, it's
important to maintain realistic expectations."

    Saska-boom

    Key indicators point to a soaring economy. Saskatchewan leads all other
Canadian provinces in terms of population gains, retail sales, international
exports, total building permits, housing starts and resale home prices.
    Growth is expected to outpace the rest of Canada over the 2008-10
forecast period. The unemployment rate will fall to around 3.5 percent, well
below the national level of 6-6.5 percent. New job opportunities will also
attract a net inflow of residents. And while growth in home prices is likely
to taper off from its torrid pace in 2007 and 2008, price gains are expected
to average a still-brisk 10 percent per year in 2009-10.

    The world's 'commodity super store'

    The province's rising fortunes are largely being fuelled by global demand
for its commodities. An abundant and diversified array of resources including
uranium, gold and base metals in the north; oil and gas, potash, coal and
diamonds in the south, as well as timber throughout the province are all in
demand.
    It would be difficult to overstate the importance of the province's
resource sector. Its combined activities represent 21 percent of
Saskatchewan's economy. In 2007, the sector employed 50,000 people and
contributed $4 billion to capital spending. Non-renewable resource industries
raised $2 billion in direct royalties to Saskatchewan's government in fiscal
2007-08.
    Equally important, surging resource markets are breathing new life into
many communities right across the province. All regions have recorded gains in
employment since 2003, led by Central-east (Yorkton and Melville) with a 10
percent rise and Central-west (Saskatoon and Battleford) with a 9 percent
rise.
    Canada is also a prime beneficiary. Saskatchewan racked up a merchandise
trade surplus of $9 billion in 2007, representing about one-fifth of Canada's
overall trade surplus.
    Saskatchewan's "wheat economy" is also experiencing strong upward trend
in grain and crop prices - albeit with fluctuations -- as annual consumption
outpaces supply. Moreover, US plans to spur ethanol and bio-diesel production
have increased acreage to corn at the expense of wheat and other crops,
driving up longer-term price expectations for many of the province's
agri-products.
    However soaring costs for fertilizer, transportation and energy costs
have held back growth in farm incomes. In the livestock industry, where prices
have not risen as rapidly, the squeeze has been particularly noticeable.

    Different this time around

    Saskatchewan has recorded commodity-driven booms in the 1920s, 1950s and
1970s. All, however, proved temporary in nature.
    But the make-up of the province's current boom is different. Mr. Drummond
said, "While the provincial economy is heavily weighted in resources, the
sector's diversity is unrivalled in Canada and matched by few jurisdictions
around the world."
    This enables Saskatchewan to better weather price fluctuations in
commodities. Rallies, for instance, in some markets such as crude oil and
metals are likely to encounter headwinds in the latter half of 2008. There may
be some pull-back in prices but they will remain quite high. (It is very
unlikely to see the kind of price collapse that ended previous Saskatchewan
commodity booms.) Moreover a pull-back in these areas will be counterbalanced
by strength elsewhere, notably potash.
    However the province's economic revival cannot be simply attributed to
external forces, according to Mr. Drummond. "Tough measures to improve the
province's business climate were made over the past 10-15 years - some that
required huge sacrifices by the public. The good news is they're now coming
home to roost."
    The 1990s saw the provincial government grapple with, and ultimately slay
its deficit. Successive governments have since maintained a balanced budget.
    The government's strong fiscal position improved the overall climate for
business, as significant savings in lower interest costs have been passed back
to households and companies in the form of lower taxes. Today, Saskatchewan is
one of the most affordable provinces to live and do business. It is also
emboldened by its current pro-growth government that plans to build on some of
its recent progress in strengthening the province's economic landscape. The
fact that the new government has consistently said that it will not be raising
oil and gas royalty rates is a case in point.

    Onwards and upwards

    It is not all blue skies. The TD Economics report cited key challenges
that must be addressed to achieve long-term prosperity. Some examples include:

    Aging Infrastructure: Today's growing economy is generating increased
needs for infrastructure across the province. However, as the recent Alberta
experience can attest, efforts to accommodate these needs during a period of
soaring expansion can "stoke the fire" and result in, for instance, escalating
construction costs. Government will need to set construction priorities,
establish innovative funding partnerships with the private sector, apply user
fees where feasible, and enable municipal governments to raise monies to pay
for its infrastructure.

    Cost competitiveness: Saskatchewan businesses pay almost $900 million per
year in order to comply with government regulations. The province may soon
find itself having a corporate income tax rate that is well above some other
provinces. Its retail sales tax is levied on a lot of capital goods, which
impedes growth. And it still has a capital tax on financial institutions
despite there being a broad consensus that capital taxes are the most
economically-damaging of all.

    Diversification: The ingredients are in place to transform Saskatchewan
into a clean energy powerhouse, and in turn, provide the province with
long-term benefits from the export of energy and knowledge accumulation. This
will require connecting the resource potential (i.e., oil sands, natural gas,
coal, feedstock for bio-fuels and uranium) with the province's solid
foundations in research, including the Petroleum Technology Research Centre,
the International Test Centre for Carbon Dioxide Capture, the Saskatchewan
Research Council (including the new Biofuels Test Centre), and the collective
expertise at the province's universities. Strong partnerships between the
public and private sectors will also be critical.

    Skills shortage: An estimated 18,000 jobs are vacant as a result of
inadequate skills. Government should redouble its efforts to boost the
province's share of skilled migrants from other countries, and encourage more
research and development activities, as a way to lure highly-educated
individuals to the province.

    Aboriginal employment: The benefit of boosting labour force participation
rates among aboriginals in the workforce is well-documented, better enabling
the province, for instance, to afford public services down the road, such as
health care. Significant gaps remain between aboriginals and non-aboriginals,
with on-reserve aboriginals recording particularly low labour-market and
education outcomes. New strategies to improve educational outcomes would be
one way the government can help narrow the gap.

    Poverty: Leaders must continue knocking down many of the roadblocks to
higher education and earnings, including lowering the extremely high tax rates
among the lowest income earners. Also, the scarcity of affordable housing can
only be tackled with holistic approaches that lower demand (i.e., raises
income for low income individuals) and boost supply. Rent regulations, while
providing some short-term relief, inflame the problem over the longer run by
lowering the supply of housing.

    "Even though economic cycles will remain a natural part of the
Saskatchewan economy's evolution, the province has a huge opportunity to both
extend the peaks and mitigate the valleys, hence yielding a considerably
stronger rate of growth over the long run. With respect to pulling off this
feat, there is no single silver bullet. But ambitious visions must be tempered
by realistic expectations, and an unwavering fiscal discipline," said Mr.
Drummond.
    A copy of the report 'Resurgent of the Resourceful' can be found at
www.td.com/economics





For further information:

For further information: or to arrange an interview with the co-authors,
please contact Stephen Hewitt, TD Bank Financial Group, (416) 983-1315,
Stephen.hewitt@td.com


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