Fiscal policy experts cool to forestry execs’ proposals

Last week, the heads of three large forestry companies pitched proposals aimed at resurrecting their sagging sector. The presidents of Fraser Papers, Flakeboard and J.D. Irving, Limited say they are struggling with global competition, the high Canadian dollar and the housing meltdown in the United States. They contend the province’s uncompetitive energy prices are compounding those issues and have offered a list of possible solutions.

For example, the province – through Business New Brunswick – could purchase 400 megawatts of electricity annually from NB Power, the public utility. That electricity would be offered to large users at a “competitive rate.” Also, the province could issue so-called industrial revenue bonds, to support technology upgrades. The move would give corporations access to the low-interest loans available to government. Such measures, say the executives, will help encourage investment and boost job creation in the forestry and manufacturing sectors.

But Ian Munro, of the Atlantic Institute for Market Studies, a think-tank, questions whether those options are palatable to the public – or even fiscally sound.

“I’m guessing [the proposals] are probably not going to get a lot of support from the average person “¦ wondering why large corporations should have their power use subsidized,” he said.

“Why would money come from the guy driving the cab or running the pizza restaurant or from the nurse or teacher to subsidize these corporations?

“Every time you grant one subsidy that gives more incentive for someone else to line up and say, ‘me too.'”

Munro agreed that current economic conditions are taking a toll, but said government cannot simply stroll in and subsidize the industry. He pointed to loans given to fish plants in Prince Edward Island. When the loans couldn’t be repaid, it was up to taxpayers to swallow the loss. Munro also warned that the appearance of subsidy could breed trade retaliation from the U.S.

“I don’t know if that’s good long-term public policy,” he said.

David Murrell, a University of New Brunswick economist and specialist on economic development, agrees. He said the slippery financial footing of NB Power, and the province in general, means the proposals will be hard to implement. Taxpayers, Murrell contends, will ultimately cover the cost.

“It can be used as an economic development tool, but it is very costly to taxpayers,” he said. “They have potential, but at a cost. Somebody’s got to pay the piper.”

He recommends the province go to the source of high energy prices: cost overruns in producing nuclear power. The Liberal government, Murrell said, should pursue cheaper hydro-electric power from Newfoundland and Labrador. Government officials say they are willing to consider all options aimed at reviving the forestry sector, though they avoid talk of subsidies for industry.