Why did Alberta not have a game plan for low oil prices? Why did they spend $56 billion more than they needed to over the last seven years?

Alberta has had a serious windfall in oil revenues for the last decade or so and somehow they did not set themselves up to look after the province for the long term.   When the oil boom started about ten years ago government program spending per capita in Alberta rose much faster than other provinces.   The windfall was sucked up into an expanding government and not saving for the future.

It has only taken one drop in the price of oil for the budget of Alberta to go from a surplus to a huge deficit.   Yes, the drop has been dramatic but based on long term commodity price trends, not unexpected.

There was a famous bet between Julian Simon and Paul Ehrlich made in 1980 about commodity prices in ten years time.   Julian Simon bet there would be no rise while Paul Ehrlich bet there would be.   Simon won the bet in 1990.  Commodity prices have been up and down over the decades but it is actually interesting to see how little the commodity prices have not been ahead of inflation.

Price of a barrel of WTI oil in Canadian dollars from Jan 1986 to Feb 2015

Since 1986 Canadian inflation has been 86%,  The price of oil at the start of 1986 was $35 per barrel, which would be $65 per barrel now and the roughly the current price.  From 1986 to today the price of oil has been significantly ahead of inflation in only nine out of the last 28 years.   In eight of the years oil has significantly fallen in price.

I know some people will say this is a temporary blip downwards, that peak oil is here and the price is going to skyrocket again shortly but I disagree.  Oil is a product that is very sensitive to supply and demand.  As soon as there is a shortage of supply the price rises but businesses find ways to use less oil while at the same time a lot more oil can be extracted because it is financially viable.   New technology has made various oil sources much cheaper to extract.   So as the price rises again, there is a lot of new oil that come onto the market.   In the long term oil will be cheaper than people expect.

Alberta ignored basic economics when it did not use something like $40 to $50 per barrel as the long term stable price of oil.  The bonus revenues should have been set aside in the Alberta Heritage Savings Trust Fund but that has not been done.   In 2014 the fund had about $17.3 billion, not something more like the $50 billion to $120 billion that it should have had.   Alberta used the oil revenues for short term political favour and not long term planning.   In ten years from 1998/99 to 2008/09 Alberta doubled their per capita program spending.   BC, Ontario and Quebec did not have anywhere close to the same rise in program spending.

If the money had been set aside as should have been Alberta would have able to have a secure and consistent source to borrow money from for public infrastructure at rates the province could set.   What we see instead is a province in panic as the provincial spending will have to be dramatically cut.

As it stands, the government of Alberta costs a lot more to operate than the other three large provinces in Canada.   Alberta spends $2000 per person more than BC and $3000 more per person that Quebec.   Alberta has been spending about $7 to $10 billion per year than they should be for the last at least seven years..   One would think the NDP was in power in Alberta.   The only two provinces that spend significantly more per capita are Newfoundland and Labrador and Saskatchewan - both right wing governments.

Spending an average extra $8 billion per year for seven years is $56 billion.   $56 billion that did not need to be spent.   What does Alberta have to show for this $56 billion?

The only think Alberta does well on is direct provincial debt, it has none, the only province to be in that situation, but this will change suddenly.  During the last extended period of stable but low oil prices Alberta went from a large surplus to having more debt than BC had under Mike Harcourt at the same time.   Given the lack of any fiscal discipline in Alberta over the last 30 years, there is no reason to expect the province to change now.

UBCM Ferry Report - I hate flawed economic analysis

The UBCM released a report on the socio-economic impact of ferry fare increases in BC.  It looks all nice and fancy and has some provocative numbers but overall it is not a well done report at all.

I am starting this posting again because the first one was 3000 words long with details of the flaws in the report and I was only part way through.  Overall the report seems to been written to be misleading as to the impact of the increase in ferry fares.   The one aspect that looks to be done well is the calculation of the lost passenger numbers due to the fare increases but I admit I have not done the math independently to test if it all works.

The core of what is misleading about the report relates to the economic loss due to the fare increases, here are my main issues with that

• The GDP value should have been expressed as an annual value and not a ten year value.  It is very rare to speak of the dollar GDP values on any term longer than a year.  Using ten years inflates the value in the mind of the public.   The headline number should have been $230 million, though that would not be accurate because of my following issues
• The GDP loss calculation makes some assumptions that are not true which means the numbers that arise from those assumptions are wrong.   
• The report leaves the impression that all the potential passenger spending is lost to the BC economy when very clearly this is not the case.   Most of the people travelling on BC Ferries are from BC and will have spent their money somewhere else in BC.   Spending money on ferry fares adds less value to the BC economy than most other discretionary spending.   The spending they would have done at their ferry destination will all have been done somewhere else.   If I do not go to Vancouver I still spend money on food and entertainment.  Take this away and the annual economic loss to the province is much smaller than $230 million 
• The data used to try and show a general economic downturn on the Island and coast does not show that at all.  The report does not use  a consistent set of dates for comparison of data even the relevant data is available online.  It looks like data cherry picking to try and prove an economic downturn
• Many numbers are presented without any backing as to how they were arrived at.  As an example, on page 45 the have a table showing loss in taxes to governments including $53 million in local government taxes.  I have no idea how they could have come up with that number since local governments simply set the property taxes each year at the level they need to fund their programs, where the does the loss come from?   I could list a dozen more examples.
• The data is often too specifically accurate.  When you are working with estimates and models you can not have a long string of significant digits.   You have to stop after the margin of error is reached.   In table 34 on page 45 they have values calculated down to the last dollar for a nine digit value, that is misleading and less accurate than properly rounding the numbers.  People think $13,982,756 must be more correct than $14 million even when the first figure is a fantasy.  It is very misleading.   First year economics students using basic mathematics would understand doing this is wrong.
• The report does little to account for a number of specific economic impacts between 2003 and 2014 in different communities around BC.  These events are so much larger than any possible BC Ferry fare increase impact that the impact of a ferry fare increase could not be seen in the data.

I could go on for page after page on the flaws of the report, trust me, it is fundamentally flawed.

What can I take away from this report?

• The increase in ferry fares has reduced BC Ferries traffic
• BC Ferries is much more cost efficient than similar services elsewhere especially Washington State Ferries.   
• Some of the most ferry dependent communities have suffered economically though the report does a bad job of showing this and my own work on the issue shows it much better
• Overall the possible negative economic impact on BC of the higher ferry fares is so small as to not realistically be measurable if it is there at all.   

The final kicker, the data from this report could be just as easily be used to show that for the vast majority of people in BC the current government's approach to BC Ferries is beneficial.   BC Ferries is still subsidized and this comes from fuel taxes from all of BC, a more cost effective BC Ferries is good a thing.

Bad research and analysis is a pet peeve of mine.  

The Complication of Multiple Partners for LNG Plants

Most new proposed LNG plants in the world have multiple partners as part of the project.   This clearly is necessary because of the large capital costs involved with construction of an LNG plant but it brings with it a lot more risk as well.

When a project has a single large corporation behind it there is a single clear decision making point for the the project, but as soon as there are more partners each partner becomes a decision making point for the project.  Unless all the partners agree to go ahead the project can not be green lighted.

In theory any set of partners that hold a combined majority ownership of the project can make the decision to go ahead.  The problem with this is that if one of the partners can not go ahead because they can not come up with the capital for the project the decision by the majority is moot because the money is not there to proceed.  If a minority partner says no the majority partners really have no realistic option other than to buy them out.   This increases the capital exposure of the remaining partners and may then call into question the green light decision.

Once the partnership has been created the project will effectively need unanimous support of all the partners.   This means that for a project to go ahead all the partners need to be at the same point in their decision making.   Finding "the right time" between four LNG project partners, that likely have very interests in the project, will be hard to accomplish.   The more partners there are the longer it will take for a project to get the green light to start.

Completion of the project also becomes a problem when there are multiple partners because with each additional partner there is one more chance one of them will want to pull out or delay.    Globally there is not nearly the long term experience of LNG plant developments needed to know how likely delays or abandoned projects will be.    The closest equivalent are large scale mines.  

From various large scale mine projects around the world it is clear abandonment or delay in development is the norm.  I do not know of anyone who has quantified the delays in development of mines, it is clear that in the North American context that a decade or two delay is not uncommon for the ones that do eventually get built.    In most cases new large scale mines have a lower capital development cost than LNG plants are tend to have fewer partners which means new mines should typically see shorter delays in development than LNG projects.

One of the projects proposed for BC is LNG Canada in Kitimat, a partnership of Shell, PetroChina, KOGAS and Mitsubishi.  The current capital costs of the project and pipeline is in the range of $17 billion.  For Shell the investment represents $4.25 billion in capital, which is a significant amount for them.   Given the increase in costs of similar projects elsewhere in the last few years a total cost of $25 billion is more likely raising the capital each partner would have to come up with is over $6 billion.   These are not trivial amounts for a company like Shell.

For Shell to commit to the LNG Canada it has to make more economic sense to them than other projects they are considering for development around the world.  Shell does not have access to unlimited capital for projects.   The LNG Canada team will have to compete with a dozen or more major capital projects Shell has interests in.

Shell is in many ways the easiest of the four partners in LNG Canada to read and understand how committed they are to the project.   The other three partners are not nearly as transparent.  In the case of PetroChina we have no idea at all how solvent the company is.  The long term track record for companies in countries without a free and fair legal system or a transparent and open banking system is not good, China has neither.   Trusting in Chinese state enterprises is not a long term smart idea and expecting them to be viable partners in five or ten years is unwise.

The fact that all the serious LNG proposals for BC have multiple partners means we should reduce our expectations of how many LNG plants may be constructed here and assume that the timelines will be significantly further into the future.

BC MSP revenues are rising much faster than other revenue sources

The portion of the annual revenues of the BC government that comes from MSP has been rising for a number of years.

Year      MSP in     annual   MSP as a pct of
         ,000,000   increase   BC revenues
2004/05   $1,465                4.39%
2005/06   $1,482     1.16%      4.12%
2006/07   $1,524     2.83%      3.96%
2007/08   $1,557     2.17%      3.89%
2008/09   $1,595     2.44%      4.12%
2009/10   $1,666     4.56%      4.39%
2010/11   $1,787     7.26%      4.39%
2011/12   $1,919     7.39%      4.59%
2012/13   $2,047     6.67%      4.87%
2013/14   $2,156     5.32%      4.91%  forecast
2014/15   $2,271     5.33%      5.07%  budget 2014
2015/16   $2,394     5.43%      5.20%  current fiscal plan
2016/17   $2,524     5.43%      5.32%  current fiscal plan

One should expect the total MSP premium payments to rise at roughly the combined rate of the rate of inflation and the growth of the population of BC, this is something in the rate of 3-4% per year.  Since 2008/09 the rate at which MSP revenues have risen is significantly faster than that.   

I am not entirely sure why this is happening.   

I think it is time for the government to look at MSP and decide if this is the best and fairnest method to raise revenues.    I think it is time the government consider scrapping MSP and getting a similar amount of revenue from personal income tax.   Since the total amount paid by BC people would not change this should not cause any significant hardship for the public overall.   Yes, there would be a shift of cost from the lower middle class to the richest people.

Removing MSP would also save the government money because it could get rid of the infrastructure to collect MSP permiums.

Galore Creek as a cautionary tale for LNG

When I wrote up the factors that go into deciding if an LNG project will go ahead or not, I based it on close to 20 years of my analytical work in BC related to development on Crown Lands most specifically large scale mining projects.  There are many similarities between capital intensive mineral projects and LNG projects.   There are number of good mine projects to look at in BC, the two that come to mind are Mount Milligan that recently opened after close to 25 years of almost being developed and Galore Creek.

Galore Creek is one of the richest known undeveloped gold deposits in the world.  Galore Creek is located in North West BC about 150 kilometres northwest of Stewart BC as the crow flies or about 100 km west of Bob Quinn on Highway #37.

The fact it has not been developed when it came so very close a few years ago is a good reminder that even a very rich looking natural resource project does not work to tight timelines.   Galore Creek is an important cautionary tale when considering LNG in BC.

The Galore Creek Mine project was granted an environmental assessment certificate in 2007.  At that time the plans were for the mine to operational by 2010, which now four years in 2014 later it is not.  They  started construction in 2007 but shut down in 2008.

Galore Creek is not a small marginal project, it is a large project.

• It has a life of about 25 years
• It would have direct operational employment of 400 people and indirect employment several thousand, roughly on par with a large LNG plant
• It will mine about $600,000,000 worth of copper, gold and silver per year - in comparison the two most likely LNG projects in BC would require the extraction of about $4,000,000,000 in BC natural gas
• It will pay about $110,000,000 a year in BC Mining Tax
• It will offer the port of Stewart a major new client

Galore Creek is proven to have

• 5,450,000 ounces of gold - $7 billion
• 102,000,000 ounces of silver $2.2 billion
• 6,800,000,000 pounds of copper $22 billion
• For a total prove value of $31,200,000,000 in resources

Galore Creek is estimated to have a further

• 8,000,000 ounces of gold - $10 billion
• 136,000,000 ounces of silver $3 billion
• 8,900,000,000 pounds of copper - $28.5 billion
• For indicated estimate of $41,500,000,000 

This project has the potential to extract a value of around $72 billion in current day values.  So why has it not gone ahead?   Three major factors have stopped the project, escalating capital costs, the 2008 economic downturn, and the concern about long term mineral prices.

The 2008 economic downturn is over and the long term mineral prices are holding better than anyone had expected, but still there is no serious plans to develop the mine in the near future.  The pay back period for the capital is too long to make it a very attractive investment.

The latest plans for Galore Creek are not the first go around for the deposit.    The deposit has been on the radar for decades now having been extensively explored since 1955.  The first major attempt to move forward with a mine in 1974 and then again in the early 1990s.   The current plans are the third serious attempt.    With each iteration of the project the exploration has shown the deposit is bigger and richer than had been expected.

The reality is that many mineral deposits in BC take decades to go from initial discover to development.   There are no end of examples of significant deposits discovered more than 50 years ago that have not yet been developed.    Bringing a new mine online after all the approvals are in place takes three to five years of construction and is capital intensive upfront.   For a mine to make sense the capital costs have to repaid quickly and the mine has to have a reasonable chance to be profitable over the full 15 to 40 year lifespan.  It means when the construction starts you are looking out 20 to almost 50 years and trying decide on the economics.   For LNG the situation has a lot of similarities.

One of the biggest differences between Galore Creek and LNG is that the Galore Creek is a much smaller capital project with a better and faster pay back period.   Investing $2.5 billion in Galore Creek is a better bet than investing the same amount of money in LNG because I think almost everyone has a degree of certainty that gold and silver will retain a reasonable value in 25 years.

Another big difference between Galore Creek and the LNG projects is that the companies behind the LNG projects have a lot of their own capital and do not need to go to the market to get investment dollars.

Galore Creek has an estimated capital cost of $2.5 billion to bring in a primary economic value of $600,000,000 a year.  The two most likely LNG projects in BC have an estimated combined capital cost of  $30 billion in capital, 12 times the mine cost, for an total annual economic activity in BC of between $5 billion and $6 billion, or only eight to ten times the value of the mine.

LNG in BC is certainly not the best financial home-run for an investor.   I think given the borderline values and uncertainty into the future it is more than likely there will be delays in all the projects.   Companies can easily spend $100,000,000 playing around with the idea of BC LNG and then shelf the project indefinitely because the total spent is only in the range of 1% of the capital cost of the project.

The companies involved in the BC LNG projects are major global players and have a whole portfolio of projects they could consider.   BC is only only more 'card up their sleeves' if they need it.

If various major mineral deposits in BC can take decades to develop there is no reason to think LNG projects will not also take much longer to come online than people think.

The Working Poor, Hours and Pay

The working poor are more and more of an issue in Canada.  There are two aspects to this, the rate of pay and the number of hours of work.

The minimum wage in Canada is set by the provinces but at the moment the range of minimum wages is only $0.50 per hour between the lowest and highest.  The provincial average for minimum wages is $10.14 per hour.   It is also true not a lot of people earn minimum wage but a lot of people earn only a dollar or two more than minimum wage, their pay is fairly directly tied to the minimum wage.   A higher minimum wage would push up the wages for others.

There is an argument that a higher minimum wage would reduce the number of jobs because employers are not able to pay the higher rate and still be profitable.   I have trouble with this argument because the employer can raise what they charge for the product.  Almost all the low wage jobs in Canada are in the service and retail sector who have a captive audience  - I can not order out pizza from Vietnam.   There is no down side to society to fast food outlets charging 10% more for their food and that would be more than enough to cover a large increase in minimum wages.

So how high should the minimum wage be and how should it be set?   Clearly the minimum wage can not be set at $100 an hour.  I do not have a good answer to what it should be but I think the mechanism to set the wage should be tied to the rate of inflation in some way.  Maybe the minimum wage should be rise at twice the rate of inflation for a decade?  This would be a rise in the real value of the minimum wage by about 60% over the period.   Setting out such a clear and gradual pattern for the long term allows employers to plan for the cost increase.

While low wages are a major reason for people being the working poor, I think that part time work is a bigger problem.   It is a beneficial public good for as many people as want full time work to be able to get full time work but this is not what is happening in our society among the working poor.

A much bigger problem I see is the proliferation of part time low wage jobs.   It seems most fast food restaurants will not allow staff to work full time hours.   It is normally for someone in a McJob to work 20 to 25 hours a week and not to know their shifts will be very long into the future.   It means that it is very hard to hold two part time jobs and get 40 hours a week.  

I think the time has come for government to make some changes to financially reward employers that have full time staff and penalize the heavy use of part time staff.   Government could use EI, CPP and vacation pay as ways to make it financially beneficial to have full time staff and not part time staff

If there were a basic flat employer EI fee for each employee of $700, this would increase the cost of part time employees.   This is roughly the employer portion of EI for a full time employee at $13.30 per hour.   The employer would have to pay more EI if the employee was earning more than $26,615 per year.   For a 20 hour a week part time employee on minimum wage this would be an increased cost of $430.43 per year for the employer.   I would also make this flat fee payable in total for the employer as soon as someone is hired with rebate if they quit before the year is out.

Something similar could be done with CPP so that there is no real cost implications for employers with full time staff but that employers of part time staff have a clear financial incentive to make staff full time.

Next, make vacation pay for all registered employees a flat weekly among based on what they would be owed for a 40 hour week.    At minimum wage and a 4% vacation pay rate, this would be $16.40 per week in BC.   It means at 40 hours a week the effective pay is $10.66 per hour but at 10 hours a week it becomes $11.89  per hour.  

Some may say "What about the people that want part time work?".  I think it is more important to first ensure that people who want full time work have the hours they need before offering part time positions.   Even with the changes I suggested there will be more than enough part time jobs out there for the people that want them.  

One final suggestion is that the country end the temporary foreign worker program for any low paid or low skilled jobs.   Temporary foreign workers should be coming to Canada to fill positions for which there is a temporary shortage of the skills needed.  Wages for temporary workers should set at 25% above the median wage for the job.    There is no reason a fast food restaurant should be getting temporary foreign workers when there numerous Canadians willing to do the work.   I understand employers want this because they are unwilling to pay the higher wages needed to attract the workers.   The current model for allowing temporary foreign workers is a bad market distorting intervention by government.  

If the country really needs more low skilled workers, Canada should open up our immigration policy and allow the unskilled to come to Canada.

It is becoming more and more of a problem in this country when there is an increasing gap between the working poor and the well off in the country.   People may disagree with my suggestions, but if not them, what should we do?

Where does our energy come from in Canada?

However you slice it, we need energy to most things in our society, so what are the main sources of the energy that make Canada work?

• Oil         31.72%
• Natural Gas 27.55%
• Hydro       26.16%
• Coal         6.67%
• Nuclear      6.60%
• Renewables   1.31%

Data is from BP Statistical Review of World Energy June 2013

As you can see, 65.94% of the energy we use in Canada still comes from fossil fuels, this is down from 69.49% in 2003 but honestly the country has been in the 67% +-3pp range for the last 20 years .  The economics of energy in Canada still do not make it worthwhile for business and the public to en-mass abandon fossil fuels.

On a positive side, the CO2 emissions from fossil fuels in Canada has been steady of falling for the last six years.   As a nation we peaked in 2007 and then saw a huge drop with the global recession but the post recession recovery has been slower than the trends in the 1990s and early 2000s.

Year CO2 in millions of tonnes
2012 619.6
2011 623.7
2010 610.8
2009 589.8
2008 630.8
2007 641.2
2006 628.2
2005 635.6
2004 628.7
2003 630.6
2002 604.5
2001 591.1
2000 592.4
1999 574.4
1998 566.3
1997 560.7
1996 544.7
1995 526.3
1994 506.4
1993 491.0
1992 492.7

When you take out 2008 and 2009, Canada has had a steady level of CO2 emissions since 2003 and in fact has seen declines.  This seems to be because Canada's domestic consumption of fossil fuels has been flat since 2003.  When it comes to coal, 2012 was the lowest coal consumption by Canada since 1979.

From 2003 to 2012 Canada's primary energy consumption rose 5.35% which is at half the rate of population growth during the same time.   By comparison from 1993 to 2002 energy consumption rose by 15.44%, faster than the rate of population growth.

TransCanada's proposed Energy East poposed east - west pipeline

This Energy East pipeline is a big deal, it could be moving 1,100,000 barrels of oil per day, though I saw some reports with higher numbers.  Globally daily oil production is about 85,000,000 barrels which means this one pipeline would be a significant amount of the world's daily oil production.

At the moment Canada produces about 3,600,000 barrels of oil a day.  The Keystone pipeline can move 590,000 barrels and the existing Enbridge pipeline network moves about 1,200,000, Transmountain can move about 300,000 barrels a day to Vancouver.   The existing capacity of pipelines in Canada is not enough to bring all the Alberta oil to market in a timely manner which is why more and oil is being moved by trains.

I have no way to even begin to measure the impact of this pipeline on the environment.   In general pipelines are not nearly bad as people make them out to be, but they do have an impact.  On much of this proposed line they already have a piepline.

The early estimate of the cost of the pipeline is $12,000,000,000.  I think that number is too low. I know that the company plans to convert and existing natural gas pipeline.   I honestly have no idea what it would take to convert to moving Alberta crude oil.   Natural gas is a very different product than the very heavy and viscous oil coming out of Canada.

The second problem with estimates for large scale projects like this is that they are routinely and consistently under estimated in cost.   I suspect that the end cost of the project is likely to be in the range of $18,000,000,000 to $24,000,000,000.   Is it still profitable at those costs?  Enbridge Northern Gateway will move 525,000 barrels of oil west each day and 193,000 barrels of condensate east for a total capacity of the project of 718,000 barrels a day, 2/3s of the capacity of the Energy East line but at less than half the initial estimated cost of $12,000,000,000.

The increased capacity in pipelines should raise the price companies can get for tar sands oil.  Right now there is serious price difference between the West Texas Intermediate benchmark and the Western Canadian Select.  Part of the $20 to $40 difference in the price per barrel is because of the Canadian oil is a lower quality crude, but it is also because it is harder to get it to market because there are not enough pipelines.

Improving the price of tar sands oil will only mean more tar sands projects are worth doing.   Each project brings more oil onto the market and more impact from the development of the tar sands on the environment.  Is this what we want?  Finally, do we really need this pipeline?  It seems like it now, but within a decade the energy alternatives to oil are going to cheaper than the cost of producing tar sands oil.

As the price of oil has remained high for a number of years, people and businesses have changed energy sources to cheaper alternatives.  We have seen global production and consumption both grow slower than the population and economic growth.   The relative amount of oil needed to produce a dollar of globally GDP in constant dollars has been falling.   We are seeing the end of the oil era coming, but not because we are running out of oil, but because we are developing other cheaper sources of energy.

Should we build the next large ferries in BC?

BC Ferries announced last week they are moving forward with plans for three new intermediate size ferries to replace Queen of Burnaby and the Queen of Nanaimo.  Various people have been complaining that the competition for the new ferries will be open to international companies as well as Canadian companies.

When the last set of major ferries were built, the Coastal class, the contract went to the Flensburger Schiffbau GmbH.  People complained at the time that they were not built locally but what they forget is that no local company was willing to submit a serious bid to build them in BC.

The experience in BC of building large ferries has not been good over the last 25 years.  The Fast Ferries were an attempt to create a ship building business in BC by government intervention.   The three PacifiCats cost more to build than the cost the four ferries built by Flensburger Schiffbau GmbH.

The the two Spirit Class vessels were built with BC Ferries being the builder in charge through a company they created called Integrated Ferry Constructors Ltd.   They cost a combined $270,000,000 to build in the early 1990s.   The three Coastal class ferries were delivered for $325,000,000 14 years after the Spirit of Vancouver Island was completed.

Building a large ferry is something that takes a certain amount of skills and you have to build enough of them to retain the expertise on staff long term.   For BC companies to be able to competitively build the ferries needed by BC Ferries, they should be competing to build these ferries globally.   No company in BC is trying to build ferries for other parts of the world.

There is a global demand by private companies for ferries.  Here are some companies from northern Europe:

• Stena - 19 large ferries, lates built in 2010 by Wadan Shipyard in Wismar
• P&O - 14 large ferries, the latest build in 2010 and 2012, both of them by STX Europe in Helsinki
• Viking Line - 7 large ferries - the latest build in 2013 by STX Europe in Turku Finland
• Tallink-Silja Line - 14 large ferries, the newest completed in 2009 by STX Europe in Rauma Finland
• TT Line - 6 large ferries though the newest one is 11 years old now.
• DFDS Seaways - 34 large ferries the three newest built in 2010 by Odense Staalskibsværft A/S in Denmark though the shipyard and ferry company are owned by the same parent company

For reference:
BC Ferries - 14 large ferries the newest being the three Coastal Class ferries.

No one in BC is trying to get this work even though there is a serious global demand by private companies for ferries.   If Finns and Germans can compete to build large ferries for the private sector, there is no reason a BC based shipyard could not do it as well.

Flensburger Schiffbau GmbH does not have any captive local market so they have to seek contracts elsewhere in the world.   They have built for four ferries for BC Ferries, but in recent years they have also built ones for Caledonian MacBrayne in Scotland and  Smyril Line which serves the Faroes and Iceland.   They are only one of a number of private shipyards that are competing for this work.

Why would the BC government force BC Ferries to have the ferries built in BC if companies in BC are not at least trying to get this sort of work from elsewhere in the world?  It is not as if there have been no ferries built in BC in the last 25 years.   Beyond the Spirit Class the the PacifiCats the Washington Marine Group has build some BC ferries in the last few years such as The Island Sky in 2009, the Queen of Cumberland in 1992 and the Queen of Capilano in 1991.   Allied Shipbuilders in North Vancouver build the Skeena Queen in 1997 and the MV Kuper in 2006.

The new ferries that BC Ferries is looking for are not large ferries which means it is unlikely they will be lot of serious bids from elsewhere in the world.   The proposed new ships are within the upper range of the ferries that WMG has built in BC in the last 25 years so it would seem there is the local capacity to build them.   The one major thing allowing international bids will do is reduce the cost of the ferries, if a BC company is to win, they need to bid low enough that it is not worth a company in Europe or Asia to bid for the project.

Let the private sector be the private sector and have BC Ferries get the best deal it can.

 

Keynes versus Hayek - humourous videos by Econstories

These videos from Econstories actually make this classic economic argument interesting - I admit I tend to see more accuracy in what Hayek proposed as a model of economics than Keynes, but in both cases I think they are overly simplistic.   An economy is a very complex structure and people do not act in simplistic ways within it.  I have yet to see any good modelling for detailed economic analysis to explain why things happened.



 Here is Round 2

The Liberal focus on LNG is bugging me

I know many others have recently posted about this issue.   I posted about this in mid February pointing out the problems with seeing LNG as a some sort of financial saviour of BC. It does not take an advanced degree in resource economics to see that the long term price differential in natural gas prices globally is not likely to survive for any length of time.   There will never be a huge financial benefit to government from LNG.

What I do have is close to 20 years of working on natural resource and Crown land use issues in BC - as part of my work I track the daily prices for things like gold, copper, coal, 2x4s, pulp, oil and natural gas.   Every price spike for a commodity over the last 20 years has been met with a corresponding rise in supply to cash in on the high price.   This current global natural gas price premium in parts of Asia is not going to last.

LNG is natural gas, it is just expensive natural gas.   It costs money to turn natural gas into a liquid and then transport across an ocean.   The process adds $4 to $5 per MMBtu to the price of natural gas.  This means the price in Asia has to be at least that much more expensive than in North America for LNG to be worth doing, ideally you want a larger price differential.to allow for profits and higher government revenues.

The price differential has been as much as $12 per MMBtu in the last two years but this differential comes about for two main reasons that will not last forever.  

1. Fracking in the US started first so North America is the first market to flooded with massive amounts of new natural gas sources.  This is coming elsewhere especially in Asia - China and Russia have no history or current inclination to act in a green manner, they will develop all their unconventional natural gas resources as soon as possible.
2. Japan had a large earthquake which caused their nuclear power plants to be shut down and immediately caused a dramatic rise in the demand for LNG.   Over time this sudden new demand will dissipate.

Australia developed LNG terminals because they have a small domestic market and have to export.   Oman has extensive LNG infrastructure because no one needs more natural gas on the Arabian peninsula.   In BC we have not developed LNG because we have had an American market that would buy whatever we produced at a reasonable price.   It is only now that the value of gas in one of the biggest natural gas markets in the world has plummeted that we are talking LNG in BC.

The reality is that LNG is a short term desperation move by any natural gas producer because it adds too much to the price and makes the product noncompetitive in any market other than one completely dependent on LNG like Japan is.   

I have no problem with companies developing LNG terminals in BC but that it not for the government to push, it is for companies to make the business case for and then decide to build because it makes sense.   If we have a government that is trying to attract LNG we have a problem because it means the government is either going to give companies money to develop LNG or forgo revenues.   It does not make financial sense for the government to actively push LNG.

I honestly think that if LNG is pushed not only are we not going to see tens of billions in revenue, the government is going to end up subsidizing the industry.   If we offer stiff competition to Australia and Oman, I see both those countries offering incentives to companies in LNG and that will be used as leverage to get tax breaks and such.

Because LNG is more costly, there is going to always be less margin for profit and for government revenues than there is with just putting it into the North American pipeline grid.  Over time with the expansion of fracking and of LNG terminals, I suspect that the price of LNG will within five years being at a negative price differential than the price of natural gas in North America.

By all means let companies build LNG plants but never expect them to provide some huge windfall, the history of natural resource prices indicates it is not going to happen.

Government Debt in BC

In looking through the BC Budget and Fiscal Plan - 2013/14 to 2015/16 I am worried about the direction the debt of the province is going.

(all numbers come from BC Government budget documents - it is important to know that not all the numbers agree with each and results in the past are often restated)

As an example, in 2006/07 the debt of BC Hydro was $7,144,000,000.  In 2012/13 is stands at $14,416,000,000.  That is a doubling of their debt in six years and an additional debt servicing cost of something around $250,000,000 per year.   This budget forecasts this to rise to $18,854,000,000 by 2015/16.   I do not believe this includes any debt to pay for the Site "C" project.

The increase in debt for BC Hydro concerns me, but it is self supported debt.  This means BC Hydro will pay for it from their revenues.   What concerns me more is the increase in direct taxpayer supported debt and how quickly it has risen

Taxpayer supported debt

Year    amount in millions % of GDP
1992/93    $15,896          18.4
1993/94    $17,981          19.5
1994/95    $19,037          19.3
1995/96    $19,866          19.5     
1996/97    $21,152          19.6
1997/98    $21,978          19.8
1998/99    $22,921          20.1
1999/00    $25,181          20.9
2000/01    $24,998          19.2
2001/02    $27,534          20.9
2002/03    $29,425          21.7
2003/04    $30,028          20.6   
2004/05    $28,668          18.2
2005/06    $27,251          16.1        
2006/07    $25,968          13.9
2007/08    $26,589          13.5
2008/09    $26,446          13.0
2009/10    $30,021          15.3
2010/11    $31,855          15.3
2011/12    $34,692          15.9
2012/13    $38,337          17.0
2013/14    $42,557          18.2
2014/15    $44,493          18.3
2015/16    $46,070          18.1

What concerns me the most is how quickly the debt levels rose in only a few years.   We had a period during which the total taxpayer supported debt in BC was going done but since the end of 2008/09 we have quickly added to the debt.

Under the NDP there was a constant rise in the debt of the province, not desperately fast by any measure but constant.

With the Liberals it is their second term that was the golden age of reducing the debt burden.  It is this third term that has not really been going there way.    If the current budget turns out to be too optimistic, we could see a 2013/14 debt of more like $43,000,000,000 to $43,500,000,000 and a debt to GDP ratio of 18.4% to 18.6%.

I suspect that we are likely to see a $50,000,000,000 taxpayer supported debt before the 2017 election.

LNG - Some Inconvenient Truths

I do not doubt that there need to be some LNG terminals on the west coast of North America, but how many and where?   Even more importantly, who will pay for them?

If private industry foots the bill for LNG plants in BC without any government subsidy, they let them build, but if they seek some form of government support of subsidy to build them, then I can not support the idea.   As I said, there is a need for LNG terminals on the west coast of North America, but let the Americans build them if government needs to subsidize them.

What I am skeptical about are the potential revenues and jobs this industry would bring to BC.   LNG is currently wildly popular because there is a big premium between the price of natural gas in BC and the price in Japan.   The Australians were lucky to have the LNG infrastructure in place when Japan overnight increased their demand for natural gas.  In 2011 the Japanese shut down their nuclear power plants after the Sendai earthquake and needed a sudden infusion of natural gas to create electrical power.   This boosted the spot price dramatically but this high price is projected to be gone by 2014 or 2015, some three to five years before there may be any large scale LNG plants in BC.

In the last decade there has been a major change in technology for natural gas extraction making shale gas and coal bed methane economic.  Suddenly the US, one of the biggest importers of natural gas in the past, will be a natural gas exporter.   This has meant the collapse of price for natural gas in North America.   These low prices, coupled with the royalty regime in BC, means that government revenues from natural gas here have been low, a lot lower than anyone would have thought possible.

Unconventional gas has expanded to other parts of the world and means that the spot price for natural gas is no longer closely linked to the price of crude oil.   Many long term LNG contracts for natural gas have been designed to mirror crude oil prices and now customers want out of those.  Recent long term contracts for LNG have been structured to be 30% lower than in the past.   I suspect that within a couple of years the long term price for LNG will be within $4-$5 of the spot price of natural gas in North America, just enough to cover the added expense of making and transporting LNG.

One reason long term LNG prices will be lower is because there are plans all over the globe to build new LNG facilities and for new natural gas pipelines.   There are close to 35 proposed LNG plants under consideration globally at this time, five of them in BC.  There are 28 LNG plants currently in operation so if all the proposals were to go forward the globally LNG supply will more than double.   LNG is always a less preferable option than a pipeline because piped gas is much cheaper.

As more natural gas pipelines are constructed the ability to move natural gas around becomes easier and the options for customers goes up.   There are many pipelines proposed or under construction in Russia and Europe and now there are plans for more in Asia as well.   Russia has just opened the Sakhalin–Khabarovsk–Vladivostok pipeline which is planned to be expanded to South Korea and Japan.   Japan and South Korea  are the number 1 and number 2 LNG importers in the world accounting for almost half the LNG imports in the world, taking them off of the market will mean we already have more LNG capacity that the world needs.  Russia is also likely to build the Altai gas pipeline to china within the next few years, that pipeline coupled with increased internal supply in China means it is unlikely to be a new source for LNG imports.

With more connectivity in the market the large price differentials around the global will disappear.   Overall the global price is not likely to rise much because the potential for supply is so much larger now than it was a decade ago.

LNG makes sense if you can get an increase of $4 or more per mmBTU of natural gas.  If the global price differentials disappear the economics of LNG plants do not make sense.   All you are left is selling LNG to countries not connected a pipeline system and that market is not huge and getting smaller.

Being closer to the market than your competitors helps with LNG.   BC may be closer than the US Gulf Coast but is no closer to Japan than the Australian LNG terminal.   The Mayalsian and Indonesian LNG terminals are about 2000 km closer.   BC has no serious competitive advantage over most competitors, even the proposed LNG terminals in Oregon are only 800 to 900 km further from Japan than the proposed BC ones.

The higher cost to produce LNG means that extra royalties on it can only occur when there is a price for LNG that is high enough above the local natural gas prices to sustain profits and the government royalty.   If LNG prices drop to anywhere close to $7 or $8 per mmBTU there is simply not enough meat on the bone for there to be a decent royalty and profits.   BC could be competitive if it offered electrical power to the LNG plants at well below market rates, but do we really want to spend $7 billion or more to build site C so that we can sell cheap power to LNG plants?

The companies behind the proposed LNG plants for BC have not yet committed to building.   None of them are going to build the LNG plants unless it is clear to them that they will be profitable.  Sinking $10,000,000,000 into a plant will only happen if the economics work.   For a government to assume that it will happen is bad public policy.  All government should be doing is setting up the regulatory and taxation regime for the industry.   If it happens, great, if not, such is life.

FIlm Tax Credits - how much should be subsidize the business?

BC is offering a very good tax credits as the Production Services Tax Credits (PSTC) for foreign film companies and I think we should not be offering what is already on offer let alone increase them.  For a change I agree with Bill Tieleman on an issue.

The PSTC is a refundable corporate income tax credit. When filing tax returns, production corporations may claim a specified percentage of the labour costs incurred in making film, television, digital animation or visual effects productions. The credits are applied to reduce tax payable, and any remaining balance is paid to the corporation.

What this means is that 33% of the the costs spent on local labour can be claimed as a tax credit that is refundable.   Meanwhile BC has the lowest corporate income tax rates going.

So if a film production company spends $4,000,000 on production, of which $1,000,000 is local labour, they get a $333,333 tax credit.   Now if the taxable income at the end of the day was $500,000, the tax owing on that is $50,000 but you have a $333,333 tax credit meaning that at the end of the year you not only keep your profits, the government of BC cuts you a cheque for $283,333.

So all those BC people working on productions effectively pay personal income taxes to subsidize their employer.

If you film outside of Metro Vancouver your subsidy goes up with another 6% for the Fraser Valley, Whistler and Capital Regional District and then even 6% more for filming in the rest of BC.   If you film in Nanaimo you get a a 45% tax credit for BC labour.   There is also a 16% federal tax credit.

Effectively we are paying US producers to come to BC and film here and not getting much benefit to our economy.   The $1,100,000,000 film industry in BC gets an annual subsidy of $285,000,000.    This for only about 3,000 full time jobs, or close to $100,000 a job.  

The benefits are even more if you at a domestic production.  If you were to make a 13 episode 1/2 hour comedy TV show in Nanaimo you would qualify for a 53.5% tax credit on labour.   Assuming you use all Canadian actors in the program you could get to 40% of your costs being labour.   At $75,000 an episode that is effectively $1,000,000 for the series and a tax credit of $214,000 which would most likely be all paid out to you.   If you secure $40,000 per episode funding from a development fund, you end up with $734,000 for a TV series that cost $1,000,000 to make, this is before you broadcast it.

Honestly I am amazed that local TV stations like CHEK in Victoria or CFJC in Kamloops are not producing cheap TV shows for the tax credits and funding available.  It strikes me as a legitmate model to pursue.

Long term we are better off not offering special deals to specific industries and let each industry rise and fall based on an equal playing field.

The "Site C" dam does not make economic sense to me

On many levels building the "Site C" dam on the Peace River is attractive.   The Peace already has two dams on it so much of the damage has already been done and the Site C location would simply capture more power.   It will have some significant impacts on the Peace River valley but I think the bigger impact is the cost of the project.   I think the current estimate of $7,900,000,000 is likely way too low and the final cost will be much higher than that making this very expensive power to bring online, more expensive than buying power from independent power producers.

The Peace River power projects first came about in the 1950s with Axel Wenner-Gren's bold proposals for Northern BC.   From this evolved Premier WAC Bennett's Two Rivers policy for developing hydro power in BC - the Columbia system and the Peace River.   Two dams were completed on the Peace River and serious consideration was to have two more.   What there is left of this project now is the "Site C" location.

Peace Dams - built and proposed

• The WAC Bennett Dam was finished in 1968 and created the very large Williston Reservoir and produces 13,100 GWh/yr.   It is located 18 kilometers west of Husdon's Hope
• The Peace Canyon Dam was finished in 1980 and created the small Dinosaur Reservoir and produces 3,500 GWh/yr.  It is located 21 kilometers downstream from the WAC Bennett Dam and 7 kilometers upstream from Hudson's Hope
• "Site A" dropped in favour of "Site C"
• "Site B" dropped because of bad geology
• "Site C" is located 83 kilometers downstream from the Peace Canyon Dam and 7 kilometers west of Fort St John.   It would produce about 5.100 GWh/yr
• "Site D" dropped because of bad geolocy
• "Site E" was proposed just to the west of the BC Alberta border on the Peace River.  It was dropped as an option in the 1980s

Locations that have been considered for dams on the Peace

BC Hydro has never let go of the idea of developing "Site C" even though it was dormant enough after 1991 that everyone thought the idea was dead.   It is now very seriously under consideration, in fact BC Hydro is acting as it is a done deal.   The one aspect of the project that concerns me more than any other is the cost to build the dam.

The early stage estimate in 2007 was for it to cost $6,600,000,000 to build the Site C dam on the Peace River.  In May 2011 this had been raised to $7,900,000,000.

Given the stage of the project and the nature of public sector capital project estimates, I see the real construction costs of this project being in the range of $10,000,000,000 to $20,000,000,000.   Amortized over 30 years the construction cost per KWh is $0.0654 to $0.118.   What this means is that the construction costs alone of this power will be likely be higher than what BC Hydro will be able to sell the power for.   To arrive at my numbers I simply took the project costs that I suspect it will be and divided it by 30 years of power production.

In the May 2011 BC Hydro estimated a project cost of $7,900,000,000.  BC Hydro estimates the cost of the power to be $0.087 to $0.095 per MWh.  Most of this cost is from the costs to build the project

Based on the likely costs of the "Site C" project and what it costs BC Hydro to produce power, it would seem that BC Hydro would have to sell the power for about $0.09 to $0.14 per KWh to break even in 2020 with this rising to $0.12 to $0.17 per KWh in 2040.   BC Hydro currently buys power from IPPs at an average of $0.068 per KWh and most of their purchase agreements are set up in such a way that this price is highly unlikely to reach $0.10 per KWh anytime soon.   Building "Site C" will cost BC Hydro more than relying on the private sector.

"Site C" only makes sense if the cost of power is affordable and if it is the best option for more power in this province.   What I have not seen is a good business case for why "Site C" is economically the best option for BC.  The 2007 feasibility study certainly does not make a strong case because it does not look at what the other options are out there.

At the moment BC Hydro's latest call for power is at roughly $0.10 per KWh which then rises at half the rate of inflation for the term of the contract which is anywhere from 20 to 40 years.   The latest call for power is only available for very small projects, the upper limit is a capacity of 15 MW which is why the rates  are higher than for previous IPPs.   Because BC Hydro will only cover half the rate of inflation, it means that over time the cost of the IPP electricity will fall in adjusted terms.  A purchase agreement now for $0.10 per KWh would be $0.135 in 20 years with 3% inflation.  If the full rate of inflation were applied it would be $0.181.  

With the latest call for very small scale power projects that is on offer BC Hydro, the company can be reasonably certain of new IPP power built now being available in 2040 for about $0.135 per KWh.   The cost of getting that power from "Site C" will be roughly the same cost but with BC Hydro taking all the risk.  A new larger scale call for green power in BC will very likely make power available to BC Hydro in the short term - less than five years - for significantly less than the cost of "Site C" power.

BC Hydro will add about 8,500 GWh/yr of power from new IPPs coming online over the next few years.   The cost of all of this power will be cheaper than constructing "Site C".  BC Hydro is already getting over 1,000 GWh/yr from projects that were part of the 2010 integrated power call.

The economics of "Site C" simply make it a bad risk for BC Hydro and the province.   For that reason alone I do not think we should go ahead with the project.

CNOOC take over of Nexen

I am not a fan of economic nationalism but in thinking about the move by the government of China to buy up an energy company based in Canada I am realizing there is a problem.    It is enough a problem when corporations are involved with politics, but it is so much more so if that corporation is the government and an unaccountable one.   The federal government should just say no to CNOOC buying Nexen.

Government and business are often in bed together but the closer they are linked typically the worse the decision making process is.  When it comes to a country that has no independent courts, no free press, and  no way for the public to express its will in the political system, Canada needs to be very wary.    A government controlled corporation tends to be used to further the interests of the government.   They also tend to not be very open about what it is they do and why they are doing it.   To show you an example, would CNOOC be willing to open all their books and agree to Canadian regulations for the whole company?  

It is clear that CNOOC has no functional independent oversight in China which means you have a corporate culture that does not understand how to function in an environment like Canada.   China is not creating a business class that understands the basic ethics one should expect in business.   In fact the political system in China would seem to operate in way to ensure that ethical business people do not succeed.

The nature of the relationship of a Chinese government corporation to the people in another country becomes the closest expression of colonialism since the end of widespread colonialism we have seen.  All the claims of American neo-colonialism pale in comparison.    Colonialism as a global economic model ranks down there with communism or fascism in effectiveness.  A new government colonialist model of economics is going only cause hardship and decline globally.   The current Chinese economic model is fundamentally unstable and will bring about a dramatic global recession when it has a significant downturn.  

We have to have a push for democracy in China, the government is not one the people wanted.   We need to see a China where business is run by the private sector and the public sector regulates in an even and fair manner.   We need a China where the rule of law and freedom of expression are core to the society.   Until there is a fully democratic China Canada has to protect itself from the government there.

Ultimately Canada needs to adopt a policy of banning ownership of anything in Canada by corporation that is primarily owned by a foreign government.   A corporation that is backed by a government has too much power to allow it to operate in Canada.   I would also like to see Canada create a law that says any corporation that has a presence in Canada has to agree that the whole company globally has to respect basic human rights and not take part in any bribery.  

Canadian Federal deficits or surpluses from 1963 to 2011

This data comes from CBC News.  

Amounts are billions of dollars.  Column 1 is the actual amount and column is the amount adjusted for inflation to 2011.    Red are deficits, black are surpluses.  The ten worst years in each column are highlighted.

Year	Surplus/deficit	Adjusted	% of GDP
1963	-$1.20	-$14.70	-2.50
1964	-$0.37	-$2.70	-0.70
1965	-$0.02	-$0.14	0.00
1966	-$0.49	-$3.30	-0.70
1967	-$1.00	-$6.80	-1.50
1968	-$0.67	-$4.20	-0.90
1969	$0.10	$0.80	0.20
1970	-$1.00	-$6.00	-1.10
1971	-$1.80	-$10.00	-1.80
1972	-$1.90	-$10.20	-1.70
1973	-$2.20	-$10.80	-1.70
1974	-$2.20	-$9.70	-1.40
1975	-$6.20	-$24.70	-3.60
1976	-$6.90	-$26.00	-3.40
1977	-$10.80	-$37.50	-4.90
1978	-$13.00	-$41.30	-5.30
1979	-$11.90	-$34.60	-4.30
1980	-$14.60	-$37.90	-4.60
1981	-$15.70	-$36.30	-4.30
1982	-$29.00	-$61.70	-7.60
1983	-$32.40	-$65.70	-7.90
1984	-$37.20	-$72.80	-8.30
1985	-$33.30	-$62.60	-6.90
1986	-$29.80	-$53.70	-5.80
1987	-$29.00	-$50.10	-5.20
1988	-$29.90	-$46.50	-4.60
1989	-$29.10	-$46.00	-4.40
1990	-$33.90	-$51.00	-5.00
1991	-$32.30	-$46.90	-4.70
1992	-$39.00	-$55.30	-5.60
1993	-$38.50	-$53.80	-5.30
1994	-$36.60	-$51.00	-4.80
1995	-$30.00	-$41.10	-3.70
1996	-$8.70	-$11.70	-1.00
1997	$2.90	$3.90	0.30
1998	$5.80	$7.60	0.60
1999	$14.20	$18.30	1.50
2000	$19.90	$24.70	1.80
2001	$8.00	$9.90	0.70
2002	$6.60	$7.90	0.60
2003	$9.10	$10.60	0.80
2004	$1.40	$1.70	0.10
2005	$13.20	$14.80	0.90
2006	$13.80	$15.10	0.90
2007	$9.60	$10.30	0.60
2008	-$5.80	-$6.10	-0.40
2009	-$55.60	-$58.20	-3.60
2010	-$33.30	-$34.10	-2.10
2011	-$23.50	-$23.50	-1.48

First off, the current government may have had the largest deficit in absolute terms, but it is fifth worst in dollar terms when adjusted for inflation and 17th worst when measured against GDP.

Clearly the worst years were 1983,84, 85, 90, 92 and 93.  Four of the six where during the Mulroney era.  In fact while Mulroney was Prime Minister Canada's lowest deficit measured against GDP was -4.4% in 1989 which my any reckoning is not good.

In the 18 budgets from 1977 to 1994 Canada did not drop below -4.3%.  

The surplus years from 1996 to 2007 allowed Canada to pay off $104,500,000,000 though over the 49 years we accumulated a net increase to the debt of  $574,250,000,000.   Canada was sitting on about $50,000,000,000 in debt in 1963.   Our current "oldest" debt goes back to 1981 - what I mean by that is that all the money borrowed since 1981 has been collecting interest non-stop.

In Canada we also have to always remember that not only the Federal government has borrowed a lot money but so to have the provinces.   When provincial debt is counted, Canada is carrying way too much debt, we are at about 84% of our GDP when it comes to debt.  Major countries worse than this:

• Japan 230%
• Greece 160% (old data and is likely much higher now)
• Italy 120%
• Portugal 107%
• Ireland 105%
• US 103%
• Belgium 99%
• UK 84%

It is not a long list of countries that are holding as much or more debt than Canada.  In dollar terms Canada has a public debt of about $1,300,000,000,000 - that is 1.3 trillion - not the number starting with a T.

Where should we be at?  How about where Australia is - less than 30%.  Their Kiwi neighbours are at 37%.  How about Sweden, the welfare state paradise is only at 38%.

Federally and provincially Canada needs to set a target of debt to GDP ratio of no more than 50% and the country should try to achieve this within the next five years.