The
Economic Freedom
Network

Provincial Economic Freedom in Canada 1981-1998

by Faisal Arman, Dexter Samida, and Michael Walker

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Economic Freedom Analysis of the Provinces

Newfoundland

Newfoundland has consistently ranked as the least economically free province. While economic freedom has been growing throughout the measurement period, this province has not moved up a single position in the overall ranking of economic freedom of the provinces. Newfoundland was, and still is, far behind the other provinces in terms of economic freedom.

One of several factors contributing to its low ranking is that this province has the highest government consumption as a percentage of GDP of all the provinces. In 1981, government consumption as a percentage of GDP was 25.3 percent; this figure increased to 27.9 percent in 1989 and dropped to 25.9 percent in 1995. By contrast, in Alberta, government consumption was 15.8 percent of the provincial economy in 1996. Newfoundland also has the largest transfers and subsidies sector of all the provinces, totaling 12.5 percent of GDP in 1995. The next highest province was Quebec with 8.3 percent of the provincial economy going to transfers and subsidies. Additionally, Newfoundland has a large government business-enterprise sector, whose total net worth, liabilities, and debt guarantees amounted to 40.2 percent of GDP in 1994. This province also has a high annual minimum-wage income as a ratio of per-capita GDP. In 1996, Newfoundland had the highest annual minimum wage as a ratio of per-capita GDP, 56.7 percent, followed by Quebec at 56.4 percent. By contrast, in Alberta, a far more prosperous province, the annual minimum was only 30.9 percent of per-capita GDP. Ironically, Newfoundland is the province that can least afford additional labour-market rigidities.

In 1995, Newfoundland imposed the highest provincial sales tax at a rate of 12 percent. The PST was reduced in 1997 due to its harmonization with the GST.

Newfoundland has made progress with respect to its corporate taxation policies relative to the other provinces and it has reduced the number of regulated occupations on its statute books.

The cumulative effect of all these restrictions on economic freedom in this province has meant lower per-capita GDP, translating into a lower standard of living. The statistical relationships developed in this study suggest that the cost of the lack of economic freedom (as compared with Alberta) in this province is a reduction of between $11,000 and $12,500 in per-capita GDP.

Newfoundland:Ranking for Components of the Index of Provincial Economic Freedom

	1981	1985	1989	1993	1994	1995	1998 (est.)
I.Government Operations and Regulations	9	9	7	(tie) 7	(tie) 7	9	(tie) 9
II.Takings and Discriminatory Taxation	10	10	10	10	10	10	10
III.Interprovincial Trade	10	9	10	9	9	9	9
IV.Regulation of the Labour Market	(tie) 9	9	9	10	(tie) 9	(tie) 9	(tie) 9

Part 1: Economic Freedom Ratings for the Components and Various Area and Summary Indexes: 1981, 1985, 1989, 1993, 1994, 1995, 1998 estimate.

	IPEF	Ranking
1981	2.3	10
1985	2.6	10
1989	3.5	10
1993	2.9	10
1994	3.1	10
1995	3.1	10
1998	2.9	10
			IPEF (1998 est.):		3.1	Trend:	Increasing

Components of Economic Freedom
			1981	1985	1989	1993	1994	1995	1998 est.

I. Government Operations and Regulations			3.5	3.6	4.5	3.7	3.9	3.3	3.3
(a) Consumption Expenditures (% of GDP)			4.0	3.0	3.0	3.0	4.0	4.0	4.0
(b) Government Enterprises and Guarantees			2.0	2.0	4.0	4.0	4.0	4.0	4.0
(c) Price Controls			6.0	6.0	6.0	6.0	6.0	6.0	6.0
(d) Regulatory Effort			2.0	3.5	5.0	2.0	2.0	0.0	0.0

II. Takings and Discriminatory Taxation			2.0	2.2	3.1	2.3	2.5	2.7	2.4
(a) Transfers and Subsidies (% of GDP)			0.0	0.0	0.0	0.0	0.0	0.0	0.0
(b) Top Marginal Tax Rate and Threshold			2.0	1.0	5.0	3.0	3.0	3.0	2.0
(c) Direct Corporate Taxes (% of profits)			6.0	8.0	7.0	6.0	7.0	8.0	8.0
(d) Provincial Sales Tax			0.0	0.0	0.0	0.0	0.0	0.0	0.0

III. Interprovincial Trade			1.9	2.1	2.4	2.7	2.7	2.8	2.8
(a) Occupational Licensing			4.0	4.5	5.1	5.6	5.7	5.9	6.0
(b) Marketing Boards			0.0	0.0	0.0	0.0	0.0	0.0	0.0

IV. Regulation of the Labour Market			0.0	2.0	5.0	4.0	5.0	5.0	5.0
(a) Minimum Wage Legislation			0.0	2.0	5.0	4.0	5.0	5.0	5.0

Economic Freedom Rating			2.3	2.6	3.5	2.9	3.1	3.1	2.9
Ranking of Province			10	10	10	10	10	10	10

Components of Economic Freedom

I. Government Operations and Regulation
	1981	1985	1989	1993	1994	1995	1996	1997
(a) Consumption Expenditures (% of GDP)	25.3	28.0	27.9	26.9	26.2	25.9	25.9	—
(b) Government Enterprises & Guarantees	60.9	59.6	49.5	40.7	40.2	—	—	—
(c) Price Controls	Price controls are often applied in energy markets; marketing boards often influence prices of agricultural products; controls are also present in a few other areas, but most prices are determined by market forces
(d) Regulatory Effort	0.356	—	0.279	—	—	0.357	0.476	—

II. Takings and Discriminatory Taxation
(a) Transfers and Subsidies (% of GDP)	12.3	12.8	12.6	13.3	13.0	12.5	—	—
(b) Top Marginal Tax Rate and	54.1	56.1	48.3	51.3	51.3	51.3	53.3	53.3
Threshold at Which It Applies	$53,377	$62,161	$70,330	$63,315	$63,396	$63,438	$63,438	$63,409
(c) Direct Corporate Taxes (% of profits)	29%	25%	27%	29%	28%	25%	25%	25%
(d) Provincial Sales Tax	11.0	12.0	12.0	12.0	12.0	12.0	12.0	8.0

III. Interprovincial Trade
(a) Occupational Licensing	36.0	—	—	—	—	—	—	26.0
(b) Marketing Boards	59.3	70.3	67.4	70.6	68.9	71.3	71.6	—

IV. Regulation of the Labour Market
(a) Minimum Wage Legislation	81.1	71.6	57.5	58.3	56.2	54.0	56.7	—

Click Here to View Key to Areas and Components of the Index and the Weights Assigned to Each

Newfoundland:Recent Economic Indicators
Population 1996 (in thousands):571 Average annual rate of change 1985–1996:0.27 percent
Real per-capita GDP 1996: $14,077 Average rate of economic growth 1985–1990:2.7 percent; 1991–1996:0.33 percent

	1981	1982	1983	1984	1985	1986	1987	1988	1989	1990	1991	1992	1993	1994	1995	1996
Annual change (%) in population		0	0	1	0	-1	0	0	0	0	0	1	0	-1	-1	-1
Annual change (%) in real GDP		1.2	3.7	1.8	2.7	1.2	3.3	4.5	6.1	-1.2	-0.8	0.5	1.6	2.1	-0.1	-0.9
Annual change (%) in real GDP (average of other provinces)		-3.4	4.0	6.1	4.5	3.6	4.2	5.0	2.4	-0.1	-1.8	0.8	2.3	4.1	2.4	1.5
Annual change (%) in real per-capita GDP		1.2	2.8	1.6	2.9	1.7	3.5	4.7	5.9	-1.5	-1.0	-.01	1.5	2.6	0.6	0.2
Annual change (%) in real per-capita GDP (average of other provinces)		-3.5	2.9	4.2	3.4	2.0	2.6	2.5	1.1	0.4	-1.7	-0.5	1.5	2.8	1.1
Ratio of business investment to GDP (%)	24	27	27	26	27	25	21	21	21	19	20	20	23	27	26	22
General government budget deficit (-) or surplus (+) (% of GDP)	-2	-3	-5	-3	0	0	0	0	-1	-1	-2	-1	0	0	+1
Unemployment rate (%)	13.9	16.7	18.9	20.5	21	19.3	18.1	16.4	15.8	17	18.3	20.2	20.2	20.4	18.3	19.5

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