Harper's costly lust for Quebec votes
MARK MILKE
Financial Post
Tuesday, January 23, 2007
The federal Conservatives are about to provide an example of how rational political behaviour can lead to irrational economic results. As it happens, the guinea pigs in this demonstration will be taxpayers in Ontario, British Columbia, Alberta and, to a lesser degree, those in Saskatchewan. Taxpayers in those provinces -- the "have" provinces, according to the federal equalization program -- will soon transfer even more cash to other provinces, the so-called "have-nots," especially Quebec, and this thanks to the Tories' desire for more votes in la belle province.
This will happen, if a French CBC report is to be believed, because the Conservatives will soon include half of natural resource revenues in calculations of equalization payments. Quebec Premier Jean Charest is hoping for at least an extra $1.5-billion.
For readers new to equalization, the program takes money from wealthier provinces and distributes it to poorer ones. The formula includes a five-province average of revenue-raising capacity. The general justification for equalization is that it allows have-not provinces to provide roughly equal government services to their citizens.
It's a weak argument. In fact, equalization encourages less-wealthy provinces to pay above-market wages to provincial civil servants and others, even though the cost of living is substantially less in, say, St. John's, Quebec City or Charlottetown, compared with Toronto, Calgary and Vancouver. It also encourages have-not provinces in their complacency on smarter economic policy and allows them to retard sensible development. (The Newfoundland government's continual Hugo Chavez-like demands regarding offshore-oil development is a case in point.)
Also, far from equalization providing provincial governments with "roughly equal" services, some provinces use the cash to provide programs unavailable in the very provinces where equalization money originates. As an example, think of Quebec's heavily subsidized daycare program.
Quite apart from the indefensible subsidies in Quebec's daycare program itself -- the day care of a two-income family is subsidized to the same extent as that of a single mother -- the reality is that taxpayers in Ontario, Saskatchewan, Alberta and B.C. subsidize universal day care in Quebec, while no similar universality exists in their provinces.
Defenders of equalization argue that, because it is a federal program built with federal tax dollars, no province loses money. I.e., it's not as if provincial governments cut the cheques. That's technically true, but irrelevant.
There's only one taxpayer. When Ottawa spends more federal tax money on have-nots, it does so courtesy of taxpayers in B.C., Alberta, Saskatchewan and Ontario. Also, more federal money spent on equalization means less available for tax relief or some other purpose. Expressed another way, pretend there were no governments, but equalization yet existed. Families in the four have provinces would directly write the cheques to families in the six have-not provinces (and three territories).
And such cheque writing is expensive, especially when all federal transfers are lumped together and net federal fiscal contributions are calculated per family. Then, the severe imbalance for Canadian families in different provinces becomes even more apparent
As shown in a four-decade overview calculated in 2005 by the University of Calgary's Institute for Sustainable Energy, Environment and the Economy, the average Ontario family of four paid $3,032 annually to other provinces between 1961 and 2002, while a B.C. family gave $1,712 each year. An Alberta family shelled out more than $10,000 every year. (Saskatchewan is an anomaly in this calculation. That province is a "have" according to equalization calculations, but is a net recipient of federal transfers when other programs are included.)
Now the Tories want to increase equalization. That will make those imbalances more severe in most cases and do so by punishing B.C., Alberta and Saskatchewan by including half of all resource revenues in equalization calculations. Saskatchewan
Finance Minister Andrew Thomson properly called it when he said the Conservatives are trying to "buy Quebec votes with Western oil."
Saskatchewan is not expensive to live in, but the on-the-ground reality of increased equalization payments is that taxpayers in the other have provinces -- the high-cost provinces -- will see more of their tax dollars funnelled to those who live in low-cost regions.
There will always be some net federal transfers between provinces. That's unavoidable. If one province has low unemployment, federal Employment Insurance premiums will subsidize those with high unemployment. Also, equalization is a constitutionally protected transfer program. But that doesn't mean equalization has to be absurdly generous, or that it has to be increased.
- Mark Milke is the author of A Nation of Serfs?
© National Post 2007
MARK MILKE
Financial Post
Tuesday, January 23, 2007
The federal Conservatives are about to provide an example of how rational political behaviour can lead to irrational economic results. As it happens, the guinea pigs in this demonstration will be taxpayers in Ontario, British Columbia, Alberta and, to a lesser degree, those in Saskatchewan. Taxpayers in those provinces -- the "have" provinces, according to the federal equalization program -- will soon transfer even more cash to other provinces, the so-called "have-nots," especially Quebec, and this thanks to the Tories' desire for more votes in la belle province.
This will happen, if a French CBC report is to be believed, because the Conservatives will soon include half of natural resource revenues in calculations of equalization payments. Quebec Premier Jean Charest is hoping for at least an extra $1.5-billion.
For readers new to equalization, the program takes money from wealthier provinces and distributes it to poorer ones. The formula includes a five-province average of revenue-raising capacity. The general justification for equalization is that it allows have-not provinces to provide roughly equal government services to their citizens.
It's a weak argument. In fact, equalization encourages less-wealthy provinces to pay above-market wages to provincial civil servants and others, even though the cost of living is substantially less in, say, St. John's, Quebec City or Charlottetown, compared with Toronto, Calgary and Vancouver. It also encourages have-not provinces in their complacency on smarter economic policy and allows them to retard sensible development. (The Newfoundland government's continual Hugo Chavez-like demands regarding offshore-oil development is a case in point.)
Also, far from equalization providing provincial governments with "roughly equal" services, some provinces use the cash to provide programs unavailable in the very provinces where equalization money originates. As an example, think of Quebec's heavily subsidized daycare program.
Quite apart from the indefensible subsidies in Quebec's daycare program itself -- the day care of a two-income family is subsidized to the same extent as that of a single mother -- the reality is that taxpayers in Ontario, Saskatchewan, Alberta and B.C. subsidize universal day care in Quebec, while no similar universality exists in their provinces.
Defenders of equalization argue that, because it is a federal program built with federal tax dollars, no province loses money. I.e., it's not as if provincial governments cut the cheques. That's technically true, but irrelevant.
There's only one taxpayer. When Ottawa spends more federal tax money on have-nots, it does so courtesy of taxpayers in B.C., Alberta, Saskatchewan and Ontario. Also, more federal money spent on equalization means less available for tax relief or some other purpose. Expressed another way, pretend there were no governments, but equalization yet existed. Families in the four have provinces would directly write the cheques to families in the six have-not provinces (and three territories).
And such cheque writing is expensive, especially when all federal transfers are lumped together and net federal fiscal contributions are calculated per family. Then, the severe imbalance for Canadian families in different provinces becomes even more apparent
As shown in a four-decade overview calculated in 2005 by the University of Calgary's Institute for Sustainable Energy, Environment and the Economy, the average Ontario family of four paid $3,032 annually to other provinces between 1961 and 2002, while a B.C. family gave $1,712 each year. An Alberta family shelled out more than $10,000 every year. (Saskatchewan is an anomaly in this calculation. That province is a "have" according to equalization calculations, but is a net recipient of federal transfers when other programs are included.)
Now the Tories want to increase equalization. That will make those imbalances more severe in most cases and do so by punishing B.C., Alberta and Saskatchewan by including half of all resource revenues in equalization calculations. Saskatchewan
Finance Minister Andrew Thomson properly called it when he said the Conservatives are trying to "buy Quebec votes with Western oil."
Saskatchewan is not expensive to live in, but the on-the-ground reality of increased equalization payments is that taxpayers in the other have provinces -- the high-cost provinces -- will see more of their tax dollars funnelled to those who live in low-cost regions.
There will always be some net federal transfers between provinces. That's unavoidable. If one province has low unemployment, federal Employment Insurance premiums will subsidize those with high unemployment. Also, equalization is a constitutionally protected transfer program. But that doesn't mean equalization has to be absurdly generous, or that it has to be increased.
- Mark Milke is the author of A Nation of Serfs?
© National Post 2007
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