Voting with their Feet

Commentary, Taxation, Frontier Centre

During the recent election, a local TV journalist challenged Tory Premier Gary Filmon on his claim that Manitoba was losing residents to lower-tax jurisdictions. "Have you got a list of people who have left because of high taxes?" the reporter asked.

Although the premier didn’t try to answer the reporter’s sucker-question, the interview was arguably the best moment in the defeat-bound Conservatives’ lacklustre campaign. Wouldn’t you know it, though, less than three weeks later a study by the Royal Bank put flesh on Filmon’s rhetorical bones. Using hard data from the 1991 and 1996 censuses, it confirmed that economically promising Manitobans have been leaving for other provinces in significant numbers.

"Interprovincial Mobility of Highly Skilled Workers", written by the Bank’s deputy chief economist, Lise Bastarache, draws a sorry picture. Over those five years, Manitoba lost about 5% more university graduates than it attracted. We also lost more "knowledge" industry people than we gained, the deficit in this category running at about 3%. Saskatchewan did even worse, with the respective numbers coming in at minus 8% and minus 5%.

Trends since 1996 were also included, and how Bastarache arrived at them is interesting in itself. She found a hard, consistent correlation between provincial employment growth – the number of new jobs created – and the movement of workers. That seems puzzling. Why would anyone move to a place where work is not available? But that reliable statistical link did allow Bastarache, basing her estimates on the more frequently gathered job-creation data, to project interprovincial migration since 1996.

The picture since 1996 looks better for the Prairies, with both Manitoba and Saskatchewan improving their performance. But their gains are dwarfed by Alberta’s new-job creation rate, which is about twice theirs. And the downward trend in job prospects for the latter provinces should continue, with Manitoba’s losses stabilizing at current levels and Saskatchewan’s expected to become sharper.

In an interview, Bastarache cautioned against using the other link in Filmon’s logical chain, namely his thesis that tax rates figure most prominently in the decision to move to another province. She said that job growth was a more important factor and that tax cuts in places like Ontario and Alberta – due to a variety of factors – have not been as generous as a quick glance would suggest. In her Royal Bank report, however, she went so far as to say, "Those two provinces have the added attraction of having the most competitive provincial tax environments in the country."

Reports that Alberta is thinking about abolishing its provincial income tax, therefore, should cause alarm bells to ring in Winnipeg and Regina, where NDP governments now hold power. Pointing to low unemployment rates in Manitoba and Saskatchewan as proof, their core labour union supporters still maintain that we are not over-taxed. Bastarache counters that those rates are low precisely because so many people have already left. Fewer available hands mean fewer idle ones.

Alberta Treasurer Stockwell Day sees the abolition of his province’s income tax as a magnet that attracts other Canadians. "If you had the possibility of moving to a jurisdiction in Canada where you wouldn’t be taxed, I know what a lot of Canadians would do. There is no question in my mind." (Day’s own family moved from Montreal 30 years ago to take advantage of a lower tax burden.)

What rankles most about the Royal Bank study, however, is that population losses in two of the prairie provinces are highest among highly educated, highly paid workers. Bastarache insists that new policies like increased funding to university students or tax breaks for graduates will do little to change that. "The challenge," she says, "seems to reside not in funding the education of university graduates, but in retaining them in their home province or attracting new ones from other provinces." Québec and Newfoundland spend a higher percentage of GDP on post-secondary education than other provinces, yet their out-migration rates for skilled workers remain high.

The recent departure of Nortel and 175 high-paying brainpower jobs from Winnipeg is, or should have been, a wake up call for Manitoba policy-makers to get our taxes down. While corporate-speak about consolidation was the official reason, the word on the street is that Nortel pulled the plug because it simply could not attract highly skilled people from elsewhere. The real reasons: excessive taxes and the realization that Winnipeg is not "where the action is" for ambitious people.

To restore our competitive edge, we need to learn to produce higher-quality public services on lower budgets with lower taxes. If nothing happens on this, expect the trickling away of Manitoba’s best and brightest to become a flood.