HALIFAX — In a speech yesterday, Federal Finance Minister Hon. Paul Martin said that he was supportive of a major policy initiative recently advanced by the Frontier Centre for Public Policy in collaboration with two other public policy institutes.
Speaking to the Greater Halifax Chamber of Commerce about his recent budget, the Finance Minister was asked whether he would consider replacing federal spending on job creation and economic development in less developed regions with lower federal tax rates. The minister responded that he was favourable to the idea, and had already explored it with a number of premiers from both developed and less-developed parts of the country and found significant support for the concept.
In November, Atlantic Institute for Market Studies President Brian Lee Crowley, together with the heads of two other think tanks representing all the equalization receiving provinces in Canada, proposed just such an idea. Drawing on the work of Prof. James Buchanan, Nobel Laureate in Economics, Crowley, together with Peter Holle of the Frontier Centre for Public Policy and Michel Kelly-Gagnon of the Montreal Economic Institute proposed replacing Ottawa's major transfer to the less-developed provinces — equalization — with a reduction in the federal tax rate in those provinces.
The argument was developed in an op-ed piece published in the National Post . According to Crowley, the advantage of a tax-based approach is that, "Direct transfers between governments are inefficient, creating too many opportunities for patronage and low value use of tax dollars on pork barrel projects and short term creation of poor quality jobs. By leaving more money in the hands of individuals and companies that create value in the local economy, genuine sustainable economic development is encouraged, while governments would be kept lean and focussed on their core mission."
While the work of the three Institutes was focused on equalization, the general principle is applicable to many federal spending programmes in the less-developed parts of the country, including the job creation funds Minister Martin referred to.
Such differential federal tax rates already exist in Canada. For example, taxpayers in the province of Quebec get a federal tax abatement.