Don’t Believe all that Talk about a Fiscal Imbalance

Equalization, Frontier Centre, Uncategorized, Worth A Look

Premier Gordon Campbell’s trip to Ottawa to chat with Prime Minister Stephen Harper — and to hit up Ottawa for money — is a Canadian tradition almost as old as Quebec sugaring-off parties, lacrosse and the fur trade.

Before 1867, the colonies (later the provinces) were the largest revenue collectors in British North America. In 1866, out of total government revenues of $20 million, 70 per cent ended up in the colonies, 30 per cent in municipalities.

Post-Confederation, the roles reversed.

Seven years after Confederation, in 1874, two-thirds of tax dollars flowed to Ottawa, 24 per cent to the cities, and the provinces had nine per cent of the country’s revenues. Ever since, the provinces have complained they are stuck with the expenses while Ottawa has all the money.

The provincial claim was questionable in the 19th and 20th centuries, and more so now. Provincial governments take in more revenue than does the federal government.

One reason transfer payments exist is because Ottawa only agreed to hand over money to avoid the risk of provincial tariffs on each other’s goods.

Building a new country that could block American expansion was difficult enough. Try to do that when provinces put up in-country barriers to trade.

So the federal government agreed to hand over money to the provincial governments at 80 cents per person.

This was, a later writer noted, to be the “full and final” settlement of all claims by the province upon the new government.

Fat chance. As additional provinces joined the new country in Canada’s first decade, special deals were made. Those agreements mostly stuck for 40 years, a contrast to today’s federal-provincial buck-passing where the premiers barely finish signing one arrangement before they gang up on Ottawa to press for expanded entitlements.

A year after Alberta and Saskatchewan were proclaimed as provinces in 1905, Prime Minister Wilfrid Laurier convened a conference to reconsider the subsidy question and changes were made in the provinces’ favour. Subsidies were increased by one-third. That was again to be the final federal-provincial deal.

One hundred years later, the B.C. premier and all the rest still hit up Ottawa for cash even though the claim of provincial budget starvation is weaker than ever. As of 2006, the federal government transfers $62.7 billion to the provinces and territories in cash and tax transfer points every year.

But what of the claim that the provinces have all the expensive programs and the feds are sitting on a surplus of cash?

Consider one straightforward comparison, debt interest.

Interest on the federal debt accounts for 16.3 per cent of its total revenues; B.C.’s equivalent is 6.3 per cent. As for programs, the “proper” amount to be spent is impossible to objectively define. It depends on what’s valued, relative priorities and multiple other factors.

If the province really thinks it needs more revenue — a dubious claim — it could always hike taxes. The federal government and the provinces are roughly equal in their capabilities to tax us.

Campbell will receive commitments from the prime minister on a number of high-priority budget items already pledged by the previous federal government, Olympic funding and $600 million in Gateway infrastructure among them. Harper wants B.C. votes as much as Paul Martin did.

But the premier should refrain from continually asking Ottawa for more for one simple reason. When money between provinces is transferred, Ottawa is merely the recycling depot for those tax dollars and B.C. loses in the process.

Because of how equalization and transfer programs work — “have” provinces pay more to Ottawa and receive less so “have-nots” can pay less and receive more — the last thing a have province like B.C. should do is pester Ottawa for additional recycling.

All that does is ensure British Columbians, with their expensive housing costs, will see more of their money end up elsewhere, where such outlays are substantially less.

This explains why Prince Edward Island receives $3,291 per capita in federal transfers while British Columbians receive $1,570 per person.

That’s the real imbalance in this country, not the fictitious “fiscal imbalance” between Ottawa and the provinces, consistently brought up by the premiers every time they meet with the prime minister.

Mark Milke is author of the forthcoming A Nation of Serfs?