Recently Newfoundland Premier Danny Williams and Nova Scotia Premier Rodney
MacDonald have been complaining that the federal government has broken the
Atlantic accord on equalization payments.
The federal Conservatives’ Atlantic MPs have been on the verge of a caucus
revolt on the same issue, too.
But the criticism is mostly demagoguery. All the feds are trying to do is
cap equalization payments to any “have-not” province that becomes richer
than Ontario, the least-wealthy “have” province.
Instead of continuing to send ever-increasing equalization to Newfoundland
and Nova Scotia once their resource wealth pulls them ahead of Ontario,
Prime Minister Stephen Harper’s government wants to include half the
resource income these provinces receive in the calculation whether or not
they are richer than Ontario. And when they reach that level, Harper wants
to put a hold on their equalization.
Once they are richer than Canada’s most-populous province, they can keep the
equalization they are getting. They just cannot expect more beyond that.
The Atlantic premiers insist this breaks a deal they had with Harper and his
predecessor, Paul Martin. They claim both guaranteed their resource income
would not be included in calculations of their eligibility for equalization.
That’s true. But it’s also beside the point.
Both Harper and Martin agreed to the insane proposition that Atlantic
provinces should continue to receive rich equalization even after
technically becoming “have” provinces.
However, in the spring budget, the Conservatives decided to enrich the
equalization pot to eliminate the so-called fiscal imbalance. The feds said
to receiving provinces they would have a choice: keep their old equalization
arrangements or agree to the new formula.
The only catch was, to get the new payments, they would have to include half
of their resource income in the calculations of their eligibility. If they
wanted to shield their resource income from being included, they would have
to stick with the older, lower payments.
That’s what the Atlantic premiers and MPs are up in arms about: They want
the new higher equalization and their old resource-income shield.
They want to gorge on other people’s tax dollars in perpetuity without
having to make a potentially politically damaging choice.
Sensing that the political pressure on Harper to cave into Atlantic demands
was becoming irresistible, Ontario Premier Dalton McGuinty this week told
the PM there would be political consequences on the other side, too, if he
went back to the old arrangement favoured in Atlantic Canada.
Ontario, he said, has been supportive of federal efforts to equalize
services in the have and have-not provinces through massive cash transfers.
But McGuinty warned that support would evaporate, “if we find ourselves in a
position where we are contributing to equalization payments to provinces
which have a fiscal capacity which exceeds ours.”
Albertans are the largest per capita contributors to equalization. But
Ontarians in some ways receive the rawest deal.
According to calculations by the Atlantic Institute for Market Studies,
Ontario is the third-richest province before equalization. But when the
relative cost of paying for public services in each province is accounted
for, Ontario’s provincial government is the least able to afford health,
education, welfare and other public programs after equalization.
The greed of the have-nots is further evident in the fact that equalization
is but one-quarter of all federal transfers to the provinces. As Fred
McMahon of the Fraser Institute pointed out this spring, for example, Ottawa
spends “nearly twice as much per person in Nova Scotia as Ontario” even
before equalization payments are added to the mix.
Federal monies make up nearly 60 per cent of Newfoundland’s provincial
spending and nearly 40 per cent of Nova Scotia’s, even though in the past
two decades both provinces have moved from having per capita incomes of less
than 70 per cent of the national average to having ones more than 90 per
cent as large.
Even as they have become richer, the Atlantic provinces have received more
and more equalization.
Now their governments are claiming they are being robbed because the Harper
government will no longer agree to send more money still, regardless of how
well their economies are doing.
Equalization, too, long ago ceased to go to services for Atlantic Canadians.
Now more than 70 per cent of new transfer dollars go to expanding provincial
bureaucracies and paying Atlantic public servants the highest
purchasing-power-adjusted public salaries in the country.
McGuinty is right. Ontarians shouldn’t sit idly by as other provinces pull
ahead of his while Ontario pays a big share of the costs. And neither should