Report Pans ‘Stealth Equalization’;: Analysis Think-tank says fed jobs in New Brunswick, other provinces amount to additional transfer of money from Ottawa

Media Appearances, Equalization, Frontier Centre


With the third-largest per-capita concentration of federal government jobs in Canada, New Brunswick is a "have-not" province that’s dependent on a hidden system of "stealth equalization" from Ottawa, says a new report from the Frontier Centre for Public Policy.
The 24-page document, entitled Stealth Equalization: How Federal Government Employment Acts as a Regional Economic Subsidy in Canada, will be released today by the independent, non-profit think tank.
Written by policy analyst Ben Eisen, the paper relies on Statistics Canada data to show that the federal government employs dramatically more public servants, as a proportion of the population, in the major equalization recipient provinces of New Brunswick, Prince Edward Island, Nova Scotia and Manitoba, than in other parts of the country.
"These data show that taxpayers in paying provinces bear an additional financial burden through stealth equalization because they are also forced to subsidize a bloated public sector at the federal level in the have-not provinces," the report states.
In New Brunswick and Manitoba, the rate of federal government as a proportion of the population is about 63 per cent higher than the national average with 2,655 and 2,619 jobs per 100,000 residents respectively, according to the document.
In New Brunswick, those jobs account for $1.17 billion in federal spending on salaries.
The highest per-capita concentration of federal jobs is located in Prince Edward Island with 3,657 jobs for every 100,000 residents. In Nova Scotia, the rate of federal employment is twice as high as the national average with 3,210 jobs – this is 84 per cent higher than Ontario.
Quebec, which also receives transfer payments, has 1,378 federal government employees per 100,000 residents.
Eisen maintains that the money used to pay federal government employees in the have-not provinces "constitutes an additional transfer of wealth from Canada’s most productive provinces into the economies of the have-not provinces.
"This transfer can be viewed as a sort of stealth equalization payment that extracts additional money beyond official equalization from taxpayers in the paying provinces and transfers it to the recipient provinces," he states in his report.
He said this system of regional equalization transfers has had a negative impact in the paying provinces by increasing the tax burden for residents who live there.
"Furthermore, Canada’s system of regional transfers has underminded the country’s competitiveness and productivity, a phenomenon which has a direct and adverse effect on the quality of life of Canadians," the report states.
This latest report follows another report from the Frontier Centre earlier this year that outlined some negative consequences – namely its role in contributing to disproportionately large provincial government public sectors – of Canada’s equalization program, which transfers billions of dollars annually from so-called "have" provinces to "have-not" provinces, which include Prince Edward Island, Nova Scotia, New Brunswick, Quebec and Manitoba.
This money is directed to provincial governments which don’t have sufficient local economic activity to raise enough public revenue to deliver essential services.
In 2009/10, Ottawa will direct more than $8 billion in federal transfer payments to Quebec. It will also send between $1 billion and $2 billion per year to Nova Scotia, New Brunswick and Manitoba. Prince Edward Island will collect $340 million this fiscal year, or nearly $2,500 per island resident.
Eisen said the transfer of billions of dollars each year to low-productivity provinces has stunted economic development, thereby maintaining inefficient economies built on the public sector.
"These provinces have become stuck in a cycle of dependency on economic activity elsewhere … these different forms of regional subsidies create a very large, thick public sector," he said in an interview.
Eisen said this trend takes quite a bit of the "dynamism and entrepreneurial" spirit out of the economy.
"It drains a great deal of the best and brightest talent in particular provinces and creates a huge incentive for them to pursue government work," he said.
But David Murrell, an economics professor at the University of New Brunswick in Fredericton, is critical of Eisen’s report and said that it doesn’t provide any statistical proof that this brain-drain to the public sector is actually true.
"The report doesn’t show any cause-and-effect relationship of transfer dependency," he said.
Murrell points out that the paper does not take into account that both Nova Scotia and New Brunswick have large military bases – Halifax has the country’s largest navy base and Canadian Forces Base Gagetown is one of the country’s largest army bases.
"It makes sense to put military bases on the periphery, the outer rim, of a country because that’s where your defences should be and less in the centre," he said.
Murrell said in the absence of context in the report about the make-up of the federal government jobs in these areas, it may contribute to feelings of resentment within the "have" provinces.
As well, he said that Eisen fails to prove the accuracy of his statement in the report that this so-called stealth equalization system "is dangerous because it is hidden from public view, has grown unobtrusively over the decades and has never been publicly debated."
The report doesn’t provide any data to actually show that the bureaucracy has grown in these areas over time, he said.
Furthermore, Murrell said he was surprised that Eisen didn’t focus on the lack of federal government employment in western Canada.
"It’s not that there’s too much (federal government employment) in the Maritimes, but that there’s too little out west – they could have made that point and the facts back that up," he said.