Editorial: Stealth equalization;: Practice of stuffing federal jobs into have-not provinces is form of transfer payment

Commentary, Equalization, Frontier Centre


If recent musings from Atlantic Canada and Quebec are any indication, Western Canadians should be reassured that positive change is possible in any part of the country.
Over the past week and month, prominent players in business and political circles from Eastern and Central Canada made it clear the dysfunctional dependency on federal largesse — largely financed by Western Canada, must end, and that such transfers in their current form may be doing more harm than good.
Just last week, New Brunswick scholar Donald Savoie said the Maritime region "can’t embrace the status quo, it’s just not viable anymore." Similarly, University of New Brunswick chancellor and business magnate Richard Currie called New Brunswick a "failing province because the rest of Canada has been too indulgent toward it."
Even the NDP, in charge of Nova Scotia, asserted that "a stronger and more prosperous Atlantic Canada" is necessary, although the NDP plan to do that through yet another fund for business rather than simply reining in large government in that province.
Still, quibbles about methods aside, such voices can be added to some from Quebec, such as Conservative member of Parliament Maxime Bernier. Last month, in a Toronto speech, Bernier argued that "instead of sending money to the provinces, Ottawa should cut its taxes and let them use the fiscal room that has been vacated. "Such a transfer of tax points to the provinces would allow them to fully assume their responsibilities, without federal control," noted the former federal cabinet minister, now a more outspoken backbench member of Parliament.
One doesn’t have to wholly take Bernier’s position to recognize something must be done about federal equalization and transfer programs.
In a report released today, the Frontier Centre for Public Policy highlights the inequities in the current federal approach. The centre also reveals a new wrinkle: In addition to the unintended consequences of equalization — have-not provinces get cheaper tuition, cut-rate day care and more doctors per population — "stealth equalization" also exists courtesy of the practice of stuffing federal jobs into have-not provinces.
So the share of federal employment in most provinces that receive equalization payments is much larger than it is in Ontario. The Frontier Centre points out that is odd because, given the national capital is in Ontario, one would expect the ratio to be higher in that province.
Instead, Ontario has 1,742 federal employees per 100,000 residents — barely above the national average of 1,602. In contrast, Prince Edward Island has 3,657 such employees per 100,000 people while Nova Scotia and New Brunswick have similarly high ratios. In the West, and as per that measurement per 100,000 people, Alberta has 936 federal employees, British Columbia has 1,187, and Saskatchewan has 1,210, all below the national average.
Westerners who long assumed Ottawa artificially propped up employment in Atlantic Canada were correct; such figures are no mere coincidence.
In terms of reforms to equalization, we can think of at least one: the federal government should calculate equalization based on market prices for underpriced ownsource revenues. For example, both Manitoba and Quebec undercharge residents for their provincially owned hydro electricity; that has the effect of dampening ownsource revenues, which means both provinces are eligible for more equalization — funded by Albertans and other westerners — than would otherwise be the case.
In his recent comments, Donald Savoie said federal transfer payments have become "like a drug." He said he has always had "great difficulty with the dependency syndrome we have in this province (New Brunswick)."
He is right, and it is refreshing to see the candour now coming from not only Quebec but from Atlantic Canada.