Federalism’s Free Lunch: Why should Alberta taxpayers have to pay for PEI to provide students with free college?

Commentary, Equalization, Frontier Centre

Maxime Bernier is right: End transfer payments to the provinces. Let Ottawa give them greater room to tax their own residents, but let provincial legislatures also have to make the tough choice to increase taxes on their own citizens if the politicians want to spend more on health, education, welfare and other provincial functions Ottawa is now subsidizing.

Consider, for instance, that the PEI government is contemplating eliminating tuition for the more than 5,000 Islanders who attend one of the province’s two post-secondary schools, University of Prince Edward Island and Holland College.

After having faced protests this past spring up over planned tuition hikes (and with the potential of facing voters sometime next year), Premier Robert Ghiz launched the free-tuition trial balloon this week.

Speaking to the Summerside Chamber of Commerce, Mr. Ghiz was mostly musing when he said “When you look at post-secondary education, it’s still a privilege to attend an institution,” but “I think we need to make it more of a right. Some European nations today have made post-secondary education tuition-free in a lot of those jurisdictions.” His government has no immediate plans to eliminate fees to attend UPEI or Holland College, but the premier said he could see it happening over the next decade as part of a way to increase access to higher learning for the Island’s young people.

Fine, if that is something you can get Island voters behind, go for it, Mr. Premier.

The only problem is, why should taxpayers in other provinces have to fund this newfound Island right to higher education? Why should taxpayers in have provinces, who send billions annually to governments in have-not provinces, have to fund the transfers that will help eliminate tuition in PEI, while their own kids struggle to pay the tuition of public institutions in their own provinces?

That is why Mr. Bernier is right. If the PEI government had the obligation to pay for its dreams on its own, there would be no dispute. I might have an opinion about free tuition (it encourages perpetual studenthood), but, as the resident of a have province (Alberta), I would have no stake in it. I could offer advice, but would have no grounds to oppose Mr. Ghiz’s idea.

But because of fiscal federalism, Mr. Ghiz’s blue-skying very much concerns me. He is free to think his fanciful thoughts because he can be assured that he will not have to take all the political consequences for his pie-in-the-sky planning. Indeed, he is free to think thoughts far more fanciful than he might if he had to take the full political hit for the taxes that go along with his daydreams.

Whether consciously or unconsciously, Mr. Ghiz knows that under our current arrangements, Ottawa will happily help him finance his scheme by dipping into the pockets of have-province taxpayers to defray the cost.

Of course, Islanders still would have to pay a portion of their kids’ free tuition through their income tax. And wealthy Islanders would have to pay a fraction of the federal education transfers through their federal income tax.

But the basic point is sound. Since residents in have provinces fund federal transfers disproportionately, a resident of Mississauga, who is paying $5,000 a year for his kid to attend an Ontario university, is then forced to pay higher federal taxes, too, so that Robert Ghiz can try to woo young voters to his Liberal government by promising them “free” tuition.

The connection between policies and costs helps politicians find the balance between what voters are demanding and what taxpayers are willing to pay for.

If provincial politicians can lay off some or all of the cost of their plans on taxpayers in other provinces — as our current transfers and equalization payments permit — there will be no incentive for them to make sound choices.