Dollars and Sense: A Case for Modernizing Canada’s Transfer Agreements

Publication, Equalization, David MacKinnon

The Problem Is Intractable

In economic and financial terms, the problems summarized earlier are intractable.

Broadly speaking traditional recipient jurisdictions have the following characteristics:

a combination of excessive public sectors and relatively small private sectors: Barring great good fortune, such as offshore oil in Newfoundland and Labrador, the performance of recipient jurisdictions relative to other provinces and indeed the world around them cannot be expected to improve because of this combination. Indeed, with the exception of Newfoundland and Labrador, the performance of recipients relative to contributors has changed little in 30 years;

excessive expectations by citizens of what government should do for them: The scale of government in Manitoba, Quebec and Atlantic Canada is relatively excessive, leading to two generations which have grown to maturity with these expectations, making them very deeply entrenched;

high debt levels: The gross public debt levels of Manitoba, Quebec, New Brunswick, Nova Scotia, P.E.I. and Newfoundland and Labrador range from about 25 percent of GPP to 50 percent, with Quebec’s ratio the highest. These ratios can be expected to deteriorate seriously in future years which will increase pressure for support, via the federal government, from taxpayers in Ontario and elsewhere who are grappling with their own provincial debt problems;11

in some cases, active cultures of resentment against contributing jurisdictions: citizens of Alberta and Ontario should not imagine for a moment that their past contributions to receiving jurisdictions have bought them any goodwill.

The problem is intractable politically as well:

• the lack of understanding of the regional subsidy system, by federal political leaders – particularly those from Ontario – is routinely evident. In addition, the subject is never debated in the House of Commons, which leads one to infer there is a lack of political will to debate the issue;

• the culture of entitlement makes it very difficult for leaders in recipient jurisdictions who recognize the need for change to address the subsidy issues. Recent commentary on the appropriateness and constitutional legality of Canada’s transfer arrangements by Quebec MP Maxine Bernier, a former federal Minister, is a welcome attempt to generate more public debate on this issue. Aside from the efforts of two think tanks in Atlantic Canada and Manitoba, recognition of the problems associated with regional subsidies is very limited in recipient provinces;12

Finally, Canadians have embraced minority governments for several years and the prospects for change are not yet in evidence. This makes fundamental change of any kind very difficult.

Reprinted with the permission of the Ontario Chamber of Commerce.

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