What the Federal Budget Means for the West

Commentary, Taxation, Steve Lafleur

The 2012 federal budget may be summed up on one word: Predictable. Very few of the initiatives announced by Finance Minister Jim Flaherty were unexpected — except perhaps the widely supported elimination of the penny. Despite the desire of most Canadians for fiscal restraint, the government has once again increased spending. This is unfortunate, given the amount of debt with which the current government has already saddled Canadians. Years of spending measures aimed at winning over key demographic groups have helped push federal spending to unsustainable levels. Real austerity measures would have been welcomed. But from the perspective of the three westernmost provinces, there were some promising measures that are worth mentioning.

Canada's three westernmost provinces are facing very different challenges than the rest of the country. Their economies are doing very well. Their challenges are created by external, rather than internal factors. As resource-based economies, they are dependent on a responsive regulatory system to ensure that projects can get online reasonably quickly. Outside pressure from over-zealous environmentalists and the current regulatory framework threaten to undermine productivity in the resource sector. The government budget attempted to address these concerns by streamlining the process. So long as it doesn't undermine the effectiveness of the environmental review process, it will be a significant boost to resource rich provinces.

The other external factor that inhibits the westernmost provinces is the difficulty they face in attracting enough skilled labour. Much of this needs to come from immigration. The budget has taken some steps to address this issue. Though vague, the reforms affirmed in the budget ought to help. While these changes had mostly been announced in advance, they do signal federal recognition of the enormous labour shortages affecting Alberta and Saskatchewan in particular.

The new policy direction will focus on recruiting immigrants ready to be integrated immediately into the workforce. It ought to help ease current and future labour shortages. But while the changes will be significant, it is unfortunate the federal government has not committed to a significant expansion of the Provincial Immigrant Nominee Program, which gives provinces the ability to match directly foreign workers with domestic employers. The program has been an overwhelming success. Expansion of that program would have been preferable to the changes undertaken, though the two aren't mutually exclusive.

In addition to immigration, the westernmost provinces also benefit from an influx of labour from the rest of the country. But as Saskatchewan Premier Brad Wall has pointed out, the employment insurance program often inhibits labour mobility. Since people in some regions of the country can qualify for nearly a full year of benefits after just over 10 weeks of work, there is almost no short term incentive for E.I. recipients to move to regions where jobs are plentiful.

However, staying out of the labour force diminishes their life prospects because they forgo some of the work experience that would help them get ahead in the future. While it is important to ensure that social safety takes care of people during periods of unemployment, we need to ensure that we are not maintaining a cycle of poverty. Several minor tweaks to the E.I. program presented in the budget will help to strengthen incentives for E.I. recipients to consider moving west for work. This is welcome news for the westernmost provinces.

Other initiatives that will favour the three westernmost provinces are the changes to the Canada Health Transfer (CST). Growth in the CST will be curtailed, giving provinces more responsibility over growing health budgets. Since residents of these provinces pay a higher percentage of the federal income tax bill per person, it amounts to a savings. Moreover, the federal government is moving to a strictly per capita transfer that will favour the younger populations of western provinces since their per capita healthcare costs are lower. Increasing the age to qualify for OAS from 65 to 67 will have a similar benefit for the westernmost provinces. Since they have younger populations, they receive less in benefits from the program. The savings won't materialize for a few years, but it will be a long term benefit.

While the budget leaves much to be desired for the three westernmost provinces and the rest of the country, Alberta, Saskatchewan, and British Columbia did see some significant benefits. The budget also represents a slight move toward more provincial fiscal autonomy, which is an improvement.

Nevertheless, all provinces would have benefited immensely from a more aggressive move toward balancing the budget. Taxpayers in distressed provinces have enough of a debt burden to worry about from their own governments. The squeeze from increased federal spending will have us all searching the couch cushions for discontinued pennies.