PQ Secretly laughing about Harper Government’s Naive Transfers Policy?

Commentary, Equalization, Peter Holle

In general, Canadians continue to perceive the Harper Government as being the most competent fiscal stewards of our national government finances according to recent polls.  Relative to the difficult positions Europe and the USA find themselves in, where yawning deficits and sluggish growth cast a grim shadow,  Canada comes off looking comparatively like a star.

Canada’s position is superior because the Chretien Government made some tough spending cut choices during the mid-1990s.  Finance Minister Paul Martin sharply cut federal spending, including federal transfers to the provinces, to repair Canada’s deteriorating financial position.  Not coincidentally, the reduction in transfers forced the provinces to rethink many of their own spending programs and policies, and they were forced to do more with less and simply to be smarter within more parsimonious budgets.

Bizarrely, The Harper Government continues to ignore an obvious opportunity for combining spending control with long overdue reforms of a major federal government spending envelope – federal transfers.   This week I have watched both the Prime Minister and Finance Minister proudly say on TV that their government is not cutting transfers to the provinces, as if that was some terrible thing to do.

Of course, keeping the easy money flowing has its own unintended consequences.  Here in Manitoba many of my fellow policy mafia would agree that this naïve magnificence has kept the present provincial government in power a term or two longer than it deserved to be mainly by propping up old policy models that desperately need creative reform.   Manitoba has the most expensive education system (yet almost the lowest performing – second from the bottom in recent comparisons) in Canada and one of the most inefficient healthcare sectors as well. Possible only because federal transfers now make up 37% of the provincial budget.

More obvious this week is how these boy scout transfer policies reward anti-growth policies in Quebec.  The new Parti Quebecois Government has cancelled the small university tuition fee increases the Charest Liberal Government had imposed earlier this year.  These had prompted the comedic student strikes over nothing much.  The cheapest university fees in Canada and such policy luxuries as seven dollar a day public daycare are paid for by huge federal transfers (try $7.6 billion in equalization this year).  Of course, This “la la land” of social democracy would not be possible in the absence of such massive transfers.

An article in today’s National Post further illustrates the naiveté of the Harper Government’s refusal to touch transfer programs.  The new Quebec government has announced a policy to ban the development of that province’s shale gas resources.   The following excerpt captures the issue well:

A growing number of people are questioning the fairness of provinces refusing to develop natural resources and then benefitting from equalization payments. Quebec is a net beneficiary of equalization, receiving $7.6-billion in 2011-2012. “It is within the freedom of the Quebec government to decide that they’re not going to exploit certain resources they could exploit safely,” said Michel-Kelly Gagnon, president of the Montreal Economic Institute, a free-market think-tank. “But if they decide not to, the taxpayers of Alberta and of other provinces shouldn’t have to pay for that.”  Mr. Kelly-Gagnon likened the situation to a welfare recipient who says he doesn’t want to work even if he is able, arguing the taxpayer should be free to withhold financial assistance to him.”

Clearly, it is time to reform the dysfunctional transfer system that rewards poor policy in recipient provinces like Quebec, Manitoba and the rest of the so-called “have not” provinces.   In 2014 these transfer payment agreements must be renegotiated between Ottawa and the Provinces.

Hopefully, the advisors who have convinced the Harper Government leadership that the present transfer payment model is a good thing for the country will have been fired.

The good news is that several organizations have recognized the urgent need for some fresh thinking on equalization.   You can read more about this coalition by clicking this link.