The Provinces are Broke, and We’re All on the Hook

Worth A Look, Equalization, John Ibbitson

A spate of bad news Tuesday reminds us that provincial governments, collectively, have a bigger impact on the national economy than Ottawa. By that measure, we’re in some trouble.

The B.C. Liberals unveiled a pre-election budget Tuesday that actually raises corporate and income taxes. Finance Minister Mike de Jong had little choice: Despite claiming that they can be trusted to manage the store better than the NDP, the Liberals have posted a string of missed targets and subsequent deficits.

In any case, the B.C. budget won’t be passed. An election is slated for May and that is not, it appears, sufficient time to get the budget through the legislature. If the polls hold, NDP premier Adrian Dix’s finance minister will have to put something together quickly after being sworn in.

Next door in Alberta, voters are discovering that budgets are merely aspirational – a finance minister dreaming a dream. The cold splash of reality arrive Tuesday with word that falling oil prices have transformed a projected deficit for this year of just under $900-million into one of around $4-billion.

When the government of Canada’s richest province can’t balance it’s budget – can’t even come close, can’t even guess close – then Alberta voters must be asking themselves just why they awarded the Progressive Conservatives a 12th (by my count) consecutive mandate.

At least Alberta Finance Minister Doug Horner was honest in owning up to the botched forecast. (Though he had little choice; it was time for the third-quarter update.) The new Liberal government at Queen’s Park operates on an entirely different plane of candour.

In her first speech from the throne, Premier Kathleen Wynne promised Tuesday to expand transit, create jobs for youth, bolster welfare payments, shut down more coal-fired power stations, upgrade municipal infrastructure, continue implementing full-day kindergarten – and balance the budget in four years.

Ms. Wynne needs the NDP’s support to prop up her minority government, and equally cannot afford a major downgrade from the ratings agencies. It’s a circle not easily squared.

As I wrote in my previous column, none of this compares to the fiscal calamity that awaits the Maritime governments. Their chronic deficits, shrinking tax base and aging populations – made worse by a wholesale abandonment of the region by young workers – have them on a path to insolvency.

Canadians everywhere need to worry when provincial government across the country cannot or will not make the hard decision needed to bring their deficits under control. After all, the national debt is the sum of the federal and provincial debts. Ultimately we’re all on the hook.

There is little Finance Minister Jim Flaherty can do, apart from bringing the federal budget back into balance despite lower-than-expected federal revenues. Provinces are powerful entities, sovereign in their spheres of jurisdiction and fully able to tax and spend and borrow as they see fit.

(It must comfort Mr. Flaherty no end that the socialist separatists in Quebec City are one of the few provincial governments in Canada actually committed to balancing their budget.)

The federal Finance Minister has only the bully pulpit, and it’s not much of a lectern.

But those provinces that receive equalization support should take note: The largest “have” provinces are all running deficits. You can imagine how their premiers will react if one of the “have not” provinces proposes expanding the program when it comes up for renewal next year.

Ain’t gonna happen. Everyone’s broke.