Fiscal Imbalance or Inequity?
The Fiscal Imbalance (or balance, depending who you talk to). Is it really the most important issue in Canada today?
Equalization has become such a convoluted and mathematical process as to make it nearly irrelevant. The way transfer payments are calculated makes even the most prominent mathematicians blush. We're all taught from a fairly early age the 5 keys in any situation - Who, What, Where, When and Why (sometimes how). Equalization makes sense in a Federation such as ours. The economies of all the provinces are entirely, at times, divergent. Alberta has a resource based economy... Ontario manufacturing... Newfoundland a burgeoning resource economy. How can we possibly calculate how the federal government distributes monies...
Here's a more apt question - Why don't we take services into account? Everyone is talking about whether resource amounts should be included. Shouldn't Quebec's generous social programs be included? Why isn't PEI's subsidization of Gasoline included? Ontario spends money running a provincially regulated liquor chain... BC runs it's own Insurance Corporation. All the talk lately has been about resource income. Not just any resources, but those of a non-renewable kind. Finally, there is plenty of talk about Economic "capacity". What exactly does that mean?
To find out, I checked some fairly accessible references. I took a look at Andrew Spicer's well referenced blog.... very good stuff... lets look at some numbers:
Below is each province's share of contribution to equalization:
PEI: $31M
NB: $176M
NL: $129M
NS: $244M
MB: $311M
QC: $2,218M
BC: $1,315M
SK: $317M
ON: $4,283M
AB: $1,751M
Here's how much each province received:
PEI: $277M
NB: $1,326M
NL: $762M
NS: $1,313M
MB: $1,607M
QC: $4,155M
BC: $652M
SK: $682M
ON: $0
AB: $0
Therefore, the net for each province was:
PEI: +$246M
NB: +$1,150M
NL: +$633M
NS: +$1,069M
MB: +$1,296M
QC: +$1,937M
BC: -$663M
SK: +$365M
ON: -$4,283M
AB: -$1,751M
A couple interesting things to note:
BC actually got back less than it would have saved if there was no equalization program at all
Nearly 44% of the contribution to equalization revenues comes from "have not" provinces
Here is something interesting - and it's worth restating:
Nearly 44% of the contribution to equalization revenues comes from "have not" provinces
Can anyone explain to me why - logically - have not provinces are even paying into Equalization?
Notwithstanding my own opinions on Equalization, I can't really fathom why provinces that recieve an INCOME from the program are having to pay monies at all.
Frankly, I don't understand why Albertans and Ontarians have to pay for the social excess of Quebec or the gasoline policy of PEI. Face it, many of us have lived or travelled to many provinces - every place has certain benefits. I'll tell you, if I had kids I would KILL to live in Quebec. On the other hand, as a single guy living in Quebec is fiscally retarded. Provincial tax rates here are 124% of the federal rate! Why?
Is it because the economy is so poor? Hardly. Quebec had excellent new employment numbers in the last report - all signs are pointing towards a thriving economy here.
Contrast some social services yoou can get in Quebec with Alberta or British Columbia. While the latter two provinces have the LOWEST tax rates in the country - federal and provincial combined - they don't have the same social benefits. But whose economy is hotter? Well, you don't need a degree in economics to figure that out.
Interestingly, BC was a have not province for years. Can you believe that?! Sure, the pragmatist might point at balooning Provincial NDP spending in BC at the time... but I digress. (Actually, they might well re-elect those morons soon enough – foolish)
There is a strong voice in the nation that says:
"Alberta used to be a dust bin of agricultural failure, and was supported by the rest of the country"
This is true. And it was appreciated at the time. Albertans don’t hate giving money to other provinces – everyone just wants to see the money spent wisely.
It's key to note that in the 70’s and 80’s Albertans never wanted help from the Federal Government. In fact, any time the feds tried to "help" during that period we got the NEP and revised Equalization formulae. Thanks.
Dalton McGuinty said it best during the premiers conference (keep in mind this man represents the LARGEST and most ECONOMICALLY powerful province in the country):
"Equalization in it's present form is fiscally unsustainable for Ontario"
The perfect Equalization formula might just be a baseline of services that ALL provinces currently provide at a generally accepted “equal” level. The budgets of all the provinces should be ripped apart to see where monies are spent – find out which provinces can afford these basic services and, more importantly, at what median tax rate.
Essentially assuming all programs are equal and all tax rates are equal the provinces that need help (those that geniunely cannot afford basic services at a reasonable tax rate) would receive Equalization on a per capita basis for the shortfall. An example:
PEI (Pop 120,000) is 120 million dollars short when a reasonable tax rate is assumed. The Equalization formula would kick in the shortfall at 1,000 dollars per resident. Why is the per capita important? Populations change and so do the costs of various services. The only way to really keep track of relative change in cost is on a per capita basis. This also ensures the provinces don’t “cheat”. I.E. Pass legislation that increases the cost of services just to increase Equalization payments. It also allows for a formula that anyone can understand. And the best part: PEI doesn’t pay into it under this system.
Now there are, obviously, a few problems with this system:
1) We need to have all provinces and the Federal government agree on acceptable median levels of services – and more importantly – establish a framework to evaluate compliance
2) We need to establish a base tax rate to supply minimum services – likely based on a provincial average
Now all the hoopla about resource revenues is garbage. Under the current Equalization formula they SHOULD NOT be included simply because it punishes the nation’s poorest province (NL) and rewards the ever outstretched hand of Quebec for no good reason. I DON’T CARE THAT IT INCLUDES NON RENEWABLE RESOURCES – JUST THAT IT IS OBVIOUSLY COUNTER-PRODUCTIVE
People argue that resource revenues are money that the provinces spend on services. This is very true – and they should be included under a new formula that respects the differences between the provinces and treats all of them in a fair and equitable manner.
Isn’t that how a Federation is supposed to work?
Equalization has become such a convoluted and mathematical process as to make it nearly irrelevant. The way transfer payments are calculated makes even the most prominent mathematicians blush. We're all taught from a fairly early age the 5 keys in any situation - Who, What, Where, When and Why (sometimes how). Equalization makes sense in a Federation such as ours. The economies of all the provinces are entirely, at times, divergent. Alberta has a resource based economy... Ontario manufacturing... Newfoundland a burgeoning resource economy. How can we possibly calculate how the federal government distributes monies...
Here's a more apt question - Why don't we take services into account? Everyone is talking about whether resource amounts should be included. Shouldn't Quebec's generous social programs be included? Why isn't PEI's subsidization of Gasoline included? Ontario spends money running a provincially regulated liquor chain... BC runs it's own Insurance Corporation. All the talk lately has been about resource income. Not just any resources, but those of a non-renewable kind. Finally, there is plenty of talk about Economic "capacity". What exactly does that mean?
To find out, I checked some fairly accessible references. I took a look at Andrew Spicer's well referenced blog.... very good stuff... lets look at some numbers:
Below is each province's share of contribution to equalization:
PEI: $31M
NB: $176M
NL: $129M
NS: $244M
MB: $311M
QC: $2,218M
BC: $1,315M
SK: $317M
ON: $4,283M
AB: $1,751M
Here's how much each province received:
PEI: $277M
NB: $1,326M
NL: $762M
NS: $1,313M
MB: $1,607M
QC: $4,155M
BC: $652M
SK: $682M
ON: $0
AB: $0
Therefore, the net for each province was:
PEI: +$246M
NB: +$1,150M
NL: +$633M
NS: +$1,069M
MB: +$1,296M
QC: +$1,937M
BC: -$663M
SK: +$365M
ON: -$4,283M
AB: -$1,751M
A couple interesting things to note:
BC actually got back less than it would have saved if there was no equalization program at all
Nearly 44% of the contribution to equalization revenues comes from "have not" provinces
Here is something interesting - and it's worth restating:
Nearly 44% of the contribution to equalization revenues comes from "have not" provinces
Can anyone explain to me why - logically - have not provinces are even paying into Equalization?
Notwithstanding my own opinions on Equalization, I can't really fathom why provinces that recieve an INCOME from the program are having to pay monies at all.
Frankly, I don't understand why Albertans and Ontarians have to pay for the social excess of Quebec or the gasoline policy of PEI. Face it, many of us have lived or travelled to many provinces - every place has certain benefits. I'll tell you, if I had kids I would KILL to live in Quebec. On the other hand, as a single guy living in Quebec is fiscally retarded. Provincial tax rates here are 124% of the federal rate! Why?
Is it because the economy is so poor? Hardly. Quebec had excellent new employment numbers in the last report - all signs are pointing towards a thriving economy here.
Contrast some social services yoou can get in Quebec with Alberta or British Columbia. While the latter two provinces have the LOWEST tax rates in the country - federal and provincial combined - they don't have the same social benefits. But whose economy is hotter? Well, you don't need a degree in economics to figure that out.
Interestingly, BC was a have not province for years. Can you believe that?! Sure, the pragmatist might point at balooning Provincial NDP spending in BC at the time... but I digress. (Actually, they might well re-elect those morons soon enough – foolish)
There is a strong voice in the nation that says:
"Alberta used to be a dust bin of agricultural failure, and was supported by the rest of the country"
This is true. And it was appreciated at the time. Albertans don’t hate giving money to other provinces – everyone just wants to see the money spent wisely.
It's key to note that in the 70’s and 80’s Albertans never wanted help from the Federal Government. In fact, any time the feds tried to "help" during that period we got the NEP and revised Equalization formulae. Thanks.
Dalton McGuinty said it best during the premiers conference (keep in mind this man represents the LARGEST and most ECONOMICALLY powerful province in the country):
"Equalization in it's present form is fiscally unsustainable for Ontario"
The perfect Equalization formula might just be a baseline of services that ALL provinces currently provide at a generally accepted “equal” level. The budgets of all the provinces should be ripped apart to see where monies are spent – find out which provinces can afford these basic services and, more importantly, at what median tax rate.
Essentially assuming all programs are equal and all tax rates are equal the provinces that need help (those that geniunely cannot afford basic services at a reasonable tax rate) would receive Equalization on a per capita basis for the shortfall. An example:
PEI (Pop 120,000) is 120 million dollars short when a reasonable tax rate is assumed. The Equalization formula would kick in the shortfall at 1,000 dollars per resident. Why is the per capita important? Populations change and so do the costs of various services. The only way to really keep track of relative change in cost is on a per capita basis. This also ensures the provinces don’t “cheat”. I.E. Pass legislation that increases the cost of services just to increase Equalization payments. It also allows for a formula that anyone can understand. And the best part: PEI doesn’t pay into it under this system.
Now there are, obviously, a few problems with this system:
1) We need to have all provinces and the Federal government agree on acceptable median levels of services – and more importantly – establish a framework to evaluate compliance
2) We need to establish a base tax rate to supply minimum services – likely based on a provincial average
Now all the hoopla about resource revenues is garbage. Under the current Equalization formula they SHOULD NOT be included simply because it punishes the nation’s poorest province (NL) and rewards the ever outstretched hand of Quebec for no good reason. I DON’T CARE THAT IT INCLUDES NON RENEWABLE RESOURCES – JUST THAT IT IS OBVIOUSLY COUNTER-PRODUCTIVE
People argue that resource revenues are money that the provinces spend on services. This is very true – and they should be included under a new formula that respects the differences between the provinces and treats all of them in a fair and equitable manner.
Isn’t that how a Federation is supposed to work?
posted by Lucas at 11:16
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