Read the tea leaves, folks

I didn’t get a chance to visit either the Tory or Liberal meetings this weekend (actually I’ve never been to one but I am curious..). However, I would be interested to know if either party discussed this very real, looming issue about ‘fiscal rebalancing’ and ‘Equalization’ in Canada.

While the two main parties in NB were serving up rousing speeches and kissing babies, the Institute for Competitiveness & Prosperity (an Ontario-based think tank partially funded by the Ontario government) was issuing a scathing report that concludes “federal policies that transfer money from rich provinces to poor are ineffective and bleeding the entire country.”

This report recieved very significant coverage in both the Globe & Mail and the National Post (I didn’t see anything in the T&T and TJ but there were lots of photos of smiling Lords and Grahams).

Other highlights of the report include:

  • Federal transfers to have-not provinces are acting as a welfare trap for them and limiting the economic potential of richer provinces — and the country as a whole.
  • The Institute for Competitiveness and Prosperity says the federal government should offer not transfers but tax relief to stimulate business investment in those regions to make them more productive.
  • Federal transfers do not promote Canada’s competitiveness and prosperity but simply annually transfer $1,400 per person from high-productivity uses to low-productivity uses, lowering Canada’s absolute level of productivity.
  • The institute’s report acknowledges that transfers, such as equalization payments and Employment Insurance, raise the disposable income in have-not provinces, but says they do not boost growth or productivity in those economies.
  • Private sector per-capita investment in machinery, equipment and software is 25% lower in have-not provinces than the have provinces — unchanged from 20 years ago.
  • Another important part of the fiscal federalism problem is EI, which accounts for nearly a quarter of the $23-billion that flows out of Ontario. It calls for EI to be operated as a real insurance program, with higher premiums for frequent users and the establishment of an explicit interprovincial transfer program, so that any transfer of funds to the have-not regions is visible and accounted for.

Now, please recall that just last week the Conservative Premier of New Brunswick was strenously calling for more Equalization.

The New Brunswick government gets its revenue from basically two sources: taxation of New Brunswickers (individuals and companies) and Equalization from Ottawa. Premier Lord is going across Canada touting his small business tax cuts (reducing the revenue from NB taxation) and asking for more Equalization (increasing the revenue from other Canadians’ taxes). Simultaneously, there is a systematic effort in Ontario at the think tank and political level to decrease the amount of Equalization flowing to have not provinces.

What is going on here?

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0 Responses to Read the tea leaves, folks

  1. vivenewbrunswick says:

    Here’s a thought, why not offer both? The problem here is politics, because you know it will be a cold day in hell before taxation policies become regional, provinces already have flexibility on a good part of taxation. However, if Ontario screams loud enough it will get even MORE of the pie.

    EI is NOT a transfer, notice how slyly the argument spins around. WORKERS pay into EI, and since the maritimes has a higher unemployment rate (only some of it), then percentage-wise it gets more. But a worker in Ontario pays the exact same amount as a worker in Newfoundland, so there is no unfairness. Ontario simply has more people, so more pay into it (obviously).

    As I said before, EI goes by regions, not provinces. Back when I worked in landscaping in Ontario years ago, landscaping was considered seasonal. THen came Paul Martin, and then EI was cut back, then to the point that it was only available every second year (even though I still had to pay into it). Then not at all. So if your complaint is that your unemployed in Ontario are not getting as much back as the unemployed in the maritimes, then you need to get the feds to open up their wallet some more. But to say that the feds shouldn’t be giving EI to workers who pay into it is pretty specious. To say that paying into basic health and worker costs is HURTING maritimers is pretty ridiculous. If that happens the end result is that New Brunswick will have to pay EVEN MORE of it’s own health and social costs, which means ALL economic investment will stop. This is exactly what happened when they brought in pensions and health care, because both were ‘cost sharing’ programs. Provinces with lots of money could match the costs very easily, but those who couldn’t either lost out altogether, or else had to use previously allocated funds to the new “federal program”.

    The injustice in EI is NOT regional, it is federal, and it is the problem that EI has effectively been used as a tax. It has a surplus every year because workers who pay into it are no longer eligible. The last number I saw was that 60,000 people in Toronto are unemployed but not eligible for EI.

    EI and welfare were both gutted in the nineties. The idea that there are ‘millionaire fishermen collecting EI’ is fiction. In fact, I nice example is the fishing village of Black’s Harbour. Here, only 20% of the people have earnings from government sources, even though the unemployment rate is 32%. Now, that shows pretty clearly that the government largesse is fictional. 12% of the unemployed people of Black’s Harbour get NO government money.