The real fiscal challenge lies ahead

One of the main reasons why Daulton McGuinty was thrilled with the federal government’s new approach to provincial funding is that the feds have agreed to move to a ‘per capita’ model for health and social transfers. McGuinty and most Ontario pundits and policy makers thought it was outrageous that places like New Brunswick got piles of new money with no new population while Ontario was adding hundreds of thousands of population each Census period.

In her recent column, Chantal Hebert touches on this particularly about Medicare. She writes:

The generous 10-year deal struck by prime minister Paul Martin and the premiers three years ago and upheld since by Stephen Harper has dampened the provincial momentum to reorganize the system along more efficient lines. Yet, health care remains the fiscal elephant in the room of most governments, shrinking their capacity to manoeuvre in other policy areas.

That is particularly the case of the have-not provinces. For now, they are still benefiting from the enhanced transfers that resulted from the Martin accord. Over the mid-term, though, the only provinces that can realistically expect a significant increase in federal health funding are the richer ones.

When the current federal-provincial funding arrangement for health runs out in seven years, it will be replaced by a per capita formula, with Ontario the main winner of the exercise.

Now, to put this in some form of perspective, in the 2000-2001 budget, the New Brunswick government received $401 million for the Canada Health and Social Transfer payments. By the 2007-2008 budget, New Brunswick received $731 million in CHST payments. That’s an increase of $331 million (remember this is not the hundreds of millions in new Equalization – this is just the CHST).

Over that same period, the population essentially didn’t change. We know from the 2001 Census that the population of New Brunswick eeked out fraction of one percent growth from 2001 to 2006 but we also know that from 1999-2001, the population declined slightly – so let’s call it a wash.

So, under the new thinking around transfers (not including Equalization), New Brunswick would have gotten zippo.

And this is certainly not an insignificant figure. It represents 6% of the entire provincial budget each year.

So, esssentially, what I am saying is that Bernard Lord and the gang got a free ride. While population stagnated and ‘own source’ revenue grew far slower than expenses, this was more than made up with significant increases not only to Equalization but also to the CHST.

And those days are almost over. Equalization will remain in place but the CHST for New Brunswick will flatline under the current model.

So, the government has a few choices.

1) it will need to significantly cut spending (which it won’t – the provincial budget in New Brunswick has increased similar to provinces with fast population growth in the past eight years) or;

2) find a way to generate more ‘own source’ revenue

which, to put it another way, is ‘self sufficiency’.

So, the provincial Liberals got it right. This is not about self sufficiency because it sounds nice. This is about recognizing the changing landscape and realizing that the days of the federal $$ tap turned to full blast is coming to an end. Not of fiscal grounds – the feds have more money now than ever – but on ideological grounds.

Now, it’s time to get cracking.

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0 Responses to The real fiscal challenge lies ahead

  1. NB taxpayer says:

    So, the provincial Liberals got it right. This is not about self sufficiency because it sounds nice. This is about recognizing the changing landscape and realizing that the days of the federal $$ tap turned to full blast is coming to an end.

    Not a bad sounding denouement, however, a bit of a stretch, don’t you think? I mean, we’re talking about a party that is notorious for handing out money and wasting taxpayers money.

    Moreover, they’re [nb government] currently demanding the feds pony up billions (on top of infrastructure, equalization and health care spending) so that they can redistribute the money as they see fit. (they’re calling it a self-sufficiency project, I think?)

    Excuse me for my scepticism, but how’s that any different from demading federal money in the form of ACOA (which we have now), DREE or DRIE (which we used to have)?

    If history serves us well, then there is a good chance that most of this money (which is being demanded for regional development) will just lead to excessive pork barrel projects without any true economic growth.

    I know I’m always sounding like the party pooper to your party, but show me where government handouts have served NBers well in the long run? If you can show me, then i’m all ears, but for now I remain sceptical because I am of the mindset that business pork does more to hurt an economy rather than help it.

    Which is why I applauded the Alberta government for banning corporate welfare during their great economic run.

    Again, correct me if i’m wrong, but government as the saviour of our region smells more like the same to me. Not to mention, it’s far from the perception of a provincial government moving away from government dependency (or “days of the federal $$ tap coming to an end”, as you say)

  2. mikel says:

    This is where it really depends on voters, because as we know, in politics, its those with the loudest voice that wins. So for ‘pork barreling’ we can look at the latest ‘gift’ to the forestry companies. They have some workers, which of course is how they manage to get money.

    Notice that the province hasn’t SAID where the money will go, but Harper has said that it will be tied to the Atlantica Accord. So strategically, if you want money from the gravy train you need a bowl. If nobody shows up, then corporations will be more than happy to grab that money and run.

    So take my example of a television station. Its a hard slog, with plenty of detractors, but that guy is starting the Acadian Television station and if he can link it to acadians spread throughout the US, even the world, then I suspect there could be some sunny days ahead. But you need to find people who are going to do that. Harper has a political agenda, and every person who has “successfully” applied for financiing from anywhere knows exactly how to tailor it to sound politically acceptable.

    Harper has no interest in animation, or even high technology, in the east because thats the ontario and quebec plum. But if some groups and organizations can get political and decide how to angle their operations then they can benefit. For example, if that acadian television takes off then fatkat would have another buyer for their products.

    Research has to be able to do the same, but again, if there is a lack of such research going on, then its a tough slog. However, the liberals need votes, which means if communities can actually come up with plans which will create jobs, then at least these guys are more likely to listen than the last ones.

    But all this involves work, and most of the people talking about this are on the fringe, everybody else is just worried about keeping a job. So as the taxpayer guy says above, things have to get set up to take advantage of opportunities, because unlike other provinces its clear that these guys aren’t going looking for any and have their hands tied by the industries currently operating.

    And once again, you need only look at occasional letters to the editor to find many of the solutions, however, you need a political force to lobby for them. If bloggers can get a lot more eyes then it may become a lobby, but short of that, at least capitalize on the issues as they arise.

  3. NB taxpayer says:

    Mikel: I think you’re mixing Harper’s Ontario caucus up with the Liberals Ontario caucus of the 1990s. Harper does not have a power base in Toronto as it is basically a Liberal bastion.

    That being said, Harper’s party and government does not have the same make up as Chretien’s. In other words, if he is able to piece together a true national party from east to west in the next two to three years, then you may see a reduction in favoritism towards central Canada (i.e. southern Ontario)

    Which means you may not see the Atlantic region fall off the government radar as Technology parnerships Canada will most likely see more reforms. Plus, an Ontario caucus with less power within the machinery of government will mean you will never see a report on economic development from maritimes MPs, like Atlantic Canada: Catching Tomorrow’s Wave, be shuffled aside for the greater interests of central Canada.