I think this could turn out to be one of the most contentious national public policy issues in Canada over the next 20 years. Whenever I discuss it, Equalization and transfers, the comments range from agreement with the West and outright dismissal as a non issue. I think it could be a defining issue.
Here are a few select lines from a Don Martin editorial in the National Post this week.
Alberta fed up with the Robin Hood routine
When the billions flowed as a hefty budget surplus, Albertans didn’t mind subsidizing a better life for poorer provinces.
Petro-dollars helped Nova Scotia become the national leader in physicians per capita, gave Quebec students the lowest-anywhere tuitions, created unrivaled regulated daycare space in Prince Edward Island and gave New Brunswick the bucks to hire plentiful nurses.
So lucrative has the transfer of wealth become that, according to an excellent new analysis by the Frontier Centre for Public Policy, the less fortunate provinces now outperform almighty Alberta in delivering almost all services, including health care and the cost of post-secondary education.
For the hands-out, have-not provinces, the easy money will continue to flow from west to east. But they’re being put on notice the Robin Hood era of stealing from the rich to enhance the poor may be coming to an end.
As you probably know, Iraq is now grappling with how to effectively and fairly share its oil revenue across the country. In fact, it is said that without a deal that all areas of the country can agree on, it could lead to a civil war. From a recent report on the subject:
The Iraq Study Group recommended that oil revenue accrue to the central government and not to regions (Recommendation 28). This principle appears to have been included in the draft hydrocarbon framework and draft revenue sharing legislation, which would create central accounts for oil and gas revenues. Under the drafts, revenue sharing would reflect a population-based system for revenue allocation, with automatic monthly distributions to regional and governorate authorities.
Imagine if, in Canada, the federal government accrued the oil revenue and distributed it per capita. Can anyone say NEP?
Of course, Alberta and actually all the oil and gas provinces would never let that happen and, in fact, there are constitutional grounds for this view. As Bernard Lord pointed out, however, there is also a constitutional grounds for Equalization and transfers.
The truth is that the federal government is a level of government and it taxes citizens and doles out the money as it sees fit. It doesn’t tax ‘Albertans’ or ‘New Brunswickers’. It taxes Canadians and is in charge of national objectives. And as for the argument of Alberta subsidizing PEI nurses, Calgarians also subsidize highway maintenance to Hinton, Alberta. Cross-subsidization (to borrow the business term) is what governments do – it is the main thing that governments do. They take from the rich and give to the poor. They take taxes from the old and fund education for the young. They take taxes from the young and fund health care for the old. You get my point.
The bulk of what government does is take a wide swath of dollars from the private economy to fund public services and shared public objectives. Otherwise, you would hardly need government at all. A strict minimalist would say the government should be in the business of law and order and national defence. But in Canada and the rest of the world, government has become more of a leveller and an arbiter of ‘fairness’ than just a provider of public goods that have zero private market.
But, and there is always a but, defining what a ‘comparable level of public services’ in each province (the goal of Equalization) is trickly. Ted Morton in Alberta has a whole raft of statistics suggesting that Equalization and transfers are leading to higher levels of public services in New Brunswick at the expense of Albertans. He is enlisting Ontario and BC in his fight and if they get on side, this will become a politically powerful issue. Remember Daulton McGuinty’s ‘fair deal’ fight with the Feds. How many of you think that as the Feds tighten the fiscal belt over the next few years this won’t be a huge issue?
That’s why I come back to economic development. There is no way we will ever have an Iraqi approach to natural resource revenue sharing. So places like New Brunswick will need more own-source revenue – at least to a point.
We need to embed the concept of economic development in the Equalization model. The idea that funds flowing from the Feds because of a weak provincial economy should be tied to some longer term fiscal gap goals like in the European Union. The EU had a specific and targeted goal of getting Ireland up to benchmark economic objectives and predicated its financial assistance on these goals.
I think we need that approach in Canada. I think that Alberta – once they think about it – would sign on to this idea. Their idea, bleed New Brunswick dry so they can pay for ever more lucrative R&D programs at the U of Calgary or beef up the Heritage Fund with more billions, will lead to regional unrest and fracture Confederation over a generation. If places like NB can address their fiscal challenges through a strong economic development effort, Alberta would see less transfers out and both areas would win.