Redefining the federal government’s ‘tough love’ relationship with NB

From a recent TJ column:

I was surprised to hear the reaction of pundits and politicians to the recent news that the federal government will increase New Brunswick’s equalization payment by $153 million in the 2014-2015 year versus 2013-2014.

Equalization is the money provided by the federal government to ‘have not’ provinces to ensure they can provide public services such as health care and education.

According to media reports, New Democratic Party (NDP) Leader Dominic Cardy called the rise in equalization a “dangerous development” and intoned “I don’t know how we’re going to keep the lights on in New Brunswick”.

Cardy may be right about the lights but the implied assumption that we are getting more dependent on federal equalization payments needs to be corrected.

In the budget year 2009-2010, the New Brunswick government received $1.69 billion under the federal Equalization program. Four years later, in the 2013-2014 budget, the provincial government received $1.51 billion. Even with the increase in the coming year, the total equalization amount provided to New Brunswick will be less than it was back in 2009-2010.

Expenses continue to rise every year so the percentage of total provincial government budget covered by the equalization payment has dropped from 21.5 per cent in 2009-2010 to 17.9 per cent in 2013-2014.

In addition to equalization payments, the provinces receive health and social transfers from the federal government.

In the early 2000s, New Brunswick received approximately $50 out of every $1,000 of these direct federal transfer payments to the provinces and territories. In 2012-2013, it was $40 per $1,000 of direct transfers.

If New Brunswick was still receiving $50 out of every $1,000 in direct federal transfers to all the provinces, we could expect $3.29 billion in 2014-2015. Our actual direct transfers will be $2.6 billion.

To sum up, the percentage of the New Brunswick government’s budget each year covered by the federal government has been in decline since the middle of the last decade.

Moving forward, the simple truth is the provincial government will be unable to count on the federal government to fund as large a share of its budget each year as it has in the past.

So we come back to the same old debate. Either we need to significantly cut spending, increase nominal tax rates to squeeze more revenue out of the same sized economy or we need to figure out how to significantly grow the overall size of the economy and thereby generate new tax revenues.

Everyone seems to be good at diagnosing the problem but very few seem to be proposing real solutions.

As I have said several times in this column in recent years, there is scope for a more intelligent federal/provincial partnership to foster economic development.

But so far most of the federal policy changes that have implications in New Brunswick could be categorized under the heading of ‘tough love’.

In addition to reducing the federal government’s relative contribution to the provincial government’s budget, the feds have also reduced research and development spending here; tightened the Employment Insurance rules; and clamped down on the temporary foreign worker program to the annoyance of a cross-section of New Brunswick businesses.

The feds have also cut direct employment in New Brunswick and reduced their funding for economic development agencies such as the Atlantic Canada Opportunities Agency (ACOA).

While I am not entirely opposed to ‘tough love’, it would be nice to match it with a commitment to economic development support.

The New Brunswick economy has been the weakest among the 10 provinces across Canada for the past five years. The outlook for 2014 and 2015 is not good.

A weak New Brunswick that continues to shed its people through outward migration and run large provincial budget deficits every year is not good for the federal government either.

Let’s hope 2014 will be a year of renewed partnership between the provincial and federal government to support economic growth and fiscal sustainability.

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3 Responses to Redefining the federal government’s ‘tough love’ relationship with NB

  1. anonymoose says:

    Harper isn’t giving us tough love, he’d have to love us to do that.

    The Tores pretend to love Quebec because of all those seats, but we don’t matter out here.

  2. Andrew says:

    Ok – well somethings fishy here..

    “2006-2007 – Equalization is NB’s largest revenue source at $1.4 billion or 22.9% of total revenue.” (source: https://www.gnb.ca/cnb/Promos/Imbalance/faq-e.asp )

    “2013-14, the Government of New Brunswick received $2.5 billion in major transfers, accounting for 31 percent of its revenues in that year.” (source : http://www.fin.gc.ca/fedprov/mtp-eng.asp#notes )

    Let’s talk apples to apples, Transfers have increased by 35% as a total of Provincial revenue unless I’m missing something. Can someone explain why I’m wrong ?

    The reality is there is only one thing that will change this scenario drastically and that’s a massive influx of REAL, outside income, and there’s only 1 place that’s going to come from, and well all know it.

    There’s not going to be some magical boom industry that comes here – we have absolutely no specific advantages in terms of labor cost, educated/trained workforce, weather, etc. in fact, it’s easily argued that we have pretty massive deficiencies in all those areas.

    Why would someone choose to manufacture here over central Canada ? The labor pool isn’t plentiful nor cheap, and geography certainly isn’t in our favor.

    Technology is the only likelihood to hit a short-term homerun, but given climate, and my intimate knowledge of at least the local sector, I’d say that’s a very long shot, as we lack virtually all of the core fundamentals to springboard success.

    That leaves.. our bread & butter.. siphoning off the feds which can only go on so long – or – our old standby, raping natural resources!

    Good ole mother earth. Just when you thought we’d sucked every last
    ounce out of value out of this god forsaken province – whether the forestry, mining, or fishing industries, she burps up another one for us!

    I think the all the ‘discussion’ over shale is laughable rhetoric. A complete ‘mock’ conversation on one side vs a bunch of zany zealots on the other.

    IMO, it is a foregone conclusion that there will be shale fracking here – and soon – and at scale. Has anyone bothered to look at how shale has encroached on the US causing untold destruction ?

    If you did, you’d see what all the protesting/whining in the world about the environment ultimately does nothing vs the all mighty dollar. Nothing. It won’t matter here, like it hasn’t mattered elsewhere.

    Greed will not let money sit in the ground.

    Let’s just get on with it – move on with the inevitable – grab some quick $ – and use what is surely to be our last kick at the can to do something that builds something more permanent to sustain this province. Otherwise, we risk moving from a ‘have not’ to a ‘have nothing’ status well before the turn of the next century.

    Unless someone needs a bunch of ships built, or invents the next Instagram real quick, the future is already written. Resistance is futile !(?)

  3. James says:

    One can always choose to starve.

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