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.