Fixing the fiscal imbalance

The Premiers couldn’t agree this week on a unified position on fixing the ‘fiscal imbalance’. There are basically three broad approaches that were put foward (and hybrids of all of them):

The fiscal imbalance is between the ‘rich’ and the ‘poor’ provinces. Ottawa needs to give more to the poor provinces by beefing up the Equalization – adding all 10 provinces in the calculations as well as resource revenue. This position is strongly advocated by New Brunswick and Quebec and although saying little publicly I suspect Manitoba and PEI as well. Daulton and Ralph are strongly opposed and interestingly so are Newfoundland and Nova Scotia because of their ‘resource’ revenues. If these were included, it’s my understanding that NL and NS might see a drop in Equalization payments.

The fiscal imbalance is between the Feds and the Provinces. Ottawa needs to give more to all provinces for health care, education, etc. either through long term transfers or allowing the provinces access directly to the revenue (i.e. reduce Fed tax and increase prov tax). Daulton is pushing hard for this. He claims that beyond Equalization, other provinces get considerably more per capita from the Feds in other areas (education funding is one he talks about alot, [funny he never mentions that Ontario is the largest recipient by far of federal R&D dollars as well as federal government employment – but I digress].

The fiscal imbalance is between government and citizens. This was put forward by Gordon Campbell (no relation) who is pushing for broad federal tax cuts to the citizenry.

Now, in each all provinces would either be winners or losers. Broad-based tax cuts would hurt Lord’s chances of getting more Equalization and Ontario’s chances of getting more general Transfers.

Which thinking will win?

In my opinion, Stephen Harper can’t afford to ignore Lord’s position because it is also Charest’s position – and Quebec is key to a Conservative majority. On the other hand, if Daulton gets screwed – Ontario could be in political jeopardy. The west? I am not sure Harper cares. Alberta is booming. British Columbia is booming – back to ‘have’ status and getting stronger. However, including ‘resources’ revenue in Equalization might be a problem in both AB and BC – they are quite sensitive about such things.

So, back to my prediction on this.

Harper will try and please everyone (with the possibility of NL and NS). He will make Equalization a little more lucrative (for Quebec) and he will increase some transfers (for Ontario). He will leave off the table ‘resources’ revenue. Further, I think it will be positioned as a short term fix until the federal government is in the position to tackle it in a more concrete way (i.e. Majority).

Lord will say he is happy so will Charest. Daulton will complain but lightly. Alberta and BC will do the same.

The wheels will grind on.

PS – guess what ‘option’ our friend Al Hogan was pushing this AM in the T&T?

Gordon Campbell’s national tax cuts. That would certainly put the screws to his buddy Bernard’s plans for more Equalization. Think it through, Al. Lord wants a formula that would guarantee New Brunswick more pogey and you want the Feds to cut their ability to provide that pogey. Check with your masters on the 2nd floor of the Centennial Bldg. next time.