Tag Archives: Equalization

Fun and games with fanciful figures

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David Chaundy of the Atlantic Provinces Economic Council (APEC) asks a question of such thoughtful irrelevance, it’s stunning that no other professional numbers-cruncher has, to my knowledge, raised it.

If you had $56 billion what, would you do with it?

Mr. Chaundy’s challenge to readers of one of his recent commentaries for APEC is equal parts whimsy and gravitas; it stems from a metaphorical gauntlet he threw down to delegates to a recent business outlook conference.

The context, he writes, is the federal government’s Fall Fiscal Update of November 12, in which the finance department “revealed a projected $56 billion in surpluses over the next five years, beginning in 2015/2016. . .Since the government is not going to make you and your friends into overnight billionaires, how would you use these projected surpluses to advance Atlantic Canada’s economy?”

There is, of course, a catch. The feds have already committed to spending $26 billion over five years by introducing the Family Tax Cut, or income splitting ($10.3 billion); increasing the family child care benefit ($13.4 billion); raising the limit on tax-free savings account contributions ($2.3 billion); and investing in infrastructure ($1.3 billion).

That leaves you with a mere $30 billion with which to go to Hawaii and, as the accountants say, get permanently lost or, in the alternative, save the Atlantic Canadian economy for Queen and country.

The honourable route is not as easy as it looks, but Mr. Chaundy embarks jauntily, nonetheless . “Adjust transfers to the provinces,” he advises. “Ensure sufficient infrastructure funding (and) focus on globally competitive innovation.”

Regarding his first prescription, he notes astutely, “By tying the size of transfer programs such as Equalization and the Canada Health Transfer to the growth in the overall economy, the federal government has provided itself with greater fiscal certainty and largely insulated itself from the fiscal impacts of population aging. This is not the case at the provincial level.”

Mr. Chaundy endorses the Parliamentary Budget Office’s recommendation to restore the Canada Health Transfer growth rate to six per cent and factor a sliding scale of regional benefits based on provincial age demographics. Such moves could mean an addition $500-600 million to the Atlantic provinces over the next five years.

As for infrastructure, he writes “The Canadian Centre for Policy Alternatives estimated that underinvestment in infrastructure in Canada amounted to a gap of $145 billion: Canada needs to spend $20-30 billion a year for ten years on top of current spending to return infrastructure spending to historic levels.”

Atlantic Canada’s portion could amount to some $670 million annually if the funding formula was a per-capita calculation. “But if distributed according to need, the Atlantic provinces would receive proportionately more due to the region’s older infrastructure.”

Finally, on the subject of innovation, Mr. Chaundy is as clear as every other economist in the developed world: No amount of spending on social services or, indeed, infrastructure will actually goose a jurisdiction’s earned incomes and overall net worth. “What is critical for the region’s growth are firms that are export oriented and that have differentiated their products and services in the global market through their proprietary technology, specialized competencies or superior quality of their products or services.”

Mr. Chaundy suggests the federal government ponies up an additional $1 billion a year. (That’s not, in fact, a heck-of-a-lot when you consider the several, different diverse economies functioning within individual provinces. Does Newfoundland and Labrador’s offshore oil and gas industry resemble, either in the skills it requires or the technology it deploys, anything remotely comparable on Prince Edward Island?)

The new money could be used to help businesses leverage private sources of funding for innovation, technology commercialization, strategic alliances, mergers, and expansions.

All of which makes eminently good sense and, in fact, always has.

For several decades, two of Atlantic Canada’s great fiscal burdens have been the cost of providing for its disproportionately older workforce and comparatively ancient infrastructure. Both have siphoned off public money that might otherwise have been spend on economic capacity-building exercises of the type Mr. Chaundy describes.

Still, these mind experiments always remind me of those times when, in weak and weary moments, I daydream about winning the lottery.

Let’s see. . .If I had a million dollars, $10 million, $50 million. . .what would I do?

Something or someone always arrives to shake me out of my reverie.

This time, it’ll be falling oil prices.

Hello resource economy.

Goodbye surplus city.

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Stop depending on the kindness of strangers

Pennies from Ottawa? It just cancelled the currency, Atlantic Canada

Pennies from Ottawa? It just cancelled the currency, Atlantic Canada

Once, when he was not yet a serious contender for federal office, Prime Minister Stephen Harper opined that Atlantic Canada’s “culture of defeat will be hard to overcome” as long as the region “physically” trails behind the rest of the country.

That stinging characterization, in 2002, of the birthplace of Confederation played well out west among his base of prairie farmers and Calgary oil men. So well, in fact, that he took another crack at ringing the defeatist bell a few days later for The Ottawa Citizen, which quoted him in more generally ruminative terms: “I think there is a dangerous rise in defeatist sentiment in this country. I have said that repeatedly, and I mean it and I believe it.”

Back here, among the lobster pots and pogey checks, his remarks lit a fire of indignation. We fumed and fussed. We wrote letters to the editor and posted angry comments to websites. We demanded that our premiers speed to our defence, as if we were so many jilted brides.

We missed the point, of course. But that’s only because Mr. Harper deployed the the wrong word. It wasn’t “defeat” that gripped us; it was “dependence”. And that culture of dependence – on Ottawa, on the richer provinces of Canada – shrouds us today, like a swaddling blanket.

In his illuminating series of commentaries about New Brunswick and its  challenges (now running in this and the province’s other major newspapers), public policy expert Donald Savoie observes, “There is a growing reluctance on the part of the have-provinces to continue to finance transfer payments to have-less provinces at current levels.”

That’s a polite way of describing the situation. Another was Saskatchewan Premier Brad Wall’s vituperative critique last year. The current system of equalization, he declared in an opinion piece, generates “distortions, often of a significant scale, that impair the national economy and discourage people from moving to places of economic opportunity.” The system, he insisted, discourages “labour mobility in a way that hurts the national economy and ultimately individual Canadians.”

There was a certain amount of bald-faced nonsense in this claim. Federal transfers haven’t stopped thousands of Maritimers and Newfoundlanders from leaving their ancestral homes for more lucrative economic opportunities out west. But the larger point has to do with the way we, on the East Coast, routinely meet such criticisms: defensively, even peevishly.

Defending equalization against attacks by the Canadian Taxpayers Federation, Premier David Alward told the Telegraph-Journal’s Chris Morris on Wednesday, “It is part of our Constitution and part of who we are as Canadians. It allows provinces that do not have the fiscal capacity to provide comparable levels of service at comparable levels of taxation. It’s not a fat cat program.”

In other words, we “depend” on it. And in depending on it, we have, at some basic level, come to think of it as a program to which we are entitled – a part of the province’s 40 per cent, annual revenue take from “Fat City”, the capital.

Perhaps, this is only natural. Everyone perceives reality through the filter of his or her experiences. And if those experiences involve relying on a massive infusion of money from jurisdictional underwriters in other parts of the country to pay for schools and hospitals, then we perceive our reality – though fundamentally tethered to the generosity of stranger, it may be – as fixed in time. The status quo of equalization is, or should be, immutable. Shouldn’t it?

Equalization may be a right. But if we are serious about forging a more economically sustainable future, we should stop looking upon it as a permanent virtue and begin regarding it for what it is: a temporary evil, one from which we should work hard to wean ourselves. At the very least, the language our elected representatives choose to use in their public pronouncements should reflect this long-term purpose.

The horizon for this decidedly bowed, yet not defeated, part of the country instantly clears the moment we embrace the notion that the only ones on whom we should depend are ourselves.

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