The best defence is a good offense

A few years ago I set up a Google News Alert to monitor stories about Canada’s Equalization program.  It seemed to me then (the time of McGuinty’s fairness campaign) that the program was under seige from a number of groups and that would one day ripple into practical implications for places like New Brunswick.

On average I would say there is at least a handful of stories each and every week – mostly in Western Canada – criticizing the unfairness of the equalization program.   The public – again mostly in the West – is regailed with stories of how places like New Brunswick have cadillac schools and more doctors per capita – all paid for by Albertans.

This story, however, receives specific mention.   It’s an op-ed written by a guy named Ian MacDonald who is a bit of a caped crusader against Equalization (I have seen many articles in his name on this topic over the years).    This one is particularly interesting because he names a number of Quebec public services such as $7/day daycare, the low university tuitions, the new funding for free in vitro fertilization and many more – with each being punctuated with “Thanks Alberta” after them.

If you have been reading this blog you will know that I support the Equalization idea – that there should be transfers like this to smooth out ability to provide government services.  It’s in nobody’s interest for places like New Brunswick to not be able to fund public services, which will lead to less economic development over time and further the cycle of poor public services and eventually lead to third world conditions inside Canada.

However, we (and Quebec) have gotten really dependent on this program and other more temporary transfer programs and I am increasingly convinced these programs are going to be slowly trimmed back over the next 5-10 years both for fiscal realities and as a direct result of the ongoing public assualt on Equalization.

The last time I mentioned in the media the idea of Equalization as a mechanism to help drive economic development (a hand up vs. a hand out), I was scorned by a UdeM professor who indignantly stated something to the effect that Equalization was never meant to support economic development.

Why not?  Why set up a program that penalizes economic development efforts?    If New Brunswick generates more own source revenue, the federal equalization program ratchets down almost in parallel.    Why?  Why not set it at some five year level and agree with the province on strong economic development targets?

4 thoughts on “The best defence is a good offense

  1. I don’t know. As Ontario slumps and Quebec lingers, the ‘have’ provinces are increasingly those with resources (and hence, royalties) rather than population. So there’s not so much political incentive to end transfer payments.

    And there’s a point to be made about the nature of equalization payments. Sure, there’s no argument a priori to be made against them being used to support economic development (provided ‘economic development’, an annoyingly vague term, does not simply mean ‘payments to companies’). But the purpose of transfer payments is to equalize wealth distribution.

    No amount of economic development in New Brunswick is going to produce the wealth of Alberta’s pools of oil. Just as it was luck, not economic development, that allowed Alberta to move off the recipients’ list. That’s what transfer payments equalize. They are an explicit recognition that the wealth of Canada is shared by all Canadians, not some privileged subset of them.

    So while there is room to support economic development with transfer payments, the two should not be linked, and it is false that they offset. And that, in turn, provides a good argument for the contention, widely held, that transfer payments ought to contribute to equity of social services across Canada.

    What we ought to be doing is responding to the propaganda (“stories of how places like New Brunswick have Cadillac schools and more doctors per capita”) being used to undercut equity. New Brunswick has nothing resembling the health and education powerhouses in Alberta. If New Brunswick has more doctors, it is because it needs more, not being able to afford the modern facilities and equipment found at Foothills and the U of A Hospital (to name only two of many).

    What does appear to be true is that, because of deficit spending, there will be increased pressure on social services funding in general over the next few years. This (not the equalization argument) supports the contention that there needs to be economic development spending now, that it cannot be deferred. But here, again, as always, we need some sense that it will be successful. If we’re simply going to hand out money, better to hand it out to citizens, who will spend it and develop something, rather than to business, who are just as likely to hoard it.

  2. Once a meme is established it is very difficult to change minds. I think that the meme that states that NB is not doing much to stand on its on two feet and perhaps should not be receiving such a large amount of transfer is very well established now.

    It will be hard, for example, to argue that we need more doctors per capita because we lack certain facilities. That argument really makes no sense. You could argue that we need more doctors because more of us are more obese and smoke more than Albertans, but that won’t engender much sympathy.

    That means that there will be support from the more populous and richer provinces for changes that ratchet down the amount of transfer. ON will feel that it is hard-pressed itself and can’t afford to send dollars to NB; AB will ignore the fact that its wealth is resource-based and say the NBers just do not work hard enough or smart emough.

    Changing the formula to keep transfers at a certain level for a 5-yr period might be a way to encourage development efforts, but I think we need to have some agreement as to the form the development will have and what the focii will be. You would have to get the NBers to buy in first. That means some more transparency and honesty from politicians, a media that helps develop discussion, and a willingness by the NB population to look at some hard realities. I do not see much hope of any of those things happening soon, so I suspect we are in for a decade of slow decline as transfers are reduced. We will be a bit like the frogs in the cooking pot – we won’t notice that the water is getting hotter and hotter until it is too late.

  3. There is a tendancy to lump all federal transfers together which can make a discussion on them confusing. The Equalization Program is established so that we, as citizens of Canada (not residents of a province), have access to equitable health and education services at equitable levels of taxation. It is not about taking money from richer provinces to give them to poorer provinces – although critics of this program like to see it this way.

    There is nothing in the Equalization Program about economic development because that is not the focus of this program.

    But on the question of regional economic development, there is the role of the federal government to ensure that all regions benefit from Confederation. If we embrace the “Grand Bargain” concept, the creation of a federal state has to yield benefits for all participants. If Ontario and Quebec benefit from major investments like the St. Laurence Seaway or the creation of crown corporations, then the other provinces have an expectation for similar levels of investment to bolster economic growth and prosperity (i.e. railways).

    However, I think I am starting to stray from my main point, which is that the Equalization Program is doing what it is intended to do. If we want a new approach to regional economic development, we can do it through other means.

    And if anyone thinks that NB is benefitting from “Cadillac Schools” while Calgary is doing without knows nothing about schools in either NB or Calgary.

    Chris Baker

  4. Chris, I understand your point and I don’t think of this in the context of ‘workfare’ or some other analog. But I think if the government sets a target of reducing Equalization (self-sufficiency) then its relationship with the federal government should reflect this. Your point differentiating between ‘Canadians’ and ‘New Brunswickers’ is clear to New Brunswickers but not so clear to Canadians. The whole debate – from all sides – is talking about transferring wealth from Alberta to New Brunswick or Quebec – not from one Canadian to another.

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