There will be relatively less cash from the feds: Flaherty (paraphrase)

We have discussed this at great length on this blog.  I am talking, of course, about how the federal transfers system works.  The naive camp suggests that we don’t really have to worry about economic development in New Brunswick because we have a Constitutional guarantee that the feds will always transfer enough cash from other provinces to pay for equivalent quality public services.   The bottom line is that ‘equivalent’ is open to wide interpretation.

The last time there was a change to the social transfers – Ontario and other fast growing provinces argued the formula needed to be adjusted to accommodate provinces with fast growing populations.  It was unfair, that places like New Brunswick, with stagnant populations, received the same.   So the program was changed to favour McGuinty’s position and NB took a something like $60 million/year haircut.  Now, places like New Brunswick are arguing that they have faster growing aging populations and that should mean more per capita health transfers.    Good luck with that.    What’s good for the Goose is only good for the Goose.

Now Finance Minister Flaherty is going to peg health transfer payments to overall economic growth (i.e. if the economy grows 4 percent, the provinces get a 4 percent increase).    That sounds reasonable – I have been arguing for years that the growth curve on health care is unsustainable – but it is unlikely that provincial governments will be able to bring down health care spending increases within the overall GDP growth rate – so they will have to make up the difference.  This will put a far greater burden on the ‘have not’ provinces because their ability to raise more revenue is more constrained compared to a place like Alberta.

Even equalization – I talked with Finance rep a few weeks ago that said something like “Ontario moving into the Equalization pool is scary because that province could end up eating into NB’s share in a big way”.

The point is these things don’t happen over night (not usually).  The Harper government has already guaranteed the 6 percent health funding increase through 15-16.  They are now talking about after that.

The bottom line is that New Brunswick will not be able to rely on federal transfers to the extent it has over the past 15 years or so.

That brings us back around to own source revenue generation.  That comes from pulling more blood out of the stone (or turnip as my dad used to say) – through higher taxes – or from building a stronger and broader economic base from which to extract tax and royalty revenue.

Hence, my raison d’être.