Has the happy little boat of Canada sprung a leak?

[notyoueither]

It seems there is a rebellion going on regarding the finances of the Dominion of Canada. It focuses around equalization payments. For those not familiar, those payments are the way the federal government taxes all and then sends more money back to 'poorer*' provinces.

The surprising thing is that the rebellion is ablaze not where you would suspect it, in the hinterlands of Alberta's oil country, but in the federal bread basket, so to speak, of Ontario. It seems that enough has been reached somewhere that actually counts. Let's see what happens.

http://www.theglobeandmail.com/servlet/story/RTGAM.20050216.wmcguin0216/BNStory/National/

InsiderEdition subscriber content
McGuinty digs in on equalizationWednesday, February 16, 2005 Updated at 1:58 PM EST

Canadian Press

Toronto — Ontario Premier Dalton McGuinty took a not-so-subtle swipe at one of his provincial counterparts on Wednesday as he vowed to keep pressing Ottawa for $5-billion in additional federal transfers this year.

“We will not lower the Canadian flag. We will not stamp our feet and hold our breath. We will do this in the Ontario way,” Mr. McGuinty said on his way into a Liberal cabinet meeting. “I'm not going to go away on this.”

Newfoundland and Labrador Premier Danny Williams ordered the Canadian flag removed from most provincial buildings in Newfoundland late last year to put pressure on Prime Minister Paul Martin to allow the province to keep both offshore oil and gas revenues and equalization payments.

Mr. McGuinty started demanding the federal cash after complaining about what he sees as the unfairness of new revenue-sharing deals that Mr. Martin signed with Newfoundland and Nova Scotia this week.

“You know what, I'm going to play the long game,” he vowed Wednesday.

“We will flex our muscle (to) make it perfectly clear to the federal government that we are not going away on this issue.”

Ontario finance ministry figures show the province pays $23-billion more into the federation each year than it receives in transfers, a figure that Mr. McGuinty wants reduced to $18-billion a year.

He believes the province is entitled to 40 per cent of the federal surplus, and Ontario calculates that its share would be $4.8-billion, a figure that he has called a good starting point.

“We have a very strong, compelling case that we're making not only on behalf of the people of Ontario, but on behalf of the people of Canada,” Mr. McGuinty said.

“If we can strengthen this province, and strengthen this economy, that is something that benefits not only Ontarians, but all Canadians.”

Mr. McGuinty said immigration is just one area where Ontario is treated unfairly by the federal government, receiving only $800 per immigrant, compared with the $3,800 Quebec gets for each new Canadian that lands in that province.

“It cannot be justified,” he said. “And that speaks to the broader issue of this $23-billion gap. It is unreasonable. It is unacceptable.”

Even federal Immigration Minister Joe Volpe admitted Wednesday that the disparity in Ottawa's compensation to different provinces for immigrants cannot be defended.

“Well, nobody wants to justify disparities like that,” Mr. Volpe told CBC Radio.

Mr. McGuinty planned to introduce a motion in the legislature seeking all-party support for his government's fiscal fight with Ottawa, but the NDP complained that it had not been consulted.

* 'Poorer' because Quebec and BC receive them. People, important people, are beginning to ask why. See the next bit.

[Ben Kenobi]

Do we still get some? We've been trying to get off the dole, rather than Quebec which has sought to stay on.

That's the real question, and it's an age old conflict. Pitting Upper Canada against Lower Canada.

[notyoueither]

http://216.239.57.104/search?q=cache:gX6y7ggbqBAJ:https://www.oacas.org/Whatsnew/newss...lization&hl=en

A better way to share

Redistributing Canada's wealth is a noble idea. Too bad the way we do it is so flawed, say university deans DAVID NAYLOR and ROGER MARTINBy DAVID NAYLOR and ROGER MARTIN

UPDATED AT 8:02 AM EST Thursday, Feb 10, 2005

It's budget time in Ottawa -- our national feeding frenzy. The Finance Minister sits on a $9.1-billion surplus. The advocates for a national child-care program are clearly in the pole position in therace for money. Who can argue? We think investing in children, particularly children in low-income households, makes sense from the perspective of equality of opportunity, prosperity, and public health.

There's just one hitch: The main debate so far has been about private versus public daycare. But we also have to figure out a sustainable way to pay for the program. And that leads straight to amuch bigger issue: fiscal federalism.

According to national accounts, Ontario's net contribution to the federation was $22.1-billion in 2002. Alberta contributed $8-billion and British Columbia contributed $1.8-billion. In per-capita terms, Alberta led with $2,560 per resident flowing to other provinces.

So a permanent national child-care program means an increase in the rate of outflow of money from three or four provinces to six or seven other provinces. All will likely accept a share of theproposed $5-billion fund for daycare as fast money with few strings.

But the prospects for agreement on a sustainable, long-term plan are bleak if it is another inter-provincial cash grab. Indeed, as more one-off financial deals are struck with different provinces, we run the risk of federal-provincial gridlock in an increasingly polarized nation.

An underlying problem is a misalignment of revenues and responsibilities in the Canadian Constitution. The Constitution placed the primary responsibility for health and education squarelywith the provinces, while Ottawa retained most revenue-generating powers.

For decades, Ottawa has redistributed money freely to buy regional votes, and used its spending powers to put national conditions on transfers. However, the conditions are often tweaked for Quebec, and difficult to enforce elsewhere.

Another problem is the structure of modern fiscal federalism. It uses three redistributive mechanisms.

The first is transfers for social programs. Cash is generated unequally, but flows back on a strict per-capita formula. Every "national deal" is a net loss for Ontario, Alberta, and British Columbia (it's still a net contributor to the federation, and one or two other provinces are poised to join the donors' club).

Then there are individual entitlements distributed to Canadians according to specific thresholds. A key part of a national safety net, these flows suffer from the usual perverse effects of means-testing.

The third flow is equalization payments. Equalization originated in 1957 alongside nationalhospital insurance, a cost-shared program. Richer provinces spent more on hospitals and got more federal money back. Equalization was an adjustment to offset the pro-rich bias of hospital insurance. But once funding shifted to a straight per-capita formula, equalization was already built right into all major social transfers.

Ottawa has not only maintained these "double" equalization payments, it recently lifted all caps on them, resulting in $10.9-billion flowing to eight provinces this year. From reasonable origins,equalization is now a self-propelling monster based on obscure calculations involving 30-odd different potential sources of provincial revenues. Redistribution is part of our national fabric, but Canada's mechanisms are faulty.

On efficiency: Economists argue about how fast regions such as Atlantic Canada are closing the prosperity gap, but the movement is slow at best. Trend data on job creation suggest that the Canadian interprovincial gap is narrowing more slowly than U.S. interstate gaps. With the current form of equalization in place, the have-not provinces face a huge disincentive to make smart investments for long-term prosperity.

If we accept that 50-per-cent marginal tax rates discourage individuals from increasing their work, savings and investment, imagine the disincentive for a province with a taxation rate in excess of 70 per cent on incremental work and investment -- essentially what happens with equalization adjustments.

On sustainability: Ontario moves twice as much money per capita out of province as peer U.S. states, year after year. Farmers know that you don't starve your cash cows. Ontario is the biggest cash cow, and it's in trouble. Its universities have had the lowest per-student funding of anyCanadian province for a decade. By one estimate, Ontario had 390,000 children living in povertyin 2003, even as Ontario's spending on child care lagged that of several other provinces. Manitoba spends more per capita on health care than Ontario. Ontario could afford a superb daycare program, if it weren't subsidizing health care, education, and daycare for other provinces.

On consistency: For years Saskatchewan's oil and gas revenues were subject to federalclawbacks that took 80 to 90 cents on the dollar. Newfoundland and Nova Scotia have just won a radically better deal. By one reckoning, an immigrant arriving in Montreal receives twice as muchfederal support as an immigrant to Toronto. The inconsistencies multiply yearly.

On accountability: The confusing maze of cross-subsidies that now exists in Canadian fiscal federalism violates every principle of public or private management and organizational behaviour. A big part of the solution is giving provinces not only their resource revenues on a consistent basis, but latitude to generate tax revenues to pay for the programs that, under the Constitution, they are ultimately accountable for delivering.

One such program is child care. We believe it must be integrated with existing social, educational and health services in a seamless fashion within each province, and funded mostly by tax points, not new cash transfers. Add in a radical rethinking of equalization, with a focus on genuine economic development, and we might have a country that works better.

Will these arguments mean much to those in Newfoundland outports who lament the death of the cod fishery? Or to Winnipeggers recalling the 1986 CF-18 airplane deal as evidence of Ottawa's favouritism towards Quebec? Probably not. Canada has become defined by regional schadenfreude. But without renewing fiscal federalism, we will short-change not only the children who need care, but an entire generation likely to inherit a country with diminished prosperity.

David Naylor, dean of medicine at the U of T, chaired the National Advisory Committee on SARS and Public Health. Rotman School of Management dean Roger Martin leads the Institute forCompetitiveness and Prosperity.

© 2005 Bell Globemedia Publishing Inc. All Rights Reserved.

[notyoueither]

Originally posted by Ben Kenobi
Do we still get some? We've been trying to get off the dole, rather than Quebec which has sought to stay on.

That's the real question, and it's an age old conflict. Pitting Upper Canada against Lower Canada.

According to the dean of medicine of the University of Toronto, you have been paying in even though you have been a 'have not'.

I'm curious to know how that works.

[notyoueither]

Originally posted by Comrade Tassadar
The confederation is going to collapse!!!51

Closer than we'd like to joke about, comrade.

It ain't just Alberta that has been paying the bill to bribe Quebec. When it becomes an issue in Ontario, and the deans of acedemia are being trotted out, something is up.

[Sprayber]

How do the provences get this money? In the form of direct handouts or federal projects. Does the national goverment simply hand over the money to the provence and they they decide how it is spent or does the national government get any say in how the money is used. Just curious..

[Sprayber]

Oh i see NYE's other post

[notyoueither]

Originally posted by Sprayber
How do the provences get this money? In the form of direct handouts or federal projects. Does the national goverment simply hand over the money to the provence and they they decide how it is spent or does the national government get any say in how the money is used. Just curious..

They are in the form of a couple of federal formulas for financing healthcare, education and other social programs.

Everyone gets taxed the same. Then they calculate which provinces can tax how much for themselves. Then the federal government pays to each province for these programs (mainly education and health) but scales it to pay more per person to provinces with lower per capita tax bases. So Alberta and Ontario still get these payments, but per person far less than our share of federal tax revenues whereas a have-not province gets far more than their per person share of federal taxes.

Said like that it makes sense, and is only too fair. However, then they begin to jink the numbers so that certain types of revenues don't count, or other types of revenues result in dollar for dollar reductions in federal transfers.

The largest problem is as the Dean pointed out. The provinces are responsible for the lion's share of social spending (read all of it) but they are beholden to the feds to fund it.

[notyoueither]

Originally posted by Comrade Tassadar


I'm sure the US could use thirteen more states.

We're perfectly capable of putting our own feds to the flame, thank you very much.

[notyoueither]

Originally posted by Sprayber
Oh i see NYE's other post

Don't worry. I am still wondering about parts of this.

It is said there are only 3 or 4 people who really understand everything about equalization payments.

[Agathon]

The best thing to do would be to get rid of federalism. It's totally stupid and a waste of money.

[notyoueither]

How do you do that without getting rid of 4 or 5 provinces who say, '**** that, we're out-a-here?'

[Agathon]

How do you do that without getting rid of 4 or 5 provinces who say, '**** that, we're out-a-here?'

They couldn't if they tried. Quebec is the only problem.

If you like wasting money on a superfluous level of government, that's your problem. But I have never heard a convincing defence of Federalism – it's a stupid compromise forced on nations by history.

[techumseh]

I'm tempted by Agathon's argument, however the best argument for federalism was made by Pierre Trudeau who said the division of powers amoung several governments would protect against unilateral decisons which could threaten people's civil rights.

As for the bickering over a share of the fed's pie, this is not only not unusual, it's the norm in Canadian politics.

[notyoueither]

Quebec is the only problem?

Listen sweetheart, if the Gov of Alberta yelled help, there would be American tanks parked all over this province before the PM discovered he didn't have a thing to say about the matter.

And if you think we Albertans or the Quebecois are ornery, wait til you have to deal with the entirely different breed of people who inhabit lotusland.