Harper and The Myth Of Fiscal Imbalance

A new study out that concludes the Liberals were right, the fiscal imbalance is a myth:

But a report for the Canadian Centre for Policy Alternatives, to be released Tuesday, says the real culprit is the provinces' choice to cut taxes in the late 1990s, sucking more than $30 billion a year out of provincial treasuries.

"The real force behind the fiscal pressures currently faced by provincial governments is competitive tax cutting by provincial governments intent on getting ahead in the race to the bottom," concludes the report, compiled by economist Hugh Mackenzie for the left-leaning think tank.

The tax cutting binge was started by Ontario but was quickly matched, to varying degrees, by other provinces, particularly in the West.

"Fiscal imbalance . . . is largely a problem inflicted by the provinces on themselves through tax competition," Mackenzie says...

However, the study does find one imbalance:

Moreover, while the federal government has begun restoring transfers to the provinces in recent years, he says the provinces have not done the same for municipalities.

"In fact, the data demonstrate that the real fiscal imbalance involves local governments, not provincial governments," he says.

If you listen to Flaherty's recent comments, this study provides cover for backing away from the Tories voter manipulation stance of the past election. However, Harper's reputation in Quebec is largely a function of his ability to deliver on his cynical promises. If the Tories admit the fiscal imbalance is mostly myth, they risk alienating those coveted voters. But, if the Tories forge ahead, despite the mounting evidence, their transparency is obvious and they can expect blowback.

This study vilifies the Liberals, who were constantly trashed for refusing to acknowledge the imbalance. The real shame in Harper's reckless promises, he has set the federal government up for a fall in the eyes of Quebecers. Fiscal imbalance is important, beyond the money, because it helps define federalism. Harper plays with Canada for his own agenda, and now we can expect to watch the slippery dance to appease while Duceppe rubs his hands.