Tuesday, March 20, 2007

Solving Nothing

I'm basically a Quebec fiscal imbalance denier, so I'm not particularly impressed when the federal government advocates a mirage to score political points. Certain provinces do get a disporportionate share of the pie, as a function of population. Ontario can make a strong statistical case that it receives less funding for social programs on a per-capita basis. Quebec on the other hand, and I'm not trying to make this a wedge issue, has little empirical evidence to support their thesis.

There was a great presentation made to the House of Commons on fiscal imbalance, that shows, using real information, that Quebec's complaints aren't supported by hard facts. If you have a moment, take a quick read and you will see that Quebec does very well, relative to others, thank-you very much. An idea inspired by Bernard Landry, which found a voice through the narrow interest of provincial concerns, proving the theory, the squeaky wheel gets the oil:
In summary, the evidence, whether in terms of relative debt burden, fiscal capacity, downloading, own-source revenues, or own-source revenue growth, that there is a fiscal imbalance between Ottawa and the provinces, is weak. Provinces have cut their taxes over the past few years, and presumably are equally free to raise them again if they wish to take the political heat for doing so. The fact that Ottawa has been a better fiscal manager of its resources than many of the provinces is not an argument for transferring the results of that superior fiscal discipline to the provinces, just as the fact that Ottawa’s fiscal burden may be too high is not an argument for giving some of those tax resources to the provinces. The provinces have the means to fix their fiscal problems, and we see little reason why Ottawa should do the job for them.

What bothers me today, now we have Jean Charest announcing a whole new round of taxcuts for Quebecers, in light of the federal budget:
Liberal Premier Jean Charest says he'll give Quebecers tax cuts with some of the money the province received in the federal budget.
Charest said Tuesday in Montreal the $700 million in income tax cuts will take effect next Jan. 1 and will be on top of the $250 million in reductions already announced in the Liberals' February budget.

The Center for Policy Alternatives agrees on taxes:
provincial governments themselves deserve much of the blame for their current fiscal challenges due to tax cuts over the past decade. The lost revenue to provincial treasuries from personal and corporate tax cuts is estimated to be as much as $30 billion per year, an amount that dwarfs the original loss of federal transfers in the mid-1990s.

Charest prefers to win over voters with cash, as opposed to investing in all the programs that Quebecers often complain are under-funded by Ottawa. If the provincial governments want to constantly reduce taxes, relative to other jurisdications, then it counters the argument that they desperately need more money. The federal government is effectively subsidizing bad fiscal management on the part of provinces, and Charest proves this fact in spades today.

Let us all remember this taxcut, because we surely will hear new cries in a few months about federal surpluses and disparity. The federal Liberals were guilty of cutting transfers, but this was a function of MASSIVE debt, and the situation was objectively resolved in the last years. If the federal government still enjoys a large surplus that doesn't translate into an imbalance, it just means the wrong level of government is giving tax relief in my view.

Next year, when Jean Charest, if re-elected, posts a meager surplus or minor deficit, faces a critical shortage in an area of provincial jurisdiction, he better not put his hand out and pick the easy target, what he should do is look in the mirror.


knb said...

Charest prefers to win over voters with cash

Our cash, Canadians cash. Of course Quebecers contributed too, but I wonder how this is going to go over in Alberta? Not just Alberta of course, those provinces that consider that they were short changed, now will see some of the money they wanted, giving tax breaks to Quebec.

Charest is within his rights to do this of course, I just wonder how much Flaherty and Harper thought through how this will play out.

Steve V said...

Alberta, the Premier at least, is ecstatic. As the Quebec angle starts to gel, I wonder how that will sit.

knb said...

As the Quebec angle starts to gel, I wonder how that will sit.

I think that is the key, we shall see.

As to the thrust of your post, I tend to agree, though I'm not thoroughly versed in each provincial situation.

It would be nice to live long enough to see politicians do what is right, rather than what gets votes. McGuinty hasn't done everything right, but in some cases, he's certainly done what is unpopular, because it was right for the province.

knb said...

You know, the other really odd thing is, the only one supporting this bad budget, is Duceppe of course. His reason for supporting it, more leverage to separate.

Surely conservatives (real ones), have to be scratching their heads.

Steve V said...

Duceppe's comments yesterday were just amazing.

Dana said...

Alberta should be ecstatic. Yesterday's budget implications reveal the leading edge of the decentralization of powers (as represented by dollar signs) under Harper's version of asymmetrical federalism.

Soon enough each region and province will be reaching individual and particular sets of agreements with Ottawa regarding tax points and transfers.

In other words, each province and region will negotiate it's own firewall with the federal government.

Steve V said...

"Soon enough each region and province will be reaching individual and particular sets of agreements with Ottawa regarding tax points and transfers."

Dana, sad but true, you can see the drift. When you look at the current makeup of our federal government it's depressing. Seperatists are a permanent fixture in the House, and the Prime Minister has the mentality of a Premier.

In the words of PET- "It's not the end of the world, but you can see it from here."