GETTING THE FACTS STRAIGHT
Kevin Carmichael exposes reality behind equalization payments.
Last week, I said some nice things about Quebec. The province’s turnaround is one of the most positive macroeconomic developments in Canada in recent years, partially offsetting the blow from Alberta’s recent struggles.
Take a second to think where we’d be if Quebec hadn’t gotten it together? Canada’s short-term fortunes would be in the hands of U.S. President Donald Trump and his trade wars; the twin housing bubbles in Vancouver and Toronto; and the province of Ontario, home to 40 per cent of the country’s population and about 50 per cent of the combined $703 billion in provincial debt. We’d be a cross between Italy and Britain.
Yet there were more than a few people who only wanted to talk about equalization.
“If not for Alberta, you (expletive) would be nothing,” one reader informed me in an email that arrived at 10:59 p.m. Montreal time on Friday. The notes continued over the weekend and into this week.
“If Quebec is doing so well why are we giving them $11 billion in equalization payments,” stated another emailer.
Gerry Ritz, the former Saskatchewan member of Parliament and Harper-era cabinet minister, tweeted that “$13,000,000,000 in transfers may be a clue” in explaining Quebec’s (still relatively recent) economic success.
Before we go any further, let’s get our facts straight.
Quebec will receive a payment of $13.1 billion in the fiscal year that ends March 31, 2020, compared with $11.7 billion the previous year, according to the Finance Department. That’s 66 per cent and 61 per cent of the total amount set aside for equalization payments in each of those years; Quebec’s inhabitants represent about 72 per cent of the population of the five “havenot” provinces.
Now, for those of you hung up on Quebec’s take from the equalization program ($1,541 per person), what’s the real-world difference between that and the $1.7 billion ($1,417 per person) in rent that Saskatchewan collected from the natural resources sector within its borders last year?
Section 36 of the Constitution states that, “Parliament and the Government of Canada are committed to the principle of making equalization payments to ensure that provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation.” Section 92 grants legislatures the right to “make laws in relation to the raising of money by any mode or system of taxation in respect of non-renewable natural resources and forestry resources in the province and the primary production therefrom.”
So Manitoba currently has the right to one revenue stream — Canadian generosity — and Newfoundland and Labrador has the exclusive right to monetize a resource that Manitoba lacks, offshore oil. It’s a trade-off that society agreed to decades ago, and it’s one of the reasons that politics doesn’t represent the same economic risk, as it does in the United States and Europe.
Income and wealth disparities are issues, but not serious ones. The quintile of Canadians with the highest incomes controlled about 49 per cent of wealth in 2018, compared with about 50 per cent in 2010, according to Statistics Canada data.
At the risk of sounding alarmist, I wonder if the first resource mentioned above — generosity — is non-renewable, just like the stuff we dig up from under the ground?
Jason Kenney correctly determined that dangling the prospect of a referendum on equalization would help him get elected premier of Alberta.
We should be wary of this kind of rhetoric.
The latest polling data suggest the October election could result in severe partisan split along regional lines. Philippe Fournier, who publishes a model-based seat projection at 338Canada. com, currently sees the Liberals winning about 156 seats and the Conservatives 145. Almost all of Justin Trudeau’s caucus would come from Ontario, Quebec and the Atlantic, while Tory leader Andrew Scheer’s opposition would be dominated by MPs from Alberta, Saskatchewan, and Manitoba.
What would happen to equalization and programs like it under such a scenario?
Kenney would surely feel pressure from his base to hold that referendum, and Scheer would become the Ottawa spokesman for the initiative. Might the gambit result in a less generous transfer to the “have-not” provinces? Possibly. But what if Trudeau then came under pressure from his band of mostly Toronto and Montreal MPs to make up for the loss by going after the $6.3 billion the federal treasury foregoes to give smaller companies a preferential income-tax rate, or the $2 billion tax expenditure associated with the lifetime capital gains exemption?
Where would it stop? Would it stop? Last year, Paul Martin, the former prime minister and finance minister, lamented how politicians appeared to be losing the ability to compromise. That has been an unappreciated Canadian advantage for decades.
But what if we’re more like Britain and Italy than we realize?