Fed­eral trans­fers at all-time high

The com­plaint from some provinces that Ottawa is short­chang­ing them is false

The Guardian (Charlottetown) - - OPINION - Ben Eisen is as­so­ciate di­rec­tor of pro­vin­cial pros­per­ity stud­ies and Charles Lam­mam is di­rec­tor of fis­cal stud­ies at the Fraser In­sti­tute. Troy Me­dia

Over the years sev­eral pro­vin­cial gov­ern­ments have com­plained about the amount of money they re­ceive from Ottawa. Se­nior of­fi­cials in the On­tario govern­ment, for in­stance, have ac­cused the fed­eral govern­ment of “turn­ing its back” on On­tario, and fail­ing to be a con­struc­tive “part­ner.” Fol­low­ing the 2014 bud­get, On­tario’s fi­nance min­is­ter went so far as to claim that the fed­eral govern­ment had de­liv­ered a “kick in the teeth” by mak­ing “mas­sive cuts” to the prov­ince.

A look at the num­bers, how­ever, re­veals the nar­ra­tive about Ottawa short­chang­ing the provinces is false. In re­al­ity, fed­eral trans­fers to the provinces have been in­creas­ing strongly and steadily over the past decade. In fact, af­ter ac­count­ing for in­fla­tion and pop­u­la­tion changes, trans­fers are higher now than at any point in Cana­dian his­tory.

Let’s pause to de­fine “fed­eral trans­fers.” All provinces re­ceive pay­ments, based on their pop­u­la­tion, to help fund health and so­cial ser­vices. In ad­di­tion, some provinces re­ceive equal­iza­tion pay­ments if they are deemed un­able to raise enough rev­enue to fi­nance ad­e­quate pub­lic ser­vices.

Fed­eral trans­fers are fre­quently a point of con­tention be­tween the provinces and Ottawa, with pro­vin­cial gov­ern­ments of­ten claim­ing they don’t get enough money (with­out defin­ing what “enough” is) and that Ottawa is there­fore to blame for their fis­cal prob­lems.

Con­sider de­vel­op­ments over the past decade. Fed­eral trans­fers to the provinces (and ter­ri­to­ries) have in­creased by 62.3 per cent since 2005/06, climb­ing above $68 bil­lion in 2015/16. This rate of in­crease greatly out­paced in­fla­tion and pop­u­la­tion growth, which to­gether grew by 31.6 per cent.

Con­se­quently, fed­eral trans­fers to the provinces are higher to­day than ever be­fore, on an in­fla­tion-ad­justed per per­son ba­sis, with a pro­jected cost of $1,897 per Cana­dian this fis­cal year - far more than was the case a decade ago ($1,535).

Other met­rics sim­i­larly show that fed­eral trans­fers are on the rise. For ex­am­ple, in 2005/06, ma­jor trans­fers rep­re­sented 14.8 per cent of all pro­vin­cial rev­enue. Since then, that share has climbed and will reach 17.3 per cent this year, the high­est level in re­cent his­tory.

In the spe­cific case of On­tario, which has been par­tic­u­larly vo­cal in re­cent years about be­ing “short­changed” by Ottawa, the nar­ra­tive is par­tic­u­larly weak. It turns out fed­eral trans­fers to On­tario have in­creased at a much faster rate than trans­fers to al­most all other provinces. Be­tween 2005/06 and 2015/16, fed­eral trans­fers to On­tario in­creased by a whop­ping 87.8 per cent, thanks largely to the injection of more than $14 bil­lion in cu­mu­la­tive equal­iza­tion dol­lars to the pro­vin­cial trea­sury since On­tario be­came a “have-not” prov­ince in 2009/10.

In 2005/06, On­tario re­ceived 26.0 per cent of all ma­jor fed­eral trans­fers. By 2015/16, that share will be 30.1 per cent.

In other words, even as the to­tal fed­eral trans­fer “pie” has grown, On­tario’s share of the pie has in­creased.

There will al­ways be a temp­ta­tion for pro­vin­cial gov­ern­ments to cry poor to Ottawa, and claim they should get more money. Af­ter all, com­plain­ing about fed­eral trans­fers is eas­ier than re­strain­ing spend­ing or im­ple­ment­ing un­pop­u­lar and eco­nom­i­cally harm­ful tax in­creases to gen­er­ate own-source rev­enue.

At present, how­ever, th­ese claims have lit­tle merit. Pro­vin­cial gov­ern­ments, in­clud­ing On­tario, should look in­ward at their own pol­icy choices rather than blame in­ad­e­quate trans­fers from Ottawa for the fis­cal chal­lenges they face.

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