Atlantic Canada must be told ‘no’

Even a brief glance at the economies of the Atlantic provinces in early 2016 indicates that a time of reckoning is at hand. Deficits are growing and threaten to become solvency crises. Regional outmigration has slowed down but continues. Remittances from western Canada are almost certainly falling rapidly.

For these reasons, it is time to consider how to rescue Atlantic Canada from the disastrous consequences of the large subsidies that have been provided to them for 50 years and are one of the principal causes of the difficulties currently being experienced. They are “the help that hurts” in the words of one regional commentator.

These subsidies have come in the form of equalization, benefits from Employment Insurance (EI) that are much easier to access than in other provinces, disproportionate public employment far beyond the levels required to serve local populations, and the many subsidies targeted at this region incorporated in federal operating programs. The consequences of these arrangements are many, but include:

❚ The economies of these provinces are public- sector driven and are out of phase with the rest of the developed world. Atlantic region public sectors are larger than in Greece before the financial crisis impacted that country. The sense of entitlement felt by Atlantic Canadians is deeply rooted, as it was in Greece.

❚ Debate about the extent to which the economies of these provinces — and Manitoba — are supported by other Canadians is dangerously ill- informed. Discussion of subsidy arrangements is usually limited to equalization, which understates the extent to which the Atlantic provinces are dependent on many different subsidies from other Canadians to support anything close to North American standards of living.

❚ Federal subsidies have compounded regional disparities. While personal incomes have risen in the region, much of that is due to the scale of the subsidy arrangements themselves. The subsidies crowd out the private sector by making it difficult to compete for talent, by enabling excessive government expenditures and sometimes by cronyism in the way governments behave.

❚ The public finances of each Atlantic province are out of control, in part because the subsidies from other Canadians have been used to support program structures that are far more expensive, on a per person basis, than in Alberta, Ontario or Quebec.

To save the region from continued decline, several changes should be con- sidered.

First, the problems of Atlantic Canada should be decoupled from those in Quebec. While Quebec receives the largest share of equalization, that share is much smaller in relation to its economy than in Atlantic Canada or Manitoba. Also, Quebec receives much less, in relation to its size, from disproportionate federal employment or generous EI arrangements than the other eastern provinces. Quebec has issues but they are less intractable than in Atlantic Canada.

Second, equalization in Atlantic Canada should come only with conditions.

The first is that independent expenditure reviews along the lines of the Drummond Commission in Ontario should be completed for each Atlantic province. Provincial auditors should certify the independence of these reviews. The second is that delivery of provincial programming in the four Atlantic provinces should be by a common services commission operating under contract with each of them. Four separate public services for four provinces with a total population of two million is extravagant. Third, Ottawa needs to reinvent equalization if it is to become a unifying rather than a corrosive force.

The reform effort should begin with measuring program comparability among provinces. This is the stated goal of equalization and, presumably, other subsidy efforts, but the federal government makes no effort to compare provincial programming across Canada. Equalization should also be changed so that the needs of populations in each province are considered in determining equalization entitlements. Failure to factor demographics, labour market conditions, educational issues and many other matters in determining equalization entitlements means that the program is disconnected from the everyday lives of all Canadians.

For several decades, Atlantic Canadians have sought help from other Canadian taxpayers. The help was provided but as a well- intentioned afterthought with carelessly planned programs and little transparency. Winston Churchill once said that learning how to say no is an essential part of the political process. It is time to say no to more of the same for Atlantic Canada. The region is running out of time and the rest of Canada, particularly Alberta and Ontario, has run out of capacity to support badly managed and opaque subsidies that promise to grow without end unless a different path is chosen.

Fortunately, such a path is available. We only need to take it.

David McKinnon and Marco Navarro- Genie are senior fellow and president, respectively, of the Atlantic Institute for Market Studies ( AIMS.ca).