Defining the "fiscal imbalance"
One of the delights of federal-provincial relations is the ingenuity with which the premiers find new ways to rationalize the same unchanging demand for more money. Fermat’s Last Theorem could not rival the many elegant mathematical formulae to emerge from provincial capitals over the years, each purporting to present the premiers’ latest estimate of how much federal cash they fancy scarfing as a kind of scientific constant, calculable with geometric certainty, like pi or the golden mean.
Remember the 18% ratio? That was the percentage of all provincial health spending that Ottawa was obliged to pony up, some years back, or risk violating one or another of the laws of thermodynamics. The accounting was dubious enough -- the provinces conveniently forgot about federal transfers in the form of tax points, and in any event the money all goes into provincial general revenues, not some sequestered bank account marked “health” -- but no more so than the underlying principle. Which was … what, exactly? Well, 18% was what Ottawa used to kick in “for health,” circa 1995, before the “unilateral” (ie federal) reductions in federal transfers to the provinces imposed in that year’s budget. And why should that be any sort of benchmark? Why, that is, other than because it was more than Ottawa was providing at the time?
So, just to test the thesis, the feds caved in to the premiers’ demands. What happened? The natural ratio towards which federal spending should asymptotically approach was promptly, I may say automatically adjusted upwards, to 25%. And why was 25% selected? Well, it’s half of 50%, isn’t it? Obvious.
Lately the premiers have discovered a new formula. The billions and billions of dollars “for health” obtained through successive federal-provincial screaming matches having disappeared without a trace, the premiers decided they were the victims of -- what? a massive fraud? a vast right-wing conspiracy? man’s inhumanity to man? -- no, something called the fiscal imbalance. Like many provincial wheezes, this began in Quebec, where it was hailed as evidence of English Canada’s indifference to Quebec’s specificity. But the other provinces soon appropriated it, thus demonstrating instead English Canada’s indifference to reality.
The fiscal imbalance is one of those things like dark matter or quantum uncertainty that defy comprehension by the ordinary layman. Its precise magnitude has been the subject of countless arcane calculations -- the government of Quebec devoted a whole white paper to the subject -- but its basic mathematical expression may be reduced, by a combination of Lagrange polynomial interpolation and dead reckoning, to two lines: 1. Ottawa has money. 2. We want it.
There isn’t a lot more to it than that, I’m afraid. Great significance is supposed to be attached to the fact that the federal government is in surplus at the moment, while some of the provinces are in deficit. But the provinces are not noticeably short of revenues -- at roughly $8000 per capita in 2005 dollars, provincial revenues are in fact at an all time high -- and today’s federal surpluses have barely begun to offset the accumulated debt from 27 consecutive federal deficits, much of it incurred to provide transfers to the provinces. If it were the other way around today -- if the feds were in deficit, and the provinces in surplus -- do you suppose we’d be hearing one word about the fiscal imbalance? I didn’t think so.
In any event, the one has nothing to do with the other. If the provinces want to raise more revenues, there is nothing to stop them from doing so -- certainly nothing of Ottawa’s doing. They have access to every major revenue stream the feds have, plus some the feds do not. But how tiresome it is to have to go cap in hand to one’s own citizens, when you can just use your bank card at the all-night Ottawa ATM instead.
Mind you, the fiscal imbalance is the Magna Carta itself compared to the naked opportunism behind Ontario’s sudden discovery of a “$23-billion gap” in its own dealings with Ottawa. Just three things explain how this figure came into being. One, Mr. McGuinty, having raised taxes and gone into debt to finance his spending plans, both in violation of his most solemn electoral vows, finds he would like to spend still more. Two, Paul Martin’s let’s-make-a-deal approach to health care and equalization has announced that, henceforth, fiscal federalism is to be governed by no discernible principle whatever. And three, the federal Liberals are at 25% in the polls.
Be that as it may, the premier’s “solution” -- an immediate $5-billion transfer to provincial coffers, the amount derived by virtue of the moon being in the seventh house, and Jupiter aligned with Mars -- would do nothing to improve matters. Every dollar the Ontario taxpayer receives in services by this peculiarly circuitous route -- citizen to Ottawa to Queen’s Park back to citizen -- costs him something like $1.30 in the end, what with shipping and handling and all.
If he really had Ontario’s taxpayers interests in mind, Mr. McGuinty would be pushing for Ottawa to simply cut taxes. But that would benefit all Canadians, not just Ontarians. In today’s Canada, that counts as something of a demerit.
Remember the 18% ratio? That was the percentage of all provincial health spending that Ottawa was obliged to pony up, some years back, or risk violating one or another of the laws of thermodynamics. The accounting was dubious enough -- the provinces conveniently forgot about federal transfers in the form of tax points, and in any event the money all goes into provincial general revenues, not some sequestered bank account marked “health” -- but no more so than the underlying principle. Which was … what, exactly? Well, 18% was what Ottawa used to kick in “for health,” circa 1995, before the “unilateral” (ie federal) reductions in federal transfers to the provinces imposed in that year’s budget. And why should that be any sort of benchmark? Why, that is, other than because it was more than Ottawa was providing at the time?
So, just to test the thesis, the feds caved in to the premiers’ demands. What happened? The natural ratio towards which federal spending should asymptotically approach was promptly, I may say automatically adjusted upwards, to 25%. And why was 25% selected? Well, it’s half of 50%, isn’t it? Obvious.
Lately the premiers have discovered a new formula. The billions and billions of dollars “for health” obtained through successive federal-provincial screaming matches having disappeared without a trace, the premiers decided they were the victims of -- what? a massive fraud? a vast right-wing conspiracy? man’s inhumanity to man? -- no, something called the fiscal imbalance. Like many provincial wheezes, this began in Quebec, where it was hailed as evidence of English Canada’s indifference to Quebec’s specificity. But the other provinces soon appropriated it, thus demonstrating instead English Canada’s indifference to reality.
The fiscal imbalance is one of those things like dark matter or quantum uncertainty that defy comprehension by the ordinary layman. Its precise magnitude has been the subject of countless arcane calculations -- the government of Quebec devoted a whole white paper to the subject -- but its basic mathematical expression may be reduced, by a combination of Lagrange polynomial interpolation and dead reckoning, to two lines: 1. Ottawa has money. 2. We want it.
There isn’t a lot more to it than that, I’m afraid. Great significance is supposed to be attached to the fact that the federal government is in surplus at the moment, while some of the provinces are in deficit. But the provinces are not noticeably short of revenues -- at roughly $8000 per capita in 2005 dollars, provincial revenues are in fact at an all time high -- and today’s federal surpluses have barely begun to offset the accumulated debt from 27 consecutive federal deficits, much of it incurred to provide transfers to the provinces. If it were the other way around today -- if the feds were in deficit, and the provinces in surplus -- do you suppose we’d be hearing one word about the fiscal imbalance? I didn’t think so.
In any event, the one has nothing to do with the other. If the provinces want to raise more revenues, there is nothing to stop them from doing so -- certainly nothing of Ottawa’s doing. They have access to every major revenue stream the feds have, plus some the feds do not. But how tiresome it is to have to go cap in hand to one’s own citizens, when you can just use your bank card at the all-night Ottawa ATM instead.
Mind you, the fiscal imbalance is the Magna Carta itself compared to the naked opportunism behind Ontario’s sudden discovery of a “$23-billion gap” in its own dealings with Ottawa. Just three things explain how this figure came into being. One, Mr. McGuinty, having raised taxes and gone into debt to finance his spending plans, both in violation of his most solemn electoral vows, finds he would like to spend still more. Two, Paul Martin’s let’s-make-a-deal approach to health care and equalization has announced that, henceforth, fiscal federalism is to be governed by no discernible principle whatever. And three, the federal Liberals are at 25% in the polls.
Be that as it may, the premier’s “solution” -- an immediate $5-billion transfer to provincial coffers, the amount derived by virtue of the moon being in the seventh house, and Jupiter aligned with Mars -- would do nothing to improve matters. Every dollar the Ontario taxpayer receives in services by this peculiarly circuitous route -- citizen to Ottawa to Queen’s Park back to citizen -- costs him something like $1.30 in the end, what with shipping and handling and all.
If he really had Ontario’s taxpayers interests in mind, Mr. McGuinty would be pushing for Ottawa to simply cut taxes. But that would benefit all Canadians, not just Ontarians. In today’s Canada, that counts as something of a demerit.
4/13/2005
