L'etat, c'est eux
But Oberg's charming indifference to the issue -- we don't receive any equalization payments, so what do we care what changes the feds make to it? -- while a welcome departure from the usual federal-provincial hairpulling, hardly shows a becoming concern for the province's taxpayers. Since Alberta is a disproportionately wealthy province, a disproportionate number of its taxpayers are among the wealthy few who foot a disproportionate share of the bill for the program. So if oil revenues are included, in whole or in part, in the formula for calculating the (five-province? ten?) standard to which each province's per capita revenues must be raised, that implies a major expansion in the cost of the program. And Albertans will pay a disproportionate share of that increased cost.
Worse, Oberg then compounds this by insisting that what he really cares about are increased per capita transfers to Alberta under the other major federal transfer programs -- supposedly for health and higher education, though in fact a province can spend them as they see fit, just as much as equalization payments.
Again, Oberg seems to have the province's taxpayers confused with its government. The government of Alberta may wish to see an increase in federal transfers, but it's doubtful that Alberta taxpayers would, since the money for those transfers also comes disproportionately from those same taxpayers. Only by the time it's been processed through two levels of government, they're getting rather less than they started with: for every dollar in taxes they pay, they might get 60 cents in services back.
Alberta taxpayers would be better off, not with more federal transfers, but with less. That's if taxpayers mattered a whit, of course.
ADDENDUM: Saskatchewan and Newfoundland's position, as I understand it, is rather different. With oil and gas revenues included in the formula, both provinces' deemed fiscal capacity rises relative to the average, cutting the amount they are eligible to receive in equalization payments -- perhaps to the point of losing them altogether; whereas with oil and gas kept out, they remain "have-nots" for equalization purposes. Have I got that right?
3/16/2007
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Dad does not intervene when the children are fighting over the extra slice of cake. Even Grampa (Ontario) is slugging it out with the toddlers, but Dad will only intervene as a last resort.
You are right on the Saskatchewan and Newfoundland positions, but those provinces also oppose what has been called the "fiscal capacity cap" (sometimes called "the Ontario cap"). This cap would bring the level of equalization-receiving provinces up to the measured fiscal capacity of the lowest non-equalization receiving province (which at this time is Ontario; BC and Alberta are also non-receiving provinces but have higher fiscal capacities).
The principle behind it is that no province receiving equalization payments should be able to raise more income than a province that does not receive equalization.
Expect to hear more about this after Monday.
While it's true that it may be a federal program, it's also true that it effectively taxes all Canadians for payments that only go to some Canadians. So Albertans and Ontarians are taxed by the feds (along with everyone else) to fund the program. Albertans and Ontarians see nothing of the proceeds of this revenue. So that is essentially a tranfer of funds from Ontario and Alberta citizens to the rest of Canada.
Does it really matter if it's cooked up by the feds or the provinces?
The biggest controversy occurred when Newfoundland (Danny Williams I believe) began to argue that they didn't want to see this money coming from Albertans and Ontarians to slow, even when Newfoundlanders had more ability to pay for those Newfoundland services themselves thanks to Hibernia. Nova Scotia jumped on the bandwagon and now here we are today, witnessing the spectacle of 8 provinces arguing for the ability to freeload as much as possible off the others, with the other 2 provinces trying to stem the tide.
That being said, I agree with AC. Oberg appears to be clueless. He doesn't care whether Albertans are fleeced as long as he gets to fleece the rest of Canada. But under no circumstances will he ever come out ahead. In the end, Albertans are the losers.
I have to say, Andrew, you've really taken to this whole blogging thing. Long gone are the days when we'd all sit around an old oil barrel with a fire in it, fighting off the cold and betting our last cigarettes on when you'd next post.
I do like it better this way, even though I hardly have time to comment anymore.
No one is getting fleeced here. The Government of Canada taxes Canadians and disburses those revenues as it sees fit; sometimes with an eye as to provincial borders and sometimes not. Provincial governments do the same within their miniscule universes. Its a fundamental truth of taxation that it takes money from someone to spend elsewhere, there is no corresponding principle that the a taxed individual should get back exactly what they put in. Why tax at all if that be the case?
As it happens I live in PEI. Our major export to the ROC has been brains and brawn and yes, spuds. My grandfather went the the wheat harvest, my siblings are strung out across the country, my children will probably not live here. We've contributed mightly and to the full extent of our ability to this Confederation. But be certain that without a benevolent Fed government, PEI would be a very different and desolate place.
The discussion about "equalization" is a distraction that serves only politicians and how much money they can play with. The discussion should be about how best to apply our civil resources to strengthen the Confederation.
The transfers out of AB this year are conservatively pegged at 12 BB - 4000 per cap or 16000 per family of four - after-tax - per year. No strings or conditions attached. Provinces on the receiving end can spend it on hopelessly uneconomic ventures like windfarms or a seed potato industry that has been blamed for the continuation if bacterial ringrot in PEI, propping up redundant and underutilized crab-processing facilities in NL, or heavily subsidized daycare in QC. Alberta is absolutely "getting fleeced". It is remarkable that the citizens of AB haven't risen up before now.
"We've contributed mightly and to the full extent of our ability to this Confederation. But be certain that without a benevolent Fed government, PEI would be a very different and desolate place."
It would also at least be self-sustaining and have some degree of pride.
First of all, where did we get this idea that it is desireable to ensure ALL provinces end up with the same amount of money to spend as other provinces? Why not 10% less, or 20% less? It's an arbitrary number, but as it stands, doesn't the current scheme just reward basketcaseness (ie. PEI's fiscal policies) and punish good management (ie. BC/Alberta's fiscal policies). This is the same reason the market doesn't pay the guy at McDonalds the same wage as it does Doctors, we don't want to encourage the proliferation of McJobbers. I'm all for equilization, but it must have limits. The Federal government (HARPER/MARTIN) need to stop enriching the program for political purposes so far that provinces like Quebec can now afford much more in services than places like Ontario and Alberta can.
Andrew:
Re: SK and NL's case.
Yes, you have it right.
Essentially prior to the side deals that Paul Martin cut with those two provinces the O & G revenues(and nickel/cobalt revenues from Voisey's Bay Labrador) would reduce equalization transfers one for one - a 100% clawback. I have read somewhere that the SK government claimed that the clawback was 125% but I'm not sure how they arrived at that.
Danny William's beef was that NL could possibly have developed the O&G resources and seen all of the revenues clawed back and never gotten much above the have-not equalization line before the resource was depleted and the province then fallen back into have-not status with little to show for the O&G development.
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The problem that Oberg and many others fail to understand is that non-renewable resources are a capital asset. By exploiting these resources and the provinces are simply converting turning them into another finite asset - cash. Confiscating 50% for the benefit of the other nine provinces is no different than confiscating the oilsands or offshore resource itself.
On the other hand, those provinces that do not have such assets are frustrated with having to compete and keep up with the quality of services and facilities AB is able to provide its citizens and still have lower than average tax levels because it is taking these cash assets (the royalties) from the O&G and putting them into the general revenue stream.
The solution to this (as I emailed to you privately a couple of weeks ago) is to give the resource rich provinces an incentive to sequester these royalty revenues into a trust fund managed by a third party. Any income generated from the trust fund could be put into provincial general revenues with only 25% being included in the equalization formula. Should the province take the royalty stream directly into general revenues, it would subject to a 50% inclusion rate.
For provinces like NL, SK (and NS) they would over time be able to build up a huge fund that would provide perpetual income and a reason to develop the resource in the first place. Have not would be no more. Permanently.
AB would have less bounty to splurge on lower taxes etc. but would eventually become an enormous economic powerhouse with huge worldwide holdings via the trust fund.
Provinces not endowed with O&G wealth would over time not have to worry about chronically having to support NL NS and SK. They would also have access to oceans of investment capital from the trust funds.
Its never a surprise how the newly rich confuse good management with good luck, its easy to be Finance Minister of Alta, all you need be concerned with is where to put the next Money Bin. Alberta is a state of mind, a notion created in Ottawa and Whitehall for easy administration, nice straight lines etc. it doesn't have a prior claim to any of the riches or good luck that create revenue for the government of Canada, nor does it hold, at least constitutionally any more sway as to how its distributed. As for PEI we gave that up when we joined, for better or for worse, Confederation.
The good management in Canada doesn't extend much beyond JA MacDonald's National Policy, and that was a knife that cut both ways, the rest has been mostly digging more wealth out of the ground. Modern economic fiscal tools which are roundly and loudly toasted at Financial Planner piss-ups, like RRSP's, have mostly rewarded the already rich and strong economies at the expense of the weaker. Savings and profits from small businesses for example, that would historically be invested back into local economies, small enterprise, family business, etc. now they are siphoned away to help support the economies of southern Ont., the Alta oilfields developers, and other large enterprise that can tap into those oceans of capital represented by Mutual Funds, Stock markets etc.
And now that I'm revved up, Fisheries Policy is an entirely a GovCan responsibilty, the seed potatoe industry was strong and viable until AgCan misdiagnosed PVYN and then was reluctant to deal with the impact on trade because of other (mostly cross border) trade disputes, like mad cow and softwood lumber, to name just 2. You might try to base your argument on something more than the headlines in the Toronto press.
So I rest my case, its not about whether it was raised in Alberta or BC, its about how its spent in Ottawa. Our problem is as much bad decision as yours.
Ace:
Let me preface my response by pointing out that I was born and raised in NL.
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It is symptomatic of all failed economies to blame external forces for their problems and to point at those who are succeeding as being just lucky.
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If you were to look at a map of the western provinces that showed only the O&G pipelines and wells drilled, you would still clearly see the borders of BC and SK clearly drawn by the lack of activity in those juristictions. The O&G didn't stop in AB. SK and BC have lots too (SK has more both conventional and tarsands than AB btw). It was the local government that differed - higher taxes and, more importantly, much heavier regulation has impeded development in BC and SK.
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The fishery in Atlantic Canada may have been managed by the feds but fed management was very sensitive - too sensitive - to the short-term demands of the local populous and the "Jobs first" politics of the provinces. The cod fishery in the gulf of St.Lawrence collapsed along with the Northern Cod due in no small part to rampant overfishing and there wasn't a foreign boat in sight in the gulf.
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The seed potato 'industry' has been a make-work project for years. The competitive advantage that PEI had disappeared with the advent of the mechanized harvester 40 years ago. The climate is too wet, the fields too small and the soil too stoney compared to that of Manitoba and parts of AB where the conditions to produce high quality potatoes are far better.
One of PEI's assets is it's delightfully temperate summer weather. The Province has restrictions on land ownership by non-residents. (As did SK until very recently by the way(three years ago?), but since they were removed land prices have doubled in some areas).
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As for governance - AB had Social credit government for almost 40 years with Ernest Manning either as co-pilot or as premier for the entire period. He and his cabinet(s) laid the groundwork for the best regulated and staffed provincial government in Canada. To either side were the communist Tommy Douglas and the populist WAC Bennet who took care of his friends.
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Around the same time NL gave landslides to the Despot Joey Smallwood and his ruinous policies. And today even though he scuppered the O&G boom for the next ten years, Danny Williams remains hugely popular.
So your argument that all of AB's good fortune is based on luck is clearly incorrect. People and provinces often get the leaders they deserve and suffer the consequences good or bad as a result. It is not someone else's fault.
The poor condition of the Atlantic province's economies are their own doings not someone else's.
Wow, what a change on this blog. I must say I like that anti-Explorer image :-)
Hmh, I wonder who knows more about equalization. Al O'Brien, the former Deputy Provincial Treasurer of the Province of Alberta, and Chair of the Expert Panel on Equalization and Territorial Financing or Andrew Coyne, some newspaper columunist. I think the answer is obvious. Read the report, Andrew.