04 November 2005

The federal provincial balance - a snapshot [amended]

In late 2004, I attempted to estimate the federal-provincial revenue balance, taking into account taxation, government to government transfers as well as government to individual transfers (Employment Insurance).

Transfers to persons, by province, was not available and has not been included in this assessment. Note however, that in some recent years, published reports put the amount of Employment Insurance payments made within Newfoundland and Labrador at more than $900 million.

[Amendment: Lo and behold an e-mail arrived shortly after this was posted giving federal transfers to individuals in the province, as well as other calculations. In the table below, I have added in the transfers to individuals only. The table I received included a raft of other payments, although it didn't include actual federal spending on salaries, procurement etc.]

The data that resulted, while estimated, provided a very interesting snapshot for one year for which information was readily available. The results yield a number of interesting observations:

Observation 1. In FY 2002, the federal and provincial governments generated approximately the same level of taxation revenue from Newfoundland and Labrador. Each order of government derives tax revenue and other revenue from economic activity within a province intended to fund programs and services of that order of government.

For the purposes here, consider that the federal taxation revenue is intended to be the contribution of Newfoundlanders and Labradorians toward the operation of all federal programs and services.

Observation 2. From its own-source and transferred federal revenues, the Government of Newfoundland and Labrador received 79% of all government taxation revenue in FY 2002. See Note 2, below.

Observation 3. This assessment does not take into account federal spending in Newfoundland and Labrador for program and service delivery, including Employment Insurance. Therefore, if the value of federal salaries, capital spending, purchase of goods and services and transfers to individuals exceeds $1.057 billion, then it can be reasonably concluded that Newfoundland and Labrador was a net beneficiary of federal-provincial transfers in FY 2002.

In other words, Newfoundland and Labrador, its government and residents, received more from the federal government than it contributed in locally derived taxation income.

Observation 4. This assessment does not include non-domestic taxation, such as NavCanada fees. These have been the source of some controversy. It has been noted elsewhere, such as an assessment prepared for the Government of Newfoundland and Labrador, that these fees do not provide a net profit to the Government of Canada and its agencies.

Observation 5. It would be appropriate to provide a balance of payments assessment for Newfoundland and Labrador to determine a more detailed perspective on the provincial economy. This is beyond the scope of this posting, but would incorporate a more detailed assessment of federal and provincial taxation and transfers, as well as import/export data, debt, debt servicing etc.

New - Observation 6. From Line G, it is clear that Newfoundland and Labrador received from the Government of Canada almost $1.0 billion more in FY 2002 than it contributed in taxation and other similar revenues. More money comes into the province than goes out.

It is important to remember that, as a general approach, half of taxation and other revenues in the province should represent the revenue to operate the provincial government, while the remainder represents the amount that is Newfoundland and Labrador's contribution to operating the federal government.

Newfoundland and Labrador Government Revenues (Estimate) FY 2002
(Source: Dept of Finance, Government of Canada; Dept. of Finance, Govt of Newfoundland and Labrador)

A. Total Federal Revenue (All tax sources):

$ 148, 577, 000, 000

B. Federal Tax Revenue per capita:
$ 4, 951 Note 1

C. Total Federal Tax Revenue, NL:

$2, 584, 352, 686

D. Federal Transfers to Government NL :

$1, 526, 900, 000Note 2

E. Balance:

$ 1, 057, 452, 686 Note 3

F. New - Federal Transfers to Individuals:

$1, 997, 859, 000

G. New - Net (surplus)/deficit:

($940, 406, 314)

H. Total Provincial Revenue (Own-source):

$2, 521, 010, 000

I. Total Fed + Prov Revenues:

$5, 105, 362, 686

J. Total Provincial Expenditure:

$5, 012, 981, 000Note 4


1 The federal per capita revenue likely exceeds the actual figure for Newfoundland and Labrador since the figure used here for total revenue was derived on a national basis.

2 Equalization plus CHST. Gov NL received 79% of all government revenues (Fed Tax Rev + Provincial Own Source) from within Newfoundland and Labrador in FY 2002.

3 Balance represents any amount remaining in federal tax revenue from Newfoundland and Labrador once transfers have been removed.

4 Gov NL total expenditure represents 98% of all government revenues from sources within Newfoundland and Labrador.