15 April 2009

Gimme your lunch money, dork: the latest editorial version

The Telegram editorial this wintry Wednesday in April tackles the ever-stimulating issue of federal-provincial fiscal relations.

That’s federal transfers of cash to the provincial governments in plainer English.

After covering the litany of complaints from provincial governments about federal transfers, the Telly winds up this way:

Piecemeal doesn't work; different deals for different provinces cause more pain than gain. That being said, there should be some moderation built into the system to deal with revenues from non-renewable resources, so that provinces experiencing brief booms in commodity-based revenues can invest those revenues in a way that can keep them from needing more assistance when the revenues inevitably run out.

What we have here is a federation virtually united in saying that the federal government is mismanaging - and sometimes deliberately damaging - its fiscal relations with the provinces.

It's time for big repairs.

There are a few observations that may have been made before but are worth repeating.

Firstly, the “federation” – that is the provincial governments in it – have always been united in their fundamental belief that the federal government never hands them, individually or collectively, enough cash.

Secondly, since the provincial governments can never find a definition of “enough” which isn’t open-ended, there is absolutely no repair, big or small, which will end the bickering.

Thirdly, that doesn’t mean there can’t be or shouldn’t be changes.  It’s just that we have to bear in mind the first task is to sort through what ought to be in place.

This is a huge matter given that the provinces can’t even agree among themselves.  in the last round of discussions that led to the O’Brien recommendations, the provinces couldn’t agree on how to reform the system that redistributes some taxpayer cash from the federal government to the provincial ones.

Fourthly and flowing from that, one of the things to bear in mind is that provincial governments have a responsibility to manage their own financial affairs.  That’s the way our system is supposed to work and it falls to the public that foots the whole bill to hold them accountable for their actions.

In this neck of the national woods, we’ve set a new standard for unaccountable provincial public spending.  Take as an example, the political charade over “have” status and the federal budget.  The provincial government can spend as it pleases, withhold information from the public and launch yet another jihad over a supposed slight and few if any dare to question whether or not what we were being told is even close to the whole story.

Ask yourself this simple question:  would you have been half as bent out of shape over $414 million in Equalization payments lost to this province in 2009 if you had known in late January or even in November that the provincial government was sitting on $1.8 billion in temporary investments that it planned to use to fuel a $1.3 billion cash shortfall in its upcoming budget? 

By the by, even with that extra federal cash, the provincial government budget would still be out of whack on a cash basis by almost a billion and odds are good that we’d still be staring that $1.3 billion shortfall in the face anyway.  But that’s another story.

Think about who decided to spend $1.3 billion more than the government expected to take in during 2009.

It wasn’t Paul Martin, Jack Layton, Stephane Dion, Michael Ignatieff or even Stephen Harper.

It was Danny, Jerome and the rest of the provincial cabinet.

Before we start yet another round of federal-provincial wrangles over cash, we need to sort out who is responsible for what in the country.

That leads us to the fifth point:  we can’t have a worthwhile discussion if the basic facts of the matter are either ignored or presented wrongly.

As far as ignorance goes, few can match the way in which the talk show hosts at  Voice Of the Cabinet Minister joined the Premier’s January Jihad.  They didn’t need facts.  They didn’t question anything.  They not only accepted at face value the Premier’s premise but also took to adding their own torque.

Check with federal members of parliament and you’ll likely find that the first round of attacks they faced came from some known partisan corners but the largest group started once the government news agency’s on-air crew started encouraging people to pressure their members of parliament to stand up for the province.

The other news media, as influential as they are, were better in some cases but no one seemed to dig into the thing just a wee bit more than the late night newser allowed. This is not so much an exercise in blame – for all but the three talk show hosts – as it is to note that the sources of information on which so many rely can be swept along with the mob.

As for presented wrongly, we’d be remiss not to note the simple, but very important factual error in this Telegram editorial.

This province is dealing with a $414-million shortfall in offshore revenue payments this year, according to the provincial budget.

The $414 million is an Equalization amount, not oil revenues. Those oil revenue payments are down by more than a billion and the feds had nothing to do with it. 

The $414 million amount comes from the difference between what the provincial government was planning to do and what actually occurred.  In 2007, the provincial government planned to switch to O’Brien 50% in 2008/09 – a formula the Premier opposed two years ago(!) – such that the combination of that Equalization formula plus the 1985 Atlantic Accord (the real one) would generate extra cash on top of everything else that was flowing.

As it turned out, the federal government made changes to the formula for one year only in order to forestall an even bigger federal money problem now that Ontario qualifies for the federal hand-out.  Far from being the only province affected by the changes, Newfoundland and Labrador is arguably the least adversely affected.

All that leads us to another contentious point in the editorial, namely the suggestion that:

That being said, there should be some moderation built into the system to deal with revenues from non-renewable resources, so that provinces experiencing brief booms in commodity-based revenues can invest those revenues in a way that can keep them from needing more assistance when the revenues inevitably run out.

This idea has been around for some time, but just a simple look back over the past month should be a clue that this idea is one that needs some serious questioning.

For starters, provincial governments are free to spend their own money as they see fit.  Alberta started just such a heritage fund decades ago and today is infinitely better off as a consequence.

The provincial government could do the same thing here, in order to ensure that they can “invest those revenues in a way that can keep them from needing more assistance when the revenues inevitably run out.”  It’s an idea we’ve pushed among the e-scribbles since at least 2007.

There is nothing stopping the current administration from doing just that, except, of course, that they chose not to do so.

Chose not to do so, of course, as they started accumulating short-term investments they’ll start blowing this year to cover budget deficits.

And how much money are we talking about?

The $1.8 billion in temporary investments and cash is  more than the annual federal transfers to the province in just about any year in the last two decades or more. It’s also more than the provincial government’s own-source revenues 15 years ago (1994).

C0mpare that to the $414 million lost from the elimination of an option the provincial government didn’t even want when it started.

There may well be some repairs needed to federal-provincial fiscal relations.

But before we start that, we’ve got to repair the serious problem with the lack of public knowledge of what is actually going on. 

Federal-provincial repairs are like any others:  if you don’t know what you are doing, you could wind up putting a hammer through something that  didn’t need mending until you started swinging.