08 January 2016

Equalization... again #nlpoli

Equalization is a really simple idea.

In order to ensure that Canadians across the country have access to comparable services regardless of where they live,  the federal government sends money to provinces that don’t make enough on their own.

The federal finance department website describes the scheme pretty well.  We’ve reformatted the website version to take out the bullets.

“Equalization entitlements are determined by measuring provinces' ability to raise revenues – known as ‘fiscal capacity’.   Before any adjustments, a province's per capita Equalization entitlement is equal to the amount by which its fiscal capacity is below the average fiscal capacity of all provinces – known as the "10 province standard".
Provinces get the greater of the amount they would receive by fully excluding natural resource revenues, or by excluding 50 per cent of natural resource revenues.  Equalization is adjusted to ensure fairness among provinces while continuing to provide a net fiscal benefit to receiving provinces from their resources equivalent to half of their per capita resource revenues.”
Equalization is about a provincial government’s income.

Newfoundland and Labrador doesn't have a problem with income.  The provincial government’s own revenues are 20% above the  average of all provinces. It’s roughly on par with Saskatchewan another province that doesn’t receive Equalization but well ahead of British Columbia.  Newfoundland and Labrador is far behind Alberta.

Nova Scotia and New Brunswick, by contrast are 20% or more below the national average. There’s an excellent table in a 2014 paper by economist Jim Feehan that shows the relative income capacity of the provinces.

Newfoundland and Labrador spends about $13,000 per person, the largest amount of any province in the country. The province spends about $2,000 per person more than Alberta.  That’s not a new situation or one that’s cropped up in the past decade.  Newfoundland and Labrador has been chronically among the biggest spenders in the country.

Indeed,  in Newfoundland and Labrador,  we’d still have a problem with spending even if the federal government gave the provincial government every nickel it collects in the province in federal taxes.  In other words,  the provincial government couldn’t provide the services required of a province and balance the books even if it had all the federal and provincial government income combined.

Even with that really simple perspective you can appreciate just how utterly insane it sounds for Premier Dwight Ball to be envying the position of the government in Nova Scotia.  They need  about $1.7 billion in federal hand-outs to get up to the national average income.  Ball is the Premier of a province that brings in 20% more than that again.

Ball thinks this situation is unfair. Perhaps he should check to see how things are in Nova Scotia.  They have significant financial problems of their own.  Not as big as the ones in Newfoundland and Labrador, but serious nonetheless.  In fact, every other province has financial problems.

The one in Newfoundland and Labrador, though, is dramatically different for one reason alone.  The provincial government caused it by chronically spending beyond all reason.  In the most recent budget,  the government actually increased spending by 12%.

Anyone paying attention in this province has known for about four or five years now that the government was spending something on the order of $1.5 billion beyond what it ought to be spending.  Imagine what we could do with that $1.7 billion Nova Scotia gets, Ball told reporters in a couple of interviews on Thursday. 

Imagine indeed.

Ball would spend it.

And he would still need another $1.3 billion to balance the books this year.

Ball repeated on Thursday that he plans to go to Ottawa looking for cash. Try to get the federal government to make some changes to  the Equalization program. This is essentially the same batshit-crazy route the Conservatives took a decade ago. Rather than become a self-reliant province, they tried to get permanently hooked on  - that is dependent on - federal transfers.  Dwight Ball will be no more successful at it than his predecessors were.


Related:  “House of Cards” from the rentierism series (2013)