28 December 2018

The ins and outs of Equalization #nlpoli #cdnpoli

Each year,  Canadian media conduct year-end interviews with politicians and every year the interviews are nothing but space fillers.

This year's version with Premier Dwight Ball  - for NTV (broadcast but not posted yet)  and the Telegram, thus far - are no exception. They asked the same questions,  got the same replies, and anyone that actually watched or read them got the political-turkey sleepies.

The only spark of life came on NTV when Lynn Burry uncharacteristically lost her composure over Equalization and the amount of money Quebec gets.  Burry got so riled up that she actually interrupted Ball just as he started to wander through an answer.

Burry is like a lot of people, especially in the provincial petro-states across Canada,  who decided to get angry at "Quebec" for something that happens every year:  the Quebec provincial government collects the lion's share of federal Equalization transfers.  Provincial governments in Alberta,  Saskatchewan , and Newfoundland and Labrador are all in financial trouble and some of the locals, especially politicians in power, complain about what is happening in another province.

The problem with Burry's question - as with the entire Equalization outrage is that it just nonsense.  So let's just apply a little insight into the whole business and sort things out.

Let's start with the complaint.

Basically, it runs the same everywhere: 

[Insert name of imaginary victim-province here]  is in hard financial shape.  There are cut-backs and tax increases. 
Meanwhile, Quebec gets 60% of all Equalization and Ottawa isn't lifting a finger to help us here in Victim Province which funds Equalization with our oil revenue. 
We are in deficit while Quebec runs a surplus with our money. 
That's not fair.

That sad thing here is that Equalization is a pretty simple program and yet ignorance about it is widespread and persistent.

The sadder thing is that provincial governments, like the one in Newfoundland and Labrador , have actually been able to build political legends by deceiving people about Equalization.  They've cheered when they didn't get Equalization and then complained three months later because they weren't getting Equalization.  And the whole time folks like Burry in the conventional media have either just recited the lies or - as in this case - spread them further. 

You wonder about fake news and how politicians can spread lies with impunity? 

Well, Equalization is a classic case.

Here's the rights of it, though.

Equalization is about incomes.  The program is designed so that every government has roughly the same amount of income to spend delivering services to the people in that province.  The way the program works these days,  the federal government works out an average using all the income sources provinces can get. They do it for each province first, then the feds work out the average. 

Since 2007, they actually work out two averages.  One leaves out half the revenue from natural resources revenues. The second one leaves out all natural resources revenues.

The story about Harper and the non-renewable resource revenues that both Wade Locke and Danny Williams spread in 2007?  A lie.  Completely untrue.  Harper delivered his promise.

The feds work out the average provincial income based on the population of each province.  Any government that falls below the national average gets cash  - so much per person - while those over the average get nothing.  After all, they have enough money to deliver the services without needing help. 

The thing is,  Burry - and others like her - are complaining about outcomes.  They don't like provincial deficits and all that goes with them.  fair enough.  But Quebec doesn't have a surplus because it gets Equalization just like Newfoundland and Labrador,  Alberta, and Saskatchewan aren't running deficits because they don't get Equalization.  They are in deficit because - wait for it - the provincial government spends more than it takes in. 

Newfoundland and Labrador is really good example of the nonsense-link some people make between deficits and Equalization.  For all but a couple of years that it received Equalization,  the provincial government in Newfoundland and Labrador ran deficits.  The only years it didn't run deficits was when oil prices shot up so high, the government couldn't spend all the money it took in.   It ran surpluses and deficits after the government stopped qualifying for Equalization so basically there was no connection between Equalization and surpluses or deficits.

To really drive home this point about provincial government choices,  understand that since at least 2008,  the provincial Auditor General - among others - warned the provincial government it was spending beyond its means.  It jacked up spending every year based on oil prices.  But oil prices, as the warning went,  could go down just as readily as up.

And sure enough a year after the AG's warning in 2008,  oil prices plummeted.  They went back up  and then they went down and then up and then down.

But government spending didn't go up and down with the income.  It stayed high.  One year, the government forecast oil prices at an ungodly amount and then spent as if it would be even higher than that.

They were wrong.

The government's Astigmatic Seer told the politicians to keep spending because oil prices would just come back.  And they did for a bit before dropping again.  Badly.

Didn't see that one coming is what Wade Locke said when oil prices fell dramatically and - for him - surprisingly.

The guy whose entire reputation for policy advice was built on his ability to foretell the future of oil prices did not see the giant chasm that swallowed oil prices when it was right in front of him. 

The Government of Newfoundland and Labrador built its budgets on a blind visionary.

You cannot make this stuff up.

Meanwhile,  in Quebec,  the provincial government is in a surplus,  they have universal child-care,  and some pretty high taxes relative to the national average.  In Alberta,  they have the opposite.  The two different situations are entirely due to the choices made by the government in each province. 

There are lots of other bits of nonsense in the anti-Quebec,  anti-Equalization arguments but there's the biggest one and the simplest one to understand:  income versus outcome.

Hopefully that insight will not dispel the outrage about massive deficits so much as redirect it to the folks who are responsible for it, who are, typically the politicians trying to convince folks that the financial problems they caused or are facing are someone else's responsibility.


Backstory:  From 2015,  a four-parter summarising the 2004 Equalization/offshore royalties war that had a permanent Equalization transfer at the heart of it.