04 November 2019

The New Welfare Bums #nlpoli #cdnpoli #ableg

Lunacy is always easier to spot in other people.

There is a Liberal conspiracy to rob Alberta of its precious fluids.
People in Newfoundland and Labrador got a taste of lunacy a few weeks ago when Albertans – including people originally from Newfoundland and Labrador – blasted them for returning six Liberal members of parliament in the general election.  Albertans took it personally since they believe there is a plot by the Liberals to rob the province of its precious fluids.

Albertans believe lots of crazy things.  Premier Jason Kenney shares the view of a raft of people in Alberta and other parts of Canada.  They think the rest of us across Canada are welfare bums. They claim that provinces that collect Equalization and other transfers from the federal government deliberately don’t develop their resources so they can sponge off Alberta and Ontario.  The money for Equalization, so this argument goes, comes from Alberta and Ontario.

Jason Kenney said it in a speech recently.  You can find examples of the same view from the Fraser Institute and the Atlantic Institute for Market Studies. They use other words for it – perverse incentives, Equalization discourages development  - but basically the message is the same.  Slash the federal handouts and the welfare bums will be forced to develop resources like Alberta did.

Thinks tanks that don’t involve actual thought

For all the veneer of credibility these think-tanks can put on the welfare bums theory just by being called a “think tank”, there’s not a shred of evidence to support the idea that provinces that receive Equalization deliberately forgo resource development and bloat their public service because they get federal handouts.  

Nova Scotia, Saskatchewan, and Newfoundland and Labrador are three good examples that show the basic theory of the welfare bums argument – espoused must recently by AIMS in a 2018 paper -  is bunkum. All three provinces developed their natural resources with the express intention of getting off the Equalization program. Two succeeded and one didn’t.

There are three reasons why the five easternmost provinces in Canada aren’t developing their natural gas resources.  The main one should be obvious to researchers who are supposed to support markets and market-driven explanations for things. 

American natural gas is so cheap and plentiful that it is displacing Canadian natural gas not only in American markets but in Canadian ones as well.  As a result, eastern Canadian natural gas isn’t worth developing at this point, with the promise that it would only depress gas prices even further.

The second reason is political.  Most of the natural gas is in the Gulf of St. Lawrence.  To develop it would require an agreement among six governments:  the federal government that actually controls it under the constitution and the five provincial governments adjacent to the resource.  With no economic pressure to develop the resources, there’s no point in expending the huge amount of political and bureaucratic energy needed to resolve the issue of the resource management.

The third reason is also political.  Truth is that eastern Canadians are considerably more sensitive to the environmental consequences of natural gas development to make it politically worthwhile for governments to challenge it.  And if you think about it, given that two of the provinces have already developed offshore petroleum, the notion that some ephemeral concept like Equalization makes avoid resource development is just a load of foolishness.  The public distinguishes between one set of resources and another.  They are willing to develop one and not another.

And the other part of the welfare bums argument – that the recipient provinces bloat their public services on the gravy that pours from their richer cousins - is just a conflation of two unrelated things.  They connect things that aren’t connected at all.

Incomes not outcomes

There’s another part of the welfare bums argument that you don’t hear much in Alberta, but it still pops up.  Opponents of federal transfer for other provinces point to things like the size of the health care system in a place like Nova Scotia compared to Ontario.  More doctors per capita, more hospitals and so one.  Or they look at Quebec – a perennial favourite target – and note the province gets huge amounts of Equalization and then has programs like publicly-funded childcare that the provinces that supposedly fund Equalization cannot get as well.

People who make that argument forget two things.

First of all, Equalization comes from federal revenues generally, not from any one province.

Second of all, Equalization and other federal transfers are about incomes.  What these people are griping about are outcomes and those are entirely the responsibility of the provincial government. If someone in Ontario or Alberta is upset that Nova Scotia has more doctors per capita than they do in their province or have childcare, they need to complaint to their own *provincial* government.

After all, provinces that don’t get Equalization have more income person than the others.  And since the 2007 Equalization reforms there is a limit on how much a province that gets Equalization can receive. So even in its current hard spot, Alberta and Ontario have more money to spend on public services than the provinces that don’t get Equalization.   They could spend their money differently and get a different outcome.

Quebec opts to tax more heavily while Alberta thinks it is great to tax less than any other Canadian province.   Those are legitimate decisions by provincial governments based on what the public wants to do in each case.

You can see the impact of those sorts of choices in Alberta’s recent budget.  If Alberta taxed at the same rates as Ontario, it would have $13 billion more each year than it currently collects.  If it taxed at the same rate as Newfoundland and Labrador, it would have $21 billion more than it does. 

[graphic]  Just to reinforce that point,  Alberta’s deficit in the new budget is more than Newfoundland and Labrador spends in a single year. That deficit is actually about a billion and a bit *more* than under the supposedly fiscally irresponsible New Democrats.

Jason Kenney could raise Alberta’s tax rate to about half that of Ontario and practically wipe out the provincial deficit in one shot.  Instead, Kenney went the other way and *lowered* taxation.  And at the same time, he did something else.  Rather than renew Alberta’s call for the decimation of Equalization, Kenney went look for a federal hand-out of his own.  He wants the federal government to change the Fiscal Stabilization Fund so that the wealthiest province in the country with the lowest rate of taxation can get a federal handout.  Billionaire welfare bums has quite a ring to it.

A distraction

The current round of whinging about Equalization is coming exclusively from three provinces neither of which receives a penny from the program.  They all make more money on their own than any other province, although Newfoundland and Labrador has the lowest per capita income of the provinces that don’t receive Equalization payments.

All three are heavily dependent on oil royalties and all three are in their current financial predicaments because they opted to boost public spending based on volatile, unpredictable commodity revenues. All three want to change federal transfers so they can get money from the federal government.  Newfoundland and Labrador and Saskatchewan want Equalization.  Alberta wants larger payments from the fiscal stabilization program.

In all three cases, the provincial governments are looking for the money to avoid having to make changes to their government budgets and financial policies. All three rely on a typically Canadian hockey sock of misinformation.  Both Newfoundland and Labrador and Alberta want to see non-renewable resources removed from the Equalization calculation, even though that happened in 2007.
Alberta premier Jason Kenney talks about holding a referendum on Equalization. 

In Newfoundland and Labrador, opposition leader Ches Crosbie thinks that’s a good idea.  Former premier Brian Peckford agrees people of Newfoundland and Labrador should get to vote on whether or not they want Uncle Ottawa to send them billions of dollars each year, no strings attached.

A "think-tank" sprang up during the election.  It's not a think tank, really,  just a political lobby group funded by a mainland millionaire who made his money backing the province's deficit spending and Muskrat Falls. It paid an Alberta economist to recycle a popular batch of fairy tales to make a case for a federal bail-out.

The arguments used in Newfoundland and Labrador are like the ones in Alberta.  They have no connection to reality.  There's a conspiracy involved and Quebec figures prominently in both provinces’ delusional tales of conspiracy. 

The fairy tales are tremendously popular in both places. They are popular because people will do anything to avoid having to change.  Having lived so long with money that seemed to come from out of nowhere, people see no connection between their labour and the money their government spends.  It’s the same in Newfoundland and Labrador where Equalization – a form of magical money – disappeared to be replaced by oil, another form of magical money.  Not surprisingly, people in both provinces look for magical solutions to their problems from the imgainary money bags of Ottawa,

Living in British Columbia these days, Peckford is far removed from the realities of the province he helped build.  His successors and the people they lead have abandoned the dream of self-reliance,  of being a "have" province. So he endorses the crazy idea of a referendum knowing full-well it will have no impact on the federal government.

Ottawa cannot afford it. In Newfoundland and Labrador alone,  the bailout would be $2.0 billion a year and last more than decade. Add the eight billion from Alberta and a pile more for Saskatchewan.  Then think of what happens when Ontario starts collecting Equalization again.

The thing would go on for more than a decade, of course.  After all, what Kenney,  Scott Moe in Saskatchewan,  and Dwight Ball in Newfoundland and Labrador are looking for is a blank cheque from Ottawa, in perpetuity.  Rather than help provinces that simply do not make enough money on their own to meet a national standard,  the three premiers from the three wealthiest provinces in Canada want a licence to run deficits forever.  It is a recipe for financial disaster.

It is lunacy.

But it is lunacy that has gripped practically the whole country.

More people might see it that way, except, of course, that lunacy is easier to spot when it is far away.  When it is everywhere,  the strangest things you can ever imagine are just another day in the Premier's Office.

And it doesn't get much stranger than a province with billions in the bank and billions in tax potential heading off to Ottawa looking for a welfare check, while blaming its supposedly destitute state on a phantom conspiracy and calling everyone else a welfare bum.