Federal cash transfers to Quebec have risen by fully half since 2004 and now account for 22.5 per cent of provincial government revenues, up from about 17 per cent four years ago. But according to Jean Charest, Stephen Harper’s pledge to end the federal-provincial "fiscal imbalance" is still a promise partially unkept.
You can’t say the Conservative leader should be surprised.
Here’s what Mr. Harper said back in 2002 : "The huge involvement of Ottawa in some provincial budgets creates incentives to concentrate on raising federal transfers rather than spurring economic growth." Forgetting that last part for a moment, what Canadian premier does not consider squeezing ever more money out of the federal government as part of his job description ? Some are just better at it than others.
Mr. Harper made a small but meaningful breakthrough in Quebec in the last federal election by promising to reform fiscal federalism, which appeared to have gotten out of whack as Ottawa accumulated ever-larger surpluses while some provinces buckled under surging health care costs.
In recognizing the so-called fiscal imbalance, something his Liberal rival Paul Martin refused to do, Mr. Harper validated one of Quebec’s long-standing gripes and reaped reasonable political dividends by capturing 10 seats in the province in 2006.
There was nothing inherently inconsistent about Mr. Harper’s promise. After all, he had always been an advocate of provincial rights and a smaller central government. Where he broke with his past principles was in the method he chose to fulfill his promise.
One option for addressing the fiscal imbalance consisted of ceding taxation space to the provinces. But instead of shrinking the role of the federal government, by significantly cutting federal taxes so other levels of government could increase their own, Mr. Harper made the provinces more dependent than ever on direct cash transfers from Ottawa. He embraced the Liberal vision of a strong central government that redistributes wealth from richer regions to poorer ones.
Prior to becoming prime minister, Mr. Harper had always been a harsh critic of equalization, saying in 2002 that the negative incentives it creates "make it more difficult for provincial governments to make decisions in the best economic interests of their population." The principle of equalization - under which Ottawa makes sure provincial governments have sufficient revenues to offer public services that are roughly comparable across the country - has been entrenched in the Constitution since 1982. What is left to the discretion of policy makers is the formula used to determine payments to each have-not province.
In their 2007 budget - under the rubric Restoring Fiscal Balance - the Conservatives adopted a new formula that takes into account half of non-renewable resource revenues of all 10 provinces in calculating the so-called fiscal capacity of each province. Mr. Harper had previously argued that resource revenues should not be part of the equation.
The inclusion of Alberta’s oil royalties served to inflate the national average fiscal capacity, entitling provinces that fell below it to greater equalization payments. Quebec fares particularly well under this formula. It has seen equalization payments soar to $8-billion this year from less than $5-billion three years ago.
Coupled with Tory increases in transfers for health, social services and post-secondary education, Quebec’s total haul from Ottawa has spiked dramatically. According to the provincial budget, federal cash transfers will surpass $14-billion in the current 2008-09 fiscal year, up from barely $9-billion four years ago. Ottawa’s figures put cash transfers to Quebec at $16-billion this year.
Still, Mr. Charest and his finance minister, Monique Jérôme-Forget, last week suggested that the fiscal imbalance has not been settled because Ottawa has not restored funding for post-secondary education to levels that existed prior to reductions implemented in the mid-1990s as Ottawa struggled to slash its deficit.
Even if that were true, overall transfers to Quebec have grown more than enough to make up for any specific shortfall on the education front. Quebec could have used part of its equalization windfall to boost university funding. Instead, Mr. Charest chose to cut income taxes by $700-million annually the same week federal Finance Minister Jim Flaherty unveiled his 2007 budget.
Left untouched, the new equalization formula could break the bank, as Alberta’s resource wealth rises and the fiscal capacity of slow-growing Ontario slips below the national average. This has Dalton McGuinty fearing Ottawa will pull a quick one and rejig the formula to make sure his province never qualifies for payments.
Like we said, every premier wants more from Ottawa. Some are just better than others at getting it.