Nfld. & Labrador·Point of View

There's a wolf in the kitchen: We need to change how Ottawa transfers money

In Newfoundland and Labrador, the proverbial Canadian wolf is not just at the door. Canadians need a new federalism that works for everyone, writes Lori Lee Oates.

Equalization is not the only thing that needs fixing

In a federation, the national government has an obligation to all citizens, says Lori Lee Oates, regardless of which province they live in. (Nicholas Hillier Photography/Submitted by Lori Lee Oates)

Narratives of Canadian disunity have dominated the headlines since the federal election last month. Without a doubt, there has also been a strong display of territorial behaviour at the provincial level, particularly in Alberta.

However, the question must be asked: why is this extreme focus on provincial interests occurring?

It certainly speaks to a bigger problem, which is the federal retreat from services that began under Stephen Harper. It has not been addressed by the Trudeau government.

The federal government has failed to show unifying leadership for decades now. This neo-liberal retreat from services has resulted in massive inequality between provinces.

Federal policy is simply no longer distributive enough to address economic, demographic and geographic differences.

To date, much of the dialogue has focused on equalization. However, this is far from the only federal funding that has been scaled back.

There has been a simultaneous move toward negotiating one-off deals with the provinces for things like health-care funding. These secret negotiations are focused on appeasing provincial elites rather than meeting the needs as citizens.

At this stage, capacity to pay for programs is a very real problem in many provinces. Nowhere is this more true than in Newfoundland and Labrador.

Inequality in the federation

In a federation, the national government has an obligation to all citizens, regardless of which province they live in.

The purpose of equalization is to make Canadians, well, equal. It was designed to ensure that Canadians have access to the same important services across the nation.

In 2007, the Harper Conservatives changed how Ottawa transferred money to the provinces. Jason Kenney, now the premier of Alberta, was one of them.

They provided a more generous formula that increased 20 per cent overall. However, it was particularly good for Quebec. Their share of equalization increased 50 per cent over two years. Newfoundland and Labrador now receives no money from equalization.

In 2019-20, the federal government will spend $19.8 billion on equalization, with approximately $13.1 billion of that going to Quebec.

However, equalization is only one of the ways that money gets transferred to the provinces.

Prime Minister Justin Trudeau meets with Alberta Premier Jason Kenney in his office on Parliament Hill in Ottawa on May 2. (Sean Kilpatrick/THE CANADIAN PRESS)

Although equalization gets most of the attention, it represents just over 25 per cent of the $75 billion in major federal transfers to the provinces. Health and social transfers will total $55 billion in 2019-20.

Newfoundland and Labrador will receive $565 million of that. We also have the worst health-care outcomes of any province in the country, ranking 27th in the world below the U.S. and many Western countries. British Columbia ranks third in the world. Ontario ranks seventh.

It is also worth noting that Albertan taxpayers are not the ones who contribute the most to the equalization program. That honour goes to Ontario.

Federal formulas that measure contributions to the Canadian economy in dollars alone also ignore the reality that rural areas of the country have historically provided the natural resources and cheap labour that contributed significantly to the building of this great nation.

At present, global economic conditions are terrible for rural areas.

Revenues and expenses

We are frequently told that the price of oil will go back up, and that we must control our spending.

The issues, however, are not the price of oil or public sector spending. The federal transfer system simply does not reflect the realities of the contemporary global economy — and it no longer effectively provides for services that Canadians value.

Federal policy is simply no longer distributive enough to address economic, demographic and geographic differences.

Here in Newfoundland and Labrador, the wolf is not just at the door. It is in the kitchen.

It costs considerably more to deliver health care in an area with an aging population, and there are not enough young people here to pay taxes to cover the costs.

Our youth are now paying taxes in other parts of the country.

This forces provinces like Newfoundland and Labrador to look to natural resource development and royalty revenue at a time when this is absolutely the worst way to develop our economy.

The resource curse

The jurisdictions across the globe that are currently performing the best economically have developed their knowledge, service and digital economies and moved away from natural resources development.

Economists long ago established the reality of the "resource curse." The economies that perform the worst in the contemporary world are often those that rely on natural resource royalties.

Royalties that go to governments are often wasted on poorly managed infrastructure projects. Muskrat Falls would be just the latest example in our history. The railroad and Sprung greenhouse would be others.

The spillway and north dam at Muskrat Falls, pictured in late September. (Nalcor Energy)

Providing globally sought-after services is the only real way to develop our provincial economy. We need to bring more money in from the outside.

Even more problematic, many informed sources have said that oil royalties will not be there in the future in the way that they have been in the past. Large oil companies seem to be more aware of this than most governments, as the private sector course-corrects for the coming green economy.

Oil CEOs are calling out governments for their lack of vision in preparing for climate change, while others in the private sector seem largely unaware of the fact that investment in oil and gas is declining. Electric cars are on the rise.

Being dependent on oil royalties makes it impossible to engage in effective climate change policy. Forcing provinces to pursue oil royalties while also pursuing a federal carbon tax is counter-productive to say the least.

Wages are stagnating, borrowing is not a solution

Rural areas across the globe are under threat because of the declining effectiveness of macro-economic policy in addressing recessions and economic slowdowns.

Banks used to be able to use tools such as interest rates to respond to recessions. This is no longer true in the same way, and banks and economists will admit as much. This is a very real impact of the inequality caused by stagnant wages.

Lowering interest rates so people will borrow and buy houses does not really work when wages have not grown as fast as the cost of living. About 70,000 of the half-million people in Newfoundland and Labrador live on minimum wage or just slightly higher. That's 14 per cent of our population.

Like other provinces, the Newfoundland and Labrador government does not have the financial room for widespread financial stimulus. In fact, we have been unable to close our annual budget deficits. When a former premier tells us to tighten our belt, he demonstrates that he hasn't kept up with either the realities of modern global economics or federal policy.

Oates says in Newfoundland and Labrador, the proverbial Canadian wolf is not just at the door. Canadians need a new federalism that works for everyone. (Sean Kilpatrick/Canadian Press)

Austerity is simply not an option either for citizens or governments.

We need to fix this. Now.

We need the federal government to provide more leadership and effective national policy.

At present, our politicians are encouraging territorial differences between provinces by signing one-off deals that help at home. Our media are sensationalizing provincial uprisings rather than dealing with the real issues of national unity.

This territoriality is not good for the federation — and it is not good for Canadian citizens.

Canadians can no longer afford a broken federalism. Here in Newfoundland and Labrador, the wolf is not just at the door. It is in the kitchen.

We need the federal transfer system fixed immediately.

Read more from CBC Newfoundland and Labrador

About the Author

Lori Lee Oates

Contributor

Lori Lee Oates, Ph.D. is a lecturer in the M.Phil. (Humanities) program at Memorial University and has worked in the senior levels of the provincial and federal governments.

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