Monday, March 19, 2007

Premier Williams spits nickels

In the wake of the federal budget, Premier Williams is using his usual catchwords - betrayed, humiliated etc - to describe what Finance Minister Flaherty has outlined for equalization. (For a compact summary, see Bond papers.)

Just listen to talk radio for 10 minutes and you will hear the provincial government supporters echoing his remarks and stoking the separatist fires.

Is Premier Williams justified in his latest political jihad?

Oddly. . . no, and yes. But ultimately no.

Here's the issue: the point of equalization is to equalize effective fiscal capacities. That is, to ensure that the revenues available to each province is effectively equivalent for the purposes of providing all Canadians, wherever they may live, comparable services like education and health.

Through a complex formula, the federal government establishes a standard based all 10 provinces and then supplies additional cash to the poorer provinces to bring them up to a national minimal standard of fiscal capacity equivalence.

In personal terms, suppose you had 10 people with widely differing salaries but all had roughly the same expenses (food, rent, etc). What equalization does is take the average of the salaries of all 10 people, uses something close to that as a standard and then supplies the ones that fall below that standard with enough money so they too can enjoy comparable levels of food and housing. The money used for that comes from a pot of money independent from their salaries so there is no actual transfer between people.

That's not exactly it but it's pretty close so you get the point. Still with me?

OK. . . so what is this cap that Premier Williams is frothing over?

The problem has become that there have been so many one-off deals and special arrangements with one province or another that the equalization system has been bent out of shape.

Specifically, certain kinds of income have been excluded from the calculations for one reason or another for purposes of this formulas. It doesn't mean that money no longer exists, it just means that for purpose of equalization, a blind eye is turned.

Like our oil revenues.

So, because of these one-off deals, it is now possible for the equalization system to provide so much money to some provinces below the standard that their effective fiscal capacity can exceed that of provinces above the standard.

In other words, the federal government could provide enough equalization to NL that this province's fiscal capacity could exceed Ontario's.

That's why the feds have imposed a cap - so the equalization system would not do that.

We have to be clear about this: Premier Williams complaint is that the federal government will not subsidize this government to a fiscal capacity higher than some of the richest provinces in the country.

Did Prime Minister Harper break a commitment? Depends on how you define that - Harper doesn't think so but Williams does.

For the record, I believe Harper did break his commitment and he did so for purely political ends.

And I suspect that he made that commitment in the heat of an election campaign without fully realizing the import of that promise. Election campaigns are funny things with a harried dynamic all their own. That's why it's dangerous for candidates to be shooting off their mouths and uttering naive statements like "not on my watch".

Apparently having to go back on campaign promises happens to the best of us. That doesn't excuse that sort of irresponsible action but it's helpful to keep it in context.

Still, if you can't rely on the word of a politician desperately pandering for votes then who's word can you count on?

But let's leave all that off to one side for a minute and get down to brass tacks.

The national equalisation program is not and should not be a legitimate substitute for real and sustainable economic development for this province any more than welfare should be a legitimate substitute for a job.

Yet this Williams administration would rather fight for more equalisation than make the moves necessary to generate income from the resources we have. Hebron, just as one very small example, has been estimated to provide government revenues of $400-500million per year and thousands of jobs across this province. Out of pique, this government continues to refuse to go back to the negotiating table and to make a deal.

And now Premier Williams expects the rest of this country to subsidize his colossal error in judgment and his failure to close this, or any other, economic development deal. Out of pride, he says.

That's a definition of pride to which I have difficulty subscribing.