Bureaucracies ‘stealth’ subsidize have-not provinces: study

NationalPost.com – news/canada
Sunday, Nov. 14, 2010.   Kathryn Blaze Carlson, National Post

Canada’s rich westernmost provinces are footing the bill for more than $2-billion annually in “stealth” economic subsidies to the country’s poorest provinces — above and beyond the $14-billion in official federal equalization, according to a study released Monday by a leading Canadian think-tank.

This “stealth equalization,” as it is described in the Frontier Centre for Public Policy paper, is disguised in disproportionately large federal bureaucracies across the perennial ‘have-not’ provinces, with the exception of Quebec.

At the extremes, Prince Edward Island has 3,657 federal employees per 100,000 people, while Alberta has just 936.

“I imagine this will be news — surprising news — to a lot of Canadians,” said Ben Eisen, author of Stealth Equalization: How Federal Government Employment Acts as a Regional Economic Subsidy in Canada. “We have an explicit equalization program that most are aware of, but this is one of the numerous other ways that Canadian public policy takes wealth out of the highest-productivity regions and redirects it to lower-productivity regions.”

Federal government employment in the Maritime provinces and Manitoba, as a proportion of the population, is between 63% and 225% higher than the national average — amounting to a net transfer of $942-million into the Nova Scotia economy and a net transfer of $1.56-billion out of Alberta, the study found.

Ontario — despite hosting Canada’s national capital — joins Newfoundland and Quebec in the middle of the pack in terms of general federal and Crown corporation employees. Saskatchewan, British Columbia, and Alberta are well below the national average level of 1,602 employees per 100,000 people.

“It’s sort of absurd: At what point do you stop and say, maybe some of these people should start looking at some serious private and productive investment in a kind of market-based economy?” said Link Byfield, publisher of the now-defunct Alberta Report and a Wildrose Alliance party founder and candidate. “They’ve always acted like that’s impossible, and I’ve never understood why … [The recipient provinces] are sentenced to forever be a federal protectorate, and that’s how they’re run.”

The problem, Mr. Byfield said, is not so much the sharing of taxpayer dollars, but rather that “the money does not go toward building productivity and competence within a region — all it does is breed dependence.”

Canada has long seen tension between the mostly western ‘have’ provinces and the mostly eastern ‘have-not’ provinces, and this $2-billion “stealth” top-up may serve to fuel regional frustrations.

“There’s this attitude that New Brunswickers are sucking the Albertan taxpayer dry, for example — and it’s kind of visceral,” said David Campbell, one of Atlantic Canada’s leading economic development consultants.

Indeed, a somewhat iconic trailer emblazoned with the words ‘MORE ALBERTA LESS Ottawa’ parked along a major Alberta thoroughfare marks evidence of that province’s impatience with national policies, and polls have shown that the majority of Albertans want to reduce their share of equalization payments transferred to the have-not provinces.

“These types of provincial inequities are frustrating for those out West, because they’re pretty much always the ones who are providing the pipeline of cash to the east,” said Kevin Gaudet, federal director of the Canadian Taxpayers Federation. “That’s the ongoing Canadian conundrum.”

However, Mr. Campbell said this conundrum is not quite so “black and white,” and said that if a disproportionately large federal workforce constitutes a form of stealth equalization, then so too should regional subsidies.

“This is cherry-picking,” he said. “The federal government gave huge tax breaks to get the oil sands going in Alberta — billions. What about agricultural subsidies to Alberta and Saskatchewan? Do those count as stealth equalization payments?”

Mr. Campbell also argued that the study “doesn’t pass the B.S. test” because the data — albeit striking at first glance — does not tell the whole story.

“If you put one big facility like Veterans Affairs in a place like Charlottetown, which is in a province that’s the size of the Greater Moncton Area or Barrie, Ont.— it’s just so tiny — then it skews the numbers,” he said, pointing to the Canada Firearms Centre in Miramichi, N.B., as another example.

Mr. Eisen explicitly refutes this point in his study, stating that “exogenous factors such as demographics and the varying sizes of the provinces do not explain this phenomenon.”

Despite having a similar population and demographic profile, ‘have-not’ province Manitoba has more than twice as many federal employees as a proportion of the population than does neighbouring Saskatchewan, he notes in the study.

Mr. Eisen did agree, however, that the Canadian system is “chock full” of de facto equalization subsidies — employment insurance, for example.

During the 2008-2009 recession, Ontario and western workers received half the benefits per capita as compared to unemployed workers in Atlantic Canada and Quebec, according to a study recently released by the University of Toronto’s Mowat Centre for Policy Innovation.

And changes made last year to the EI benefit program — including increasing the maximum duration of benefits in areas of high unemployment from 45 to 50 weeks — cost taxpayers more than $1.15-billion.

The bottom line, Mr. Eisen said, is that ‘have-not’ provinces are “trapped in a situation of low-level private sector dynamism,” essentially “propped up” by massive government employment that saps the young, talented workforce.

“Nobody can possibly build a private economy when such a high percentage of your existing economy is in the public sector, you can’t even get workers,” echoed Mr. Byfield, who is also chairman of the Alberta-based Citizens Centre for Freedom and Democracy.

Mr. Campbell said “the time for playing the victim card is done,” but said it is not as simple as turning off the federal taps.

“If you want us to get off equalization, if you want to reduce the public sector as a percentage of our economy, then let’s talk about how we can effectively drive private-sector economic development in the region,” he said. “Some might argue that we’ve been doing that for 35 years, but I would say we haven’t been doing it well. The proof is in the pudding.”

The National Post reported last week that a new movement is afoot to shake up the Maritime economy, including a Nova Scotia-led bid to create a privately-run venture capital fund to boost innovation and growth in the region.

Mr. Byfield said he understands there are inherent obstacles to private-sector growth in a region with seasonal industries and a small capital pool, but said the “biggest impediment now is that the two levels of government just slather spending on top of these provinces.”

That spending, Mr. Campbell argues, is an inevitable by-product of national policies that have long favoured Ontario, Quebec and the west. He said the Maritime provinces were hindered by prime minister John A. Macdonald’s introduction of the so-called National Policy which, among other things, replaced existing north-south trade relationships with forced east-west ones.

Mr. Gaudet said the notion of so-called stealth equalization raises the usual question of “am I getting my fair share,” but said fairness is not the chief issue: The problem is not the distribution of the pie, but rather the size of the pie itself.

“This just shows how large the federal government is — period — and how much that costs us,” Mr. Gaudet said.

kcarlson@nationalpost.com

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