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André Pratte on the Fiscal Imbalance
16/03/2005

André Pratte, the chief editorialist at La Presse, has written a column in the Globe and Mail about Dalton McGuinty and "the fiscal imbalance". (A good backgrounder on the different takes on "fiscal imbalance" between the two provinces is found here, on Paul Wells' site.)

Overall Pratte seems to hold the view that I generally held in the past, i.e., that the federal-provinicial fiscal imbalance doesn't make a lot of sense. He makes some interesting points.

For one, he explains that the big difference between Ontario and Quebec is caused by the fact that "for immigration purposes, the Quebec government receives more money from Ottawa because its employees do work that, in Ontario, is done by federal employees." Pratte asks Ontario to stop pointing the finger at Quebec.

He further explains that the gap for Ontario has grown dramatically since 1995 because "before Paul Martin put Canada's fiscal house in order, the federal government borrowed a lot of the money it spent for equalization and social transfers. What Ontario taxpayers did not send in taxes to Ottawa, they paid for in the form of a much larger national debt."

This does suggest that the ratio of federal spending to federal taxation has always been lower in Ontario, but the change from big deficits to big surpluses has made this more obvious. Pratte also reminds us that Ontario has always supported the poorer provinces through transfers and equalization.

I'm not sure about Dalton McGuinty, but as far as I'm concerned, I have always understood that this would be the case. Individuals with higher incomes (and more are found in Ontario) will be paying more tax than poorer folks elsewhere, and the federal government might be spending a bit more in those poorer places, too. That's okay with me.

However, when I became upset was when it became obvious that the transfers from one region to another have gone beyond a systematic distribution and become a political slush fund. Of course, the Danny Williams' special deal was not the first such arrangement, but I must admit this wasn't my focus before.

By all means, we should have equalization and transfer payments. And I do support a strong federal government in Canada. But if we can afford to have non-equalization payments under the guise of equalization, then perhaps it is time to think about transfering some tax room from Ottawa to the provinces.


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