Ottawa’s participants were new but it was otherwise much the same old story early this week when Ottawa’s fiscal transfers to the provinces and territories were announced as part of the annual get together of ministers of finance. As has been the case during the Harper regime, some have-less provinces (Nova Scotia, New Brunswick, Manitoba) will continue to get smaller than average increases in transfer payments in 2016-17. And true to recent form, the media paid this no heed. In a reversal of media mythology about “comforting the afflicted and afflicting the comfortable,” they focused instead on the imagined plight of the wealthier provinces whose fortunes have experienced reversal as a result of the drop in oil and gas prices.
The numbers released by the new federal finance minister show a 4.4% increase next fiscal year in total payouts under the three major transfers to provinces – the health transfer, the social transfer and equalization. Excluding the offshore accords from the calculation (which would have dropped the increase almost to zero), Nova Scotia received a 3.0% increase, Manitoba 2.6% and New Brunswick 3.1%. Quebec, Ontario and Newfoundland all received close to the national average while the three westernmost provinces and PEI had increases ranging from 5.3% to 5.8%. For Alberta, the 5.8% increase comes on top of the Harper government’s formula change that saw the province’s health transfer increase by 36% in 2014-15. As a result, since 2013-14 Alberta’s health transfer has gone up 69% while the experience of other provinces over that period is closer to Nova Scotia’s – a 12.5% increase.
The Globe and Mail reported this health transfer fact but others in the media were more concerned with the welfare of the fossil fuel producing provinces whose budgets have taken a hit with the drop in oil prices. Richard Maden of CTV’s Ottawa Bureau lamented that the meeting – and more pointedly, the equalization formula – would not help “the hardest hit provinces.”
“Oil-producing provinces such as Alberta and Saskatchewan, which have been hammered by the oil prices crash, are disqualified from getting any equalization, as provinces must experience three years of economic decline to qualify,” he told his national audience, with the help of some eye catching graphics. “So far, these provinces have only experienced one year financial slowdown. Meanwhile, Ontario, Quebec and the Maritimes will continue to receive billions from the federal government.”
The supposed flaw to which Maden referred is a widely-accepted provision that measures fiscal capacity of provinces over three rather than a single year to smooth out sudden spikes or dips in revenue. The 2016-17 equalization entitlement reflects just a single year of depressed fossil fuel prices and is weighted towards the 2012-2014 period when rising fossil fuel prices were threatening to create a two-tiered country based on resource wealth. Back then, the resource-less provinces were seen as shiftless whiners. While the fossil fuel worm has turned, the attitude of some in the media toward the resource-less hasn’t.
The Toronto Star ran a piece similar to Maden’s. Written by Andy Blatchford of The Canadian Press, it also highlighted the injustice of the equalization formula. ”Under the formula, the same six so-called “have-not” provinces that received cash in 2015-16 — Quebec, Ontario, Manitoba, Nova Scotia, New Brunswick and Prince Edward Island — will get the payments again next year. That means economies hit hard by the sudden drop in oil prices — such as Alberta and Saskatchewan — will continue to pay into the program as “have” provinces. (That last statement is false. Individual federal taxpayers in every province – not provincial governments – contribute to the equalization. It always amazes me that sports writers can write confidently and competently about arcania like the NHL or NBA salary cap while political reporters consistently get something as relatively as equalization wrong).
To their credit, the finance ministers from Saskatchewan and Alberta passed up the opportunity presented by reporters to trash equalization and those who receive it. “Well, the formula is the formula and we’re a have province,” said Saskatchewan’s minister Kevin Doherty. “Based on that formula, there is a lag effect.” Joe Ceci of Alberta also eschewed bashing equalization, instead blaming continued low oil prices for the fact that the NDP government may be forced to shelve millions of dollars in spending promised during the election campaign last May.
With all of the attention paid to equalization and the stories du jour (oil prices, infrastructure and possible expansion of the Canada Pension Plan), it’s not surprising that reporters and columnists failed to put the whole transfer picture in perspective. Next fiscal year will mark ten years of operating with transfer formulae introduced by the Harper Conservatives following extensive consultation and discussion initiated by the Martin Liberals. The numbers released this week confirm that since the first of those changes were introduced in 2007-08, increases in federal transfers have gone disproportionately to Alberta and Ontario while Nova Scotia and the other Atlantic provinces have seen increases well below the national average. This is partly due to changes in the economy and partly the result of formula changes.
Change in Per capita transfers 2007-2017
2007-8 2016-7 % change
Canada $1,434 $1,960 36.7
Alberta $ 797 $1,366 71.4
Ontario $ 948 $1,532 61.6
NS $2,611 $3,240 24.1
NL $2,882 $1,366 -52.6
A particularly damaging change was the move in 2014-15 to equal per capita health transfers, in which Alberta’s $1 billion windfall was paid for from the allotments to other provinces. Subsequent increases to those provinces have been applied to the lower base created in 2014-15. This has cost Nova Scotia $84 million the last three years. Per capita health transfers also meant the end of associated equalization, a device through which poorer provinces received cash to bring the value of tax points transferred in 1977 up to the national standard. According to federal public accounts, associated equalization was worth $165 million to Nova Scotia in 2013-14, the year before it was abolished. In the run up to this week’s meeting there were media stories about the desire of some finance ministers to talk about health funding. If such discussion did take place, the details remained behind closed doors, presumably because a new health deal is to be discussed by premiers and the prime minister early next year.
In the meantime, if reporters covering the finance ministers’ meeting had wanted to start a pity party, they could have taken a closer look at Newfoundland and Labrador, the nouveau-riche, easy-come-easy-go player in the fossil fuel casino. Once the poorest province in Confederation, Newfoundland traded dependency on Ottawa for dependency on oil early this century. Now that oil has let them down, Newfoundlanders are in tough. On Wednesday the new Liberal government in St. John’s announced a deficit for 2015-16 of $2 billion, which for a province of less than 530,000 people would be equivalent to a $16-billion deficit in Alberta instead of the latest projection of $6.1 billion. On top of that, Newfoundland has an accumulated per capita debt of $22,000, compared with about $5,000 in Saskatchewan and zero in Alberta. Yet, just like Alberta, B.C. and Saskatchewan, Newfoundland gets no equalization this year and its transfer for health and social programs is up by only $30 million.
In the final analysis, the media may be right, there is something wrong with the transfer system. It’s just that their definition of the problem is a lot different from mine.