Politics and the “fiscal imbalance”

Having read the electoral tea leaves, Stephen Harper decides to take the “fiscal imbalance” issue off the table, to be replaced, it would appear with the new “green plan”, an issue unmentioned in the Tory platform, but one that they apparently think will get them better milage than the minefield of federal-provincial relations.

When Harper first embraced this issue it was part of a strategy to get votes in Quebec. My concern at the time was that the Conservative and Quebec agendas could lead to radical decentralization in a federation that is already highly decentralized. I wrote about this at length here as part of a bigger argument that there is no “fiscal imbalance” between the federal government and the provinces but that there was among the provinces themselves (the Alberta problem).

Since then the provinces have had numerous and acrimonious discussions on the issue. Quebec wants no strings attached and therefore wants equalization to be increased. Ontario does not get equalization so it wants per capita health and social transfers increased. Equalization also raises the thorny issue of how resource royalties play into the formula but itself cannot fundamentally resolve the core imblances around resource royalties. Then there are existing agreements signed by the Martin government with Newfoundland and Nova Scotia about the treatment of their oil revenues.

Add it all up and Harper, correctly, does not see a way to win the votes he needs to get a majority as one option alientates Ontario, the other Quebec. But it is largely his fault for wrapping himself in the mantle of this issue to begin with. To the extent there are vast surpluses at the federal level, a better route for Harper is to cut taxes, an option that (I disagree with but that) at least keeps the credit for the Conservatives, whereas the provinces really get to take credit for additional transfers from Ottawa.

The good news: the radical decentralization that some academics, conservatives and right-wing think tanks go gaga over seems to be off the table. For now.

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