Reflections on the “fiscal imbalance”

A year ago, I was concerned that the Harper government, in the name of “fixing” the “fiscal imbalance”, would endorse ideas coming from the Canadian Council of Chief Executives and the CD Howe Institute for a radical decentralization of fiscal federalism. This would have entailed eliminating the non-equalization transfers to the provinces (that fund health care, post-secondary education and social services) offset by the elimination of the GST. And that this was consistent with the Seguin commission report for the Quebec government, which took the usual position that federal spending in those areas violated provincial jurisdiction (but billions in equalization was still more than welcome).

Thankfully, that gloomy scenario did not play itself out. I still think that ideologically Harper would like to go down such a road, but it was a firm hand from Ontario’s McGuinty government (backed by most other provincial governments) that demanded increased non-equalization transfers be part of the bargain. In the end, Budget 2007 – the budget that did not look like a Harper budget, and that caused a meltdown among conservative pundits – on the back of higher-than-expected surpluses, increased spending on both equalization and non-equalization transfers, and let Finance Minister Flaherty claim that they had fixed the dreaded “fiscal imbalance”.

But this recent dispatch from the Star about Quebec’s proposed tax cuts, with Premier Charest dangling them in a “go ahead, make me call another election” way, reminds me of an observation I made back in June of 2006. I remarked:

Quebec wants big, new equalization dollars from Ottawa. Why equalization? Because it is not conditional – Charest could use new money for tax cuts or any way he wants. Did I mention a Quebec election is coming up next year?

And so it has come to pass. The tax cuts were essentially announced during the Quebec election campaign due to the timing of the federal budget. Now they are back in some minority legislature brinksmanship. My stomach churns at the crass political opportunism of the so-called “fiscal imbalance”:

Charest minority government faces showdown today: ADQ promises fight unless budget has cash for health, education spending

Quebec Bureau Chief

MONTREAL–Quebec Premier Jean Charest’s fledgling minority is girding for its first major showdown and will table a tax-cut-laden budget today amid dire opposition warnings.

Polls continue to show the provincial Liberals languishing in third place in voter support, but Charest has remained adamant that he will deliver on tax cuts promised in the dying days of the March 26 election campaign – a pledge made all the more controversial because it is funded through federal equalization payments.

“If there is one thing that we know in Quebec is there is only one political party and one government that will defend the interests of the middle class,” Charest said yesterday in the National Assembly. “The real question (today) is: who will speak for the middle class? Who will defend the tax cuts? The Liberal Party of Quebec will do it.”

The government is clearly gambling that the opposition’s fear of provoking a snap election will outweigh the political advantages of voting down the budget.

“Are they really going to try and force us into a summer election over a tax cut? To ask the question is to answer it,” an influential Liberal strategist said.


One comment

  • To play devil’s advocate, the purpose of Equalization is to allow provincial governments to provide reasonably comparable public services at reasonably comparable levels of taxation. To the extent that Quebec has higher taxes than other Canadian provinces, its use of increased Equalization transfers to cut taxes could be justified.

    However, I completely agree that the fiscal imbalance is (or should be) about insufficient funding for provincial public services and any solution to it must entail more provincial spending on public services.

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