An Artificial Consensus
The fiscal imbalance exists because everyone says it does, and this on the basis
of a report that almost no one has discussed. Too often, this is how consensus
is forged among our political and media elite. This "imbalance" is
taken for granted and then questions are asked as to which super-strategy, which
mega-coalition will get the federal government to budge, a government that
allegedly denies the evidence because it is so inflexible, insensitive,
centralizing, arrogant, contemptuous, anti-provinces, anti-Quebec, and so on.
To save our strategists from wasting their energy, allow me to identify the only possibility that might lead the Government of Canada to modify the general direction of a budgetary policy that has earned our country the healthiest public finances in the G-7, according to a recent report by the International Monetary Fund.
The Government of Canada will buy into the fiscal imbalance theory when the arguments it has put forward are refuted. Here is an overview of those arguments, which show, until proven otherwise, that this imbalance does not exist :
There can be no imbalance to the detriment of one order of government when it has access to all revenue sources and even has a monopoly on such major sources as lotteries and natural resource royalties (and Canada is rich in natural resources). The Mayor of Montreal, Mr. Gérald Tremblay, who says that 80% of his city's revenues come from property taxes, may be in a fiscal imbalance, insofar as its revenue sources are too limited in relation to its responsibilities. The same cannot be said of Premier Landry.
Throughout the decades when the federal government was running up huge deficits, no one talked of it being the victim of fiscal imbalance. So there is no reason to talk of a fiscal imbalance now that it has a very slight surplus in relation to its debt load, which is twice as high as the provinces'.
Pendulum effects on budgets call for extreme prudence. The US federal government projected a US$231 billion surplus when it tabled the 2001-2002 budget; it is now projecting a US$165 billion deficit, while state governments are finding it difficult to respect budgetary rules requiring a balanced budget. In Europe, France, Italy, Germany and Portugal have major funding problems. A time of market uncertainty and the risk of war is no time to abandon budgetary prudence that has served Canada so well.
We would be abandoning that prudence if we adopted the methodology presented in the Séguin report. The fact is that, if we had tried to predict today's budget five years ago using the Séguin method, we would have come up with a $60 billion surplus for the Government of Canada and a $12 billion surplus for the Government of Quebec. It would be irresponsible to base our budgetary policy in the coming years on such a flawed methodology.
Our budgetary prudence does not prevent the Government of Canada from helping the provinces as best it can under the circumstances. Federal transfers to the provinces will increase by 6% a year in the coming years, whereas federal revenues will increase by only 2%. The Government of Canada has said and continues to say that if it can find the flexibility to do more in the next budget, it will. This is not about fiscal imbalance, it is about federal responsibility.
The Government of Canada helps the provinces partly through transfers, but mainly by fostering the good economic health of the country. If Canada has been able to avoid the economic slowdown of the beginning of this decade, it is in large part because the Bank of Canada was able to lower interest rates at the right time. It was able to do that especially because public finances, both federal and provincial, were healthier than they had been in ten or twenty years. After all, the federal surplus is wonderful news for all Canadians, a financial situation making them the envy of taxpayers in other countries.
While transfers to the provinces have been restored to 1995 levels, provincial tax cuts have resulted in a shortfall of over $20 billion. The Government of Canada is not reproaching the provinces for those cuts. It is merely saying that the fact the provinces are cutting taxes is one proof that there is no fiscal imbalance. In Quebec, the three parties in the National Assembly are one-upping each other to see who can promise the most substantial tax cuts.
Proportionally speaking, Canada already spends more on health and education than most other industrialized countries. Our difficulties in these areas are not just a question of money, and certainly not only a question of money coming from the Government of Canada.
Ten years ago, I entered the public debate in Quebec because, according to a certain "consensus", it was said that budget deficits of the time were due to spending representing "billions of dollars in needless duplication." That consensus was based on pseudo science.
Fortunately, this time around, Quebecers are not buying the "consensus" of the day. Quebec is changing, but it looks like our elites are often having trouble keeping up.
Open letter which Minister Stéphane Dion sent to newspapers on October 11, 2002.
| For information : | André Lamarre Special Advisor Telephone: (613) 943-1838 Fax: (613) 943-5553 |