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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 :
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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.
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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'.
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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.
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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.
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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.
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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.
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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.
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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 |
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