Visions of centralization, social programs and the fiscal imbalance

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Tue, 2014-09-02 11:36

Sean in Ottawa

I never ask this -- accepting that many people will skip long articles. This may be the most important post I have written all year. Please indulge me in spite of the length and read this.

This post was made necessary by comments from Pondering about visions of centralization.

On the decentralization of NDP and Conservatives vs centralization of Liberals, the fiscal imbalance and social programs.

This is seen differently depending on where you are in the country.

The Liberal centralized Canada vision has been exposed as a naked emperor undressed by successive Liberal cuts to the purchasing of that vision. Areas of provincial jurisdiction have grown in scope and cost. The public expectation is higher than ever while government willingness and enthusiasm is at historic lows.

The Conservatives want to gut the programs and leave the pieces to the provinces. Their decentralized vision when compared to the other parties is a withdrawal, as much as possible, of the federal government from education, health and equalization. The buying power of the Federal government can decline as the Conservatives have little interest in any of those heads of power. The Conservative vision is to decouple Alberta from any responsibility to contributing to the ability of the rest of the country to deliver social programs that Alberta in general and the Conservatives in particular have no interest in.

The NDP accepts that these are priorities but to some degree also accepts a more practical balance between the power and the funding. To that end the NDP would seek to increase the funding to these programs while retaining a federal role while still recognizing the extent of provincial investment and initiative. The NDP does recognize that these social programs are delivered by the provinces and they have grown to be the greatest public priorities. It is this change in the economic values of the provincial and federal jurisdicitons that have made the country less centralized. The problem is the NDP is not fully accounting for the extent of the problem.

The Liberals speak about these issues but have been very careful to show no details lately. Traditionally the Liberals claim a centralized vision with relatively little money on the table. The Liberals want to be able to press for national standards but fail to recognize that the more insignificant the federal portion of the bill, the smaller the authority is to back up those standards. Put differently, the Liberal position on centralization is completely unrealistic as it does not come with a proportional investment.

The premiers just last week pointed out that they deliver twice the programs to Canadians for half the taxation. The transfers from the federal government are not gifts to the provinces, they say. They are also not a significant federal stake in provincial management of these programs. They are simply the federal government handing over some of the fiscal imbalance from collecting substantially more money than the provinces while delivering less. Presently the federal government is not talking to the provinces while handing the money to wealthier businesses and individuals in a clear attempt to impose fiscal conservatism on the provinces.

This in theory allows the wealthier provinces to tax their wealthier people and corporations and deliver better programs for themselves. Of course there are two problems with that idea. First, this involves tax increases that are politically very difficult when the feds are reducing taxes. So far, the wealthier provinces other than Ontario have gone along with social program cuts rather than increasing taxes. Ontario has maintained the programs by running a deficit and has not figured out how to ask its people for more money. Secondly, the less wealthy provinces simply cannot tax more from their smaller economies to make up the difference (that is what equalization is for). Any slack picked up by the provinces leads directly to greaster decentralization and differences between program delivery among provinces. We are already seeing problems with provinces having difficulty with the portability of health services, a key principle of medicare.

Trudeau has not laid out how he will fix this:

- Will he opt for a more decentralized vision to reflect what the Liberals are willing to pay?

- Will he put up the cash to buy the position the Liberals abandoned decades ago and have only been giving lip service to for the last generation and re-establish national standards?

- Will he preside over a radical down-sizing of public investment in social programs in order to keep the federal investment proportionate to the provinces?

- Will he do one of the above while pretending to do another?

It would be good for the country if both the Liberals and the NDP would speak to this directly. Much of their plans can only be understood in light of a serious admission of the problems behind this issue. This speaks to the commitment either party will show to social programs and what kind of relationship we can expect between the provinces and the Federal government. It also is an essential component to any conversation about budgets, taxation and what it means to have a federal government.

Canadians have been lied to for so long on the issues of fiscal imbalance and national standards that they probabaly can't handle the truth.

Do not think that the Liberals can come back in to power and peddle the fiction of a central government without a fair proportion of the money on the table. This one issue is a major explanation for the difficulty the Liberals had with the provinces since Martin’s major cuts of the 1990s. Trudeau will be a one-term wonder if he tries to ignore this. I can't say for certain that Trudeau will just do waht has been done in the past by Liberal governments but I cannot mount any confidence that he will do different when he has so far not spoken with any clarity on this issue.

If you strip away all the bafflegab you have the problem of who is taxing and controlling the money, what services are to be delivered and what national standards are going to exist. The provinces are not reasonable about this either. They all scream together but the real divisions are actually between themselves. The richer provinces do not want to fund national standards that will equalize program delivery in other provinces. If the federal government gives up the tax points there will be no way of having national standards. If they keep the points and reduce what is on the table, the provinces will do the math anyway and calculate what money is leaving the province in a so-called "fiscal imbalance."

The truth is none of the parties is answering this honestly but the least dishonest is the Conservatives.

The Conservatives would impoverish all governments and leave all citizens to their own devices and thus solve the imbalance problem (between governments). While socially regressive it does answer the fiscal imbalance. Put differently, the Conservatives would have the richer provinces provide no more than what the poor provinces are able to, thereby creating a level playing field of social misery across the country.

The NDP and the Liberals want the programs to remain but neither is campaigning directly for the social license within the richer provinces to pay for national standards when that means their taxpayers will pay for other provinces to deliver equal programs. The NDP try to do the best they can without a clear national conversation by increasing the money on the table but they refuse to acknowledge that this cannot continue without public support from the wealthier provinces. The Liberals argue for a fantasy where there is no national conversation, no social license to tax to benefit other provinces and little money on the table to back up so-called federal standards.

Unless both the NDP and the Liberals find a way to come to terms with this they will not be able to claim responsibility with budgets. The longer they wait to have that national conversation, the more difficult it will be. It may well be too late already to find agreement among provinces to pay for national standards.

The elephant in the room is resentment to Quebec for years of threatening separation and perceptions that Quebec and Aboriginal Canadians get more than they actually do, coupled with an unwillingness to allow any province that is a net recipient of support to have any power to provide programs unique to them. The result is a rush to the lowest common social denominator.

This is a very serious issue that no party other than the Conservatives (through universal meanness) have proposed a solution.

Issues Pages:

Regions:

Tue, 2014-09-02 11:52

Sean in Ottawa

The Conservative position avoids the contradictions present in the Canadian federation by reducing the role of all governments and abandoning individuals to Social Darwinism. Any other vision of the country than the Conservative one, requires a rebalancing of the federation and a national conversation on what it means to be Canadian along with a review of the balance between provinces and the federal government. It would not be completely inappropriate to see municipalities at that table.

I would advocate that the NDP and the Liberals might best begin that conversation in a very public way as an inquiry. However, it is a hard conversation to have as it tests the committment of all Canadians to a common country.

Both the NDP and the Liberals owe Canadians this conversation. And we owe it to each other to have it.

Tue, 2014-09-02 22:54

Pondering

I am too tired to address your first post tonight but your second post is brilliant in its simplicity for getting to the heart of the matter. Nobody asks Canadians what kind of country we want.

I don't believe the Liberals or NDP would launch this discussion. They each have their own vision and any party opening this discussion would be suspected of doing it for partisan reasons anyway and provinces would start bickering.

But I think you are right, we owe it to each other to have the conversation. I believe the majority of Canadians want more national programs and way better environmental protection. I believe if Canadians were more aware of what is possible versus what we are getting they would be even more supportive of social programs and maybe even demand more radical change.

This is a great article that suggests more direct action by unions. I think their focus is too narrow to prompt the kind of conversation we need to have.

http://www.socialistproject.ca/bullet/1030.php

I have of thinking to do.

Thu, 2014-09-04 01:58

larryk

Re: Premiers make annual plea for more federal money at Charlottetown meeting, Michael MacDonald, August 28, 2014

The fiscal imbalance between the provinces and federal government arises because of the difference in their fiscal capacities. The provinces are users of Canadian currency and are revenue-constrained. This means that In order to fund their activities, provinces must either raise taxes or borrow money.

The federal government, however, owns the Bank of Canada, is the issuer of the Canadian dollar, and is not revenue-constrained. There is no operational limit to the amount the federal government can spend in Canadian dollars since these can be created electronically at will. There is a practical limit, though, because once all the idle resources in the economy are productively employed, further expenditure would likely cause high inflation.
At the present time, we have 1.3 million Canadians looking for work, an indication of a massive waste of potential production. Under these circumstances there is every reason for the federal government to transfer large amounts to the provinces to be used for health-care and infrastructure. Not only would disbursements in these areas provide vital services to millions of Canadians, but the many jobs created would also help ratchet down our disgracefully high rate of unemployment.

Footnotes:

1. More on Budget Deficits

It was stated in the previous post that the “US government, and most other national governments, can never run out of money because they are the original sources of the money they spend. They issue their own currencies. Exceptions are state governments and member nations of the European Monetary Union, who are mere users of currencies, not issuers of them”. In other words, a government is only free of a revenue constraint if it issues its own currency.

2. Create jobs by running deficits, Ottawa urged, Julian Beltrame, Jul 23 2014

3. Abba Lerner: Functional Finance

The central idea is that government fiscal policy, its spending and taxing, its borrowing and repayment of loans, its issue of new money and its withdrawal of money, shall all be undertaken with an eye only to the results of these actions on the economy and not to any established traditional doctrine about what is sound and what is unsound. This principle of judging only by effects has been applied in many other fields of human activity, where it is known as the method of science opposed to scholasticism.

The principle of judging fiscal measures by the way they work or function in the economy we may call Functional Finance … Government should adjust its rates of expenditure and taxation such that total spending in the economy is neither more nor less than that which is sufficient to purchase the full employment level of output at current prices. If this means there is a deficit, greater borrowing, “printing money,” etc., then these things in themselves are neither good nor bad, they are simply the means to the desired ends of full employment and price stability …

Larry Kazdan CGA,

__________________________________________

Modern Monetary Theory in Canada

Thu, 2014-09-04 03:16

Pondering

I think I start to understand, and then I get lost. I think it is part of the reason people don't vote, or vote for the wrong people. They are convinced it's all too complicated so must be left to the experts.

After the Great Depression, The New Deal was devised which worked really well. At some point neoliberalism slipped in. How? Why? Why did people let it happen? Nobody promoted neoliberalism as a named theory. How did they convince people to accept it?

Must things become as bad as Greece before we wake up? If so it will be too late by then.

Thu, 2014-09-04 09:33

Sean in Ottawa

I would say this is an unrelated issue--

My initial post raises the issues of accountability, capacity and equality - you are raising an important issue of money creation and supply (which is exclusively a federal role):

The feds raise substantially more money in taxes than the provinces relative to the programs they deliver. This, in theory, is not entirely a bad thing as the excess capital is to be turned back to the provinces on the basis of need rather than their own capacity. This is the foundation of support for social programs and equalization. It is what make Canada a country in spite of provincial countrol over natural resources and most spending. The current federal governement is ratcheting back support for all provincial funding.

The problem is this is not just about federal spending. This is a key federal role in holding the federation togther by creating a similar capacity in all provinces to deliver services. And, this is what the government is neglecting. When wealthier provinces speak about fiscal imbalance they are challenging the basic premise on which the federation rests -- the ability to share fiscal resources across the country. In this context we must understand that natural resources are the property of the provinces. It is really the broader taxation and redistribution of the product of taxation that allows Canada to function as a single country rather than ten different economies with very different programs and standards of living.

It is this fragile link through the federal government taxing more than double what it needs and returning the difference to provinces in order to maintain national standards that allows Canada to be a country.

If Stephen Harper destroys this he will have done much more than the PQ or BQ ever intended to destroy the Canadian Federation. Every province that ignores this issue in their claim to being ripped of by the federation is participating.

Ultimately there needs to be a national conversation with the public involved on what is taxed collectively across the country and returned to the provinces. Canadians are mostly unaware of the dynamics of this conversation which lies at the heart of every federal provincial negotiation. Misunderstanding about some transfers have led many Canadians in other provinces to think that they fund cheap daycare in Quebec for example when that is not the case. As well there is no rational discussion on how Aborginal peoples are provided equitable services.

So if I over-simplify: The Provinces tax half of what they spend the Feds tax twice what they spend and this allows a fund for redistribution -- the excess taxed by the federal government -- in order to fund a coherent state with similar programs and standards of living. This is what allows us to have a common currency and single economy and federal power to make trade deals. Without it Canada would look like the EU with some provinces more like Germany and others more like Greece.

But this current Federal government has an objective to protect the income of Alberta as much as possible from going to the rest of the country. Most Canadians do not understand how central this sharing is to the ability of the country to function. I think Harper and his little band don't care because they want to see a radical down-sizing of government in general. They are satisfied with great differences in individual financial capacity and would happily impoverish all governments to allow welthier people to keep their money. Their vision of a national government is not harmed by the breaking of equalization and programs becuase they want minimal government and prefer the wealthier provincial governments deliver less and less to their people as well. Of course that is not how it works. The wealthier provinces are increasingly delivering more than the poorer provinces can keep up with and the notion of national standards with portability, a single economy and all functions of the federation are threatened.

This conversation about taxation power, programs and equalization being missing from the national dialogue is possibly the greatest single threat to Confederation.

The creation of money while interesting and very central to the health of the national economy is not directly a part of the question about fiscal links between provinces since if the Federal government created more money but did not distribute it, the same negative result I outline above would still come to pass. In other words the creation of money speaks to the size of the fiscal pie not the distribution of it. That distribution process is what makes Canada a state rather than a common marklet of different states.

Thu, 2014-09-04 10:13

Slumberjack

Pondering wrote:
Nobody asks Canadians what kind of country we want.

But people vote for the country they want, and so they are asked from time to time. The answer that Canadians deliver to the question of what country they would prefer, at least judging by their voting patterns, includes everything that comes to pass between elections. People keep saying we live in a 'democracy,' and as such, the voting public gets exactly what they deserve and ask for via the plurality decision of the total number of votes that were cast.

Thu, 2014-09-04 10:33

Sean in Ottawa

Slumberjack wrote:

Pondering wrote:
Nobody asks Canadians what kind of country we want.

But people vote for the country they want, and so they are asked from time to time. The answer that Canadians deliver to the question of what country they would prefer, at least judging by their voting patterns, includes everything that comes to pass between elections. People keep saying we live in a 'democracy,' and as such, the voting public gets exactly what they deserve and ask for via the plurality decision of the total number of votes that were cast.

Good point -- also you (by that I mean the current generation) don't get to have all that you want. To some degree a country is a product of its history. Canadians are particularly neglectful of that. Many have deep misunderstandings about the fundamentals of what this ocuntry is, how it came into being and in particular the bargains, compromises, committments and agreements that were struck by components of what is present day Canada.

Many seem to think that now that we all have a big red maple leaf we all should forget about the compromises and bargains that were the conditions of us all ending up in one country. You can't do that historically, morally or legally and you certainly can't impose it on other Canadians who care about those conditions and agreements. It is not just Quebec that seems to get a raw deal when reminding other Canadians what this country is and how it came to be: Atlantic provinces face the same thing. And what about all the treaties with Aboriginal naitons that coloured much of the map Canadian? They are often told that they cannot or should not collect even on the pretty poor bargains they made.I could go on with each part of the country but I think the point is clear.

So the truth is Canada is made up of its history, the agreements and obligations that made it come into being, a social responsibility to ALL of its peoples AND the democratic will of the people of today.

Democracy is not about jetisoning the agreements of the past it is about making new decisions for the future. Seems like a great deal of Canadians want to wish away anything inconvenient from their point of view. And, as I say, a complete misunderstanding of how the country works when it comes to shared resources and equalization. Of course the programs and equalization were not a complete deal at confederation but represent an evolution into what Canada is. A real pity most Canadians are so completely oblivious.

Thu, 2014-09-04 11:35

montrealer58 montrealer58's picture

Sean in Ottawa your posts are the best thing on Rabble right now. Have you thought of writing a book or maintaining some kind of blog?

We might remember that Alberta's money does not spring ex nihilo. Everytime any Canadian fills up their gas tank, money goes to the Alberta-based oil companies. When Harper and Alberta right-wingers gripe about sending payments back to the core, they should be reminded they would be nowhere without Canadian investors and Canadian consumers, not to mention Canadian workers who come from every province of Canada to work on oil extraction. And of course land which originally belonged to the aboriginals. Alberta was cut out of the North West Territories, which was given to Canada. Alberta was not present at Confederation, and belongs to Canada. They have no way out, legally or otherwise.

For decades Ontario was the goose that laid the golden eggs, and one might remember that as late as the recession of the early 1980s Alberta received equalization payments. What if the world loses its appetite for oil? All that will be left in Alberta is a huge environmental liability of poisoned water and land. Because more than half of global energy investment now goes to renewables, according to a recent Bloomberg article I read, the writing is on the wall. The point of massive wealth generation will shift around a massive country, and economic policy should recognise that the future cannot be predicted. Who knows? Maybe Ontario and Quebec will become giant renewable energy generators, causing wealth to go back to the centre of population.

What de-centralists are afraid of is a unilateral action by Ottawa. It speaks to the archaic nature of our federation that we cannot design these programs with the full cooperation of all parties. Perhaps we could come up with a formula that if say 7 provinces representing 65% of the population agree on a program, we agree to it with the Feds and carry on. An autocratic federal government will have no truck with consultation, which is why we want to get rid of Harper. If we can start designing programs with the consent of a reasonable majority of the major players, the level of resentment should decline.

As far as turning on the monetary taps goes, Canada is in an enviable position. The Canadian dollar is considered to be a very hard currency, and states are using it for central bank reserves. There is a lack of good-quality debt on the market, and Canadians are known as people who pay their bills. Although Ontario is running a debt that the feds would have choked on not too long ago, you can bet that whenever Ontario goes to the bond market, they are snapped up in seconds. Ontario needs more support from the feds, because it cannot print money.

These are structural problems in the Canadian federation, and we need brave policy here.

Thu, 2014-09-04 12:22

#10

kropotkin1951

Pondering wrote:

After the Great Depression, The New Deal was devised which worked really well. At some point neoliberalism slipped in. How? Why? Why did people let it happen? Nobody promoted neoliberalism as a named theory. How did they convince people to accept it?

You should begin by reading about the Canadian experience of the depression. We are more than a pale imitation of the US. We did not have a New Deal in Canada and Roosevelt was not our President.

Read about the On to Ottawa Trek and the Estevan strike and then Tommy's electoral successes. Read about the Ontario auto strikes and how the Rand formula came about as the grand labour compromise. In the US they never got universal health care or any period with decent Unemployment Insurance. In Canada we did but it came from commies and socialists being active at all levels of society. That was a generational moment . My parents who lived through the Great Depression and WWII voted Conservative because they liked Diefenbaker. He brought in the Canadian BIll of Rights and called for very centralized programs with no concessions to any provinces (some would say especially Quebec).

The great Canadian shell game has always been equalization payments and how they are calculated. The federal government has most of the taxation powers in our Constitution so it has always had to give money to the provinces because of that fiscal imbalance in our basic law. Here is a brief reasonable summary of that history.

So lets keep this great thread focused on Canadian history and Canadian solutions.

Quote:

The basics of equalization payments have been around since Canadian confederation when the federal government had most of the taxation powers. The federal government would make transfer payments to the provinces to cover their needs. There was no obligation that these transfer payments had to reflect the amount collected in each province and thus wealth was always redistributed.

A formal system of equalization payments was first introduced in 1957. The idea was based on the proposals of American economist James M. Buchanan and they were introduced mainly to help the struggling Atlantic provinces who were seeing low rates of growth and high rate of emigration to central Canada.

The original program had the goal of giving each province the same per capita revenue as the two wealthiest provinces, Ontario and British Columbia, in three tax bases: personal income taxes, corporate income taxes and succession duties (inheritance taxes). Five years later, 50 per cent of natural resource revenues were included as the fourth tax base. At the same time, however, the standard of the two wealthiest provinces was lowered to the national average. In 1967 the system was redesigned to work with every government revenue scheme with the exception of energy; this gave Canada by far the world's most generous system of equalization payments.

The rise in energy prices and the resulting increase in provincial natural resource royalties in the late 1970s created several problems for the equalization formula. The need for amendments to the formula became clear when the traditional "have" province of Ontario qualified for equalization payments in 1978. This result went against the spirit of the system and would have led to substantial costs for the federal government; it was agreed that Ontario should be excluded from receiving payments. In 1982, the equalization standard was shifted from the national average to the average of the five "representative" provinces: British Columbia, Saskatchewan, Manitoba, Ontario, and Quebec.

The Canada Act 1982, which amended the constitution, included the rights of the poorer provinces to equalization payments. Subsection 36(2) of the Constitution Act, 1982 states that "Parliament and the government of Canada are committed to the principle of making Equalization payments to ensure that provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation." It is unlikely that this provision will be amended.

In 2004, the federal government and the provinces agreed to suspend the traditional formula that determined payment amounts and move to fixed funding levels, which were scheduled to grow at a fixed rate - regardless of the economic performance of the provinces. In 2007, based on the recommendations of a federal expert panel, the program was returned to formula-driven calculations and enhanced by moving to a standard based on the national average. A fiscal capacity cap was added to ensure that Equalization-receiving provinces couldn't be raised to a fiscal capacity above that of a non-receiving province (this could potentially arise due to the partial or non-inclusion of resource revenues).

In 2009, the fiscal capacity cap was modified and a ceiling and floor on aggregate payments were added.

http://en.wikipedia.org/wiki/Equalization_payments_in_Canada

Thu, 2014-09-04 16:49

#11

Sean in Ottawa

Montrealer58 -- thank you for the complement!

Great reminders from history. I had forgotten that Alberta received equalization so recently. I am doubt we can change the amending formula. However, we could do with better public education on how the country works and the purpose behind equalization. For now there is no interest among governments as the Provinces want to claim being ripped off in fiscal a fiscal imbalance and the feds want to treat that money as their own. Neither is actually being honest with Canadians or speaking on behalf of Canada.

The inconvenient truth is that the federation was always somewhat asymetrical. The provinces always had the ability to use equalization to create the programs they needed rather than what other provinces held up as a priority. When you think about it this is a rational way of making sure public money is spent in the bext way possible creating equity at a lower cost.

A good understanding of Canadian history and how the country was built would lead reasonable Canadians to better understand the case often brought by Quebec. The Quebec population's vision of Confederation (and the creation of early Canada including responsible government) is in many ways much more accurate than the revisionist view popular in the rest of Canada. Hard to hear but there it is.

When it comes to Liberal views of a central government -- these are mostly Pierre Trudeau's attempts to rewrite history using the "federal spending power" which in light of equalization and relative taxation, was always a bit of a fiction. There is a reason the Liberals are the only ones with that vision of the country. In fairness, I am not even sure that Justin Trudeau holds that view.

I would prefer if the taxation could be streamlined so people pay $X to the province $y to the federal government for its operations and $z to a federal department that manages equalization and shared programs like health care. That equalization money ought to be untouchable by the federal government except to distribute according to agreed national principles and standards (such as with medicare). Only with clearer accounting could we expect political and economic accountability.

Thu, 2014-09-04 16:58

#12

Sean in Ottawa

Thanks Kropotkin -- good reminders of history as well. That Wiki article is well written on equalization

-- Wiki is not always bad -- and it includes sources for further information. (While you can't cite Wiki in a formal work it is a great research aid often with piles of original source material people can use.) Wiki is often maligned becuase people don't use it properly. This is a good example when you need a few short and plain paragraphs to explain something.

The reference to 2009 should include that it was not done by agreement but imposed on the provinces as Christmas holidays began as a done deal by a federal government that believes in "no compromise" as MacKay so boldly pointed out by wearing that as a slogan.

Fri, 2014-09-05 02:05

#13

JKR

Sean in Ottawa wrote:

The creation of money while interesting and very central to the health of the national economy is not directly a part of the question about fiscal links between provinces since if the Federal government created more money but did not distribute it, the same negative result I outline above would still come to pass. In other words the creation of money speaks to the size of the fiscal pie not the distribution of it. That distribution process is what makes Canada a state rather than a common market of different states.

The national currency level also contributes to our fiscal imbalance. The energy boom that has benefited provinces like Alberta, Saskatchewan, and Newfoundland and Labrador has appreciated our currency which in turn has had a negative impact on industries such as manufacturing and tourism that the economies of other provinces depend on. If each province had it's own currency and their debt was denominated in that currency, the problem of fiscal imbalance within Canada would be greatly mitigated as provinces with weaker economies would see their currency depreciate while provinces with stronger economies would see their currencies appreciate. Having one single national currency requires the existence of fiscal equalization between the provinces. The European Union has found out the hard way that political union requires fiscal union. Some of our greatest problems here in Canada are also being caused because our political unity is not being matched by our fiscal unity.

The federal government could alleviate our fiscal imbalance by drastically increasing equalization payments and also by taking over the debt owed by the provinces. Alberta would probably despise such actions but it would greatly benefit Canada as a whole. The federal government could also alleviate the fiscal imbalance by helping each province establish a heritage fund to match Alberta's. Another measure could be to have sales taxes become an exclusively federal jurisdiction. Ideally it would also be great if resource royalties would be a federal jurisdiction. That change alone would mostly fix our current fiscal imbalance.

In any case, the disparities in the levels of taxation and the levels of services in Canada between the "have" provinces and "have nots" has become far too wide.

Fri, 2014-09-05 09:32

#14

Sean in Ottawa

I think this is coming back to the same issue. What public support is there for a pan-Canadian economy? What support in wealthier provinces exists for support to less wealthy provinces?

There is a great deal of propaganda over fiscal imbalance from provinces that do not want to share. The imbalance in wealth from one province to another is seen by wealthier provinces as a result of poor management in the poorer provinces. At the same time it is becoming less and less possible for less wealthy provinces to provide comparable services or undertake projects of unique value to their province.

Increasingly people are focusing on the level of government that delivers their most important social services (health and education) and wanting their resources to stay in that jurisdiction. Right wing politicians feed the problem by demanding tax cuts at every level leading to poorer governments even in provinces that can easily sustain support for their provincial government. Provinces feed the problem in the way they scream for more resources form the federal government citing imbalances.

The fact that we have a destructive, heavily partisan and region-centric federal government has further damaged the case for a federal government.

It is hard to imagine this ending well. I think the current track Canada is on leads slowly to devolution-- the support for a central government will remain strong in the parts of the country that cannot pay for it and decline in the parts that can. Even hidden by patriotism, the underlying regional desire to not share resources with the rest of the country will eventually make the country ungovernable well before anyone successfully promotes separation. By that time it may be irreversible.

The problem here is not just about policy. It is a cultural one. Citizens are increasingly being persuaded that their province must have a positive fiscal balance with Ottawa. Obviously, for all provinces to avoid a negative balance, none could have a positive one. The capacity to equalize or maintain national programs would be finished. Canadian provinces were never expected to go it alone without help from the federal government and any semblance of equality in economic capacity depends on re-distribution of economic resources. When you think about it provinces should expect to have a negative balance on average since resources must go to Ottawa to pay for functions of the federal government. Not all of that can be delivered back to the provinces in social transfers to the provinces’ residents.

Unless this political cultural phenomenon is reversed the country will eventually become ungovernable. The policies required to keep the country together will be politically impossible. It may seem inconceivable but the political culture is not far away from that now. Huge numbers of people in several provinces would respond negatively if asked if they are willing to have their province support the lifestyle of another. When you think about it, that support is a prerequisite to having a country. I think this is a by-product of the success of right wing policies in both the provinces and the federal government.

At this point I am less interested in the policies themselves (there are many mechanisms for program delivery and equalization) than fixing the cultural problem. At this time the distribution of wealth, essential to the existence of the country, is so unpopular that it has to function by stealth. That is not sustainable.

Put differently, I don't think Canada can function as a country in the context of right wing policies. I believe those policies would drive the country apart. On this point the track record of the Liberals is not hugely better than the Conservatives. If you accept my argument you would ahve to conclude that fiscal Conservatism would not only make the country unrecognizable, it would eventually make it cease to exist.

Fri, 2014-09-05 11:58

#15

Pondering

kropotkin1951 wrote:

Pondering wrote:

After the Great Depression, The New Deal was devised which worked really well. At some point neoliberalism slipped in. How? Why? Why did people let it happen? Nobody promoted neoliberalism as a named theory. How did they convince people to accept it?

You should begin by reading about the Canadian experience of the depression. We are more than a pale imitation of the US. We did not have a New Deal in Canada and Roosevelt was not our President.

......

The great Canadian shell game has always been equalization payments and how they are calculated. The federal government has most of the taxation powers in our Constitution so it has always had to give money to the provinces because of that fiscal imbalance in our basic law. Here is a brief reasonable summary of that history.

So lets keep this great thread focused on Canadian history and Canadian solutions.

Tax decreases and starving the provincial governments is rooted in neoliberalism isn't it? We are dividing up an ever shrinking pie so we each get more protective of our own piece.

This happened to the developed world not just Canada. I always hear about Thatcher and Reagan so I gathered they were the turning point, but why did people accept them? I would have thought the end of the great depression would have been proof enough of what policies work.

I do find the history in this thread interesting but my mind keeps wondering, okay, but how do we change it? How do we turn people against neoliberalism the way people were turned away from socialism? I would even say that people are by nature socialists because we are tribal animals and tribes operated collectively. Anywhere medicare exists people are fiercely protective of it. Public education is an unquestioned right.

I still don't think of myself as "one of you" because I don't know all this history. But is about history and various political systems by name a prerequisite before people will act in their own self-interest by rejecting neo-liberalism?

That's why I want to understand how neoliberalism won in the first place. They didn't present it as a theory. There was no big conversation with the people. No decision to move towards decentralization. Somehow we became a wealthier country that can afford less.

Fri, 2014-09-05 12:59

#16

kropotkin1951

Learn some history if you want to understand how neo-cons won in the first place. When you do please place emphasis on the Canadian experience.

Trudeau won the 1974 election by mocking the Conservative idea of wage and price controls with the "Zap your Frozen" campaign. When he was elected he did not instiute wage AND price controls he instituted only wage controls. That election also had the imfamous "dropped football" footage. IMO that incident was a major contributor myth of a "liberal" dominated media that persists in right wing circles. The media in 1974 were a large L liberal media. The kicker about the Stanfield dropping the football images is that he made numerous catches before he missed one and they showed him missing while showing footage of Trudeau doing backflips into a pool.

In 1970's the fractured right wing in Canadian politics lost the Social Credit and Creditiste parties leaving a unified PC party with a Quebec leader. Mulroney brought in the Corporate Trade Agreements and the GST. Progressive people fought tooth and nail in the 1988 election but our politcal system gave Lying Brian a majority with the anti-"Free Trade" vote split between the Liberals and NDP.

The real neo-con austerity programs in Canada began in BC under Bill Bennett (Miniwac) in 1983. My union in the construction trades was one of the targets as were the private sector unions and public services in general. One of the rallying cries for the neo-cons was that public sector workers pensions were going to backrupt the province. The people organized a Solidarity Coalition that culminated in a one day general strike and mass rallies thoughtout the province. I was a regional delegate for the Solidarity Coalition and the BC Human Rights Coalition. The unions involved sent Union Jack Munroe to Kelowna and he sold out the movement. The next election Minwac was no longer the leader because the anger had been directed at him and not his policies. The neo-cons ran Vander Zalm on a cheap beer and nice hair campaign and won because who doesn't like cheap beer. That is the way of politics if you offer the people cheap pot and nice hair they will buy into the same old crowd running the government.

Meanwhile federally the PC's went down in flames and the Liberals came back to power because of their promise to reopen NAFTA unless the main problems wth the agreement were fixed and of course they also promised to axe the GST. The Liberals took all the progressive energy for a Canadian made economic policy and flushed it down the tubes with their reneging on their major promises. Then Martin took over our country's finances and he introduced austerity on steroids. Gutted the EI program and transfers to province.

Pondering wrote:

That's why I want to understand how neoliberalism won in the first place. They didn't present it as a theory. There was no big conversation with the people. No decision to move towards decentralization.

Again I urge you to study some history.

Fri, 2014-09-05 12:59

#17

Sean in Ottawa

I think to some degree the how we change it is to reach out as much as possible to our political leaders and encourage them to talk about how the country works in this regard. Little else we can do other than educate and call for political leaders to lead.

Fri, 2014-09-05 14:53

#18

montrealer58 montrealer58's picture

Back in the days of federal-provincial conferences, everyone felt like they were part of the game. If someone from a small province came up with an idea, at least it was heard. Even under Mulroney there was much discussion, although ultimately futile. A "No Compromise" autocratic federal government not only makes each province resentful of the overall system, but it also has the effect of increasing parochialism.

Jean Charest (whose picture with a reportedly bad person is on the cover of today's Journal) tried to start the Council of Federation, but that went nowhere as the Feds refused to participate.

The Autocracy of the federalists really started under Chretien, got worse under Martin, and got way worse under Harper.

When you take public hearings, you make better legislation. My idea of a 7/65% formula should not be cast in stone, but should be used as an informal guage by all concerned.

Fri, 2014-09-05 21:07

#19

Pondering

None of that explains why regular people agree with the world according to neoliberalism is the natural way of things and why Martin and Harper have a reputation for being such great economic managers if it isn't true.

You are talking about what happened and who did what. I'm asking why people let them.

P.S. Think of it as reverse engineering.

Fri, 2014-09-05 21:33

#20

JKR

Pondering wrote:

That's why I want to understand how neoliberalism won in the first place. They didn't present it as a theory. There was no big conversation with the people. No decision to move towards decentralization. Somehow we became a wealthier country that can afford less.

I don't think neoliberalism has won the longstanding battle between capital and labour. In the grand scheme of things I think labour is winning the battle as we have established many social programs over the years that neoliberals have not been able to take away. Programs such as medicare, CPP, EI, the guaranteed income suppliment, minimum wages, tax credits for the working poor, public education, social asssistance, social housing, public transportation, etc..., are still with us. And in the near future I think we will likely be adding more social programs such as a national childcare program, a home care program, and a pharmacare program.

Fri, 2014-09-05 21:40

#21

JKR

Pondering wrote:

None of that explains why regular people agree with the world according to neoliberalism is the natural way of things and why Martin and Harper have a reputation for being such great economic managers if it isn't true.

You are talking about what happened and who did what. I'm asking why people let them.

P.S. Think of it as reverse engineering.

I think some "regular people" agree with neoliberalsim because they are happy with the current level of government supports and would now rather have their taxes reduced instead of having the government providing more supports.

Fri, 2014-09-05 22:15

#22

kropotkin1951

Pondering wrote:

None of that explains why regular people agree with the world according to neoliberalism is the natural way of things and why Martin and Harper have a reputation for being such great economic managers if it isn't true.

You are talking about what happened and who did what. I'm asking why people let them.

P.S. Think of it as reverse engineering.

As some one who has fought the agenda for 30 years I used to think of this place as oasis of sanity where the people all unstood the basics or where willing to listen and learn. To have you demand to know why we fucking let them win while promoting Trudeau is why I think you are a troll. You cannot be that stupid or naive so it only leaves deliberate trolling.

If you really want to know why people think what they do watch Manufacturing Consent, I've provided a link. Propoganda is alive and well and you are enthralled by it. You link to numerous US MSM sites that are at the core of the American propoganda regime. Educate yourself please so you can have a rational discourse with the people on this board who care enough about politics to have educated themselves.

https://www.youtube.com/watch?v=PQhEBCWMe44

Fri, 2014-09-05 22:19

#23

Unionist

Thanks, kropotkin. I was about to do a Godwin - about "how do you explain why so many people in Europe in the 1940s thought Jews deserved to be exterminated?" Fortunately, you saved me from that.

Sat, 2014-09-06 00:25

#24

Sean in Ottawa

Pondering wrote:

None of that explains why regular people agree with the world according to neoliberalism is the natural way of things and why Martin and Harper have a reputation for being such great economic managers if it isn't true.

You are talking about what happened and who did what. I'm asking why people let them.

P.S. Think of it as reverse engineering.

By letting their choices be limited to Liberals and Conservatives.

By believing propaganda.

By being superficial in their voting choices.

By not informing themselves.

By voting out of short term selfishness (being bought)