By David McKinnon
and Marco Navarro-Genie
A time of economic reckoning is at hand for Atlantic Canada.
Deficits are growing and threaten to become solvency crises. Regional out-migration has slowed down but continues. Remittances from Western Canada are almost certain to fall rapidly.
It is time to consider how to rescue Atlantic Canada from the disastrous consequences of the large subsidies that have been provided to the region for 50 years. Those subsidies are at the heart of the region’s problems. They are “the help that hurts,” in the words of one commentator.
These subsidies have come in many forms: equalization; Employment Insurance benefits that are much easier to access than in other provinces; disproportionate public employment far beyond the levels required to serve local populations; and many subsidies targeted at the region that are incorporated in federal operating programs.
The consequences are profound:
- The economies of these provinces are public-sector driven and out of synch with the rest of the developed world. Atlantic region public sectors are larger than in Greece before the financial crisis impacted that country. And the sense of entitlement felt by Atlantic Canadians is deeply rooted, as it was in Greece.
- Debate about the extent to which the economies of these provinces – and Manitoba – are supported by other Canadians is dangerously ill-informed. Discussion of subsidy arrangements is usually limited to equalization, which understates the extent to which the Atlantic provinces are dependent on many different subsidies from other Canadians to support anything close to average North American standards of living.
- Federal subsidies have compounded regional disparities. While personal incomes have risen in the region, much of that is due to the scale of the subsidies themselves. The subsidies crowd out the private sector by making it difficult to compete for talent, by enabling excessive government expenditure and sometimes by cronyism in the way governments behave.
- The public finances of all Atlantic province are out of control, in part because the subsidies have been used to support program structures that are far more expensive, on a per person basis, than in Alberta, Ontario or Quebec.
To save the region from continued decline, several changes are necessary.
First, the problems of Atlantic Canada should be decoupled from those in Quebec.
While Quebec receives the largest share of equalization, that share is much smaller in relation to its economy than in Atlantic Canada or Manitoba. Also, Quebec receives much less, in relation to its size, from disproportionate federal employment or generous EI arrangements than the other Eastern provinces.
Quebec has issues but they are less intractable than in Atlantic Canada.
Second, equalization in Atlantic Canada should come only with conditions:
- Independent expenditure reviews along the lines of the Drummond Commission in Ontario should be completed for each Atlantic province. Provincial auditors should certify the independence of these reviews.
- Delivery of provincial programming in the four Atlantic provinces should be by a common services commission operating under contract with each of them. Four separate public services for four provinces with a total population of two million is extravagant.
- The federal government needs to reinvent equalization if it is to become a unifying rather than a corrosive force.
Reform should begin by comparing programs between provinces. This is the goal of equalization and, presumably, other subsidy efforts. But the federal government makes no effort to compare provincial programming across Canada.
Changes should also be made so that the needs of populations in each province are considered in determining equalization entitlements. Failure to factor demographics, labor market conditions, educational issues and many other matters in determining equalization entitlements means that the program is disconnected from the everyday lives of all Canadians.
For decades, Atlantic residents have sought help from other Canadian taxpayers. The help, as well-intentioned as it is, comes with carelessly planned programs and little transparency.
Winston Churchill once said that learning how to say no is an essential part of the political process.
It is time to say no to more of the same for Atlantic Canada. The region is running out of time and the rest of Canada – particularly Alberta and Ontario – has run out of capacity to support badly managed and opaque subsidies that promise to grow endlessly unless a different path is chosen.
Such a path is available and now is the time to follow it.
David McKinnon served as Director, Planning and Economics and Executive Director, Development Strategy in the Nova Scotia Department of Economic Development from 1976 to 1981. Marco Navarro-Genie’s current areas of interests are higher education, immigration and labor, and energy and environment.