Thursday, February 2, 2006

Fiscal stupidity

While raising taxes in Ontario, Liberal Premier Dalton McGuinty has frequently cited the $23 billion gap between what his government claims Ontario surrenders to the federal treasury and what it receives in return as a hurdle toward its own fiscal balance and a necessary reason for not lowering taxes. In the meantime, his government spends over $80 billion annually. There is no reason to suspect that a Liberal premier will suspend the use of this scapegoat now that a Conservative government will sit in Ottawa — in fact, all signs point to McGuinty ratcheting up the blame game.

From the London Free Press:

There's no room for tax relief in the next Ontario budget, Premier Dalton McGuinty said yesterday as he blamed the province's fiscal woes on money lost to Ottawa and the policies of Conservative premiers.

McGuinty called on the new Conservative government of prime minister-designate Stephen Harper to address the so-called fiscal imbalance: in Ontario's case, a $23-billion gap between what the province pays Ottawa and what it gets back in federal services.

The fiscal imbalance wouldn't be an issue if Ontario enjoyed the same cash windfalls as other provinces, McGuinty suggested.

"Alberta has oil and gas, we don't; Newfoundland is going to have more oil and gas, and we won't," he said. "We don't have an option."
By substantially reducing the provincial government's own consumption of resources and productivity in the form of taxes, the people of Ontario could be enjoying much greater cash windfalls than even in Alberta, oil or not. However, like most politicians, McGuinty is more concerned with his government's windfalls and the political credit that can be reaped by gaining something for nothing. Legal redistribution by its nature introduces a political competition for other people's money that is won more by lobbying, posturing and loudness than necessity. Redistribution between governments means that all players seek nothing more than political popularity at the complete expense of notions of necessity. Never willing to cede this, necessity can be manufactured in the factories of government accounting — in this case, in the form of a $23 billion gap that is rendered virtually incontestable by the fact that transfers between regions and governments are so labyrinthine and practically immeasureable that almost any figure may be arbitrarily assigned. If Stephen Harper plans to reduce the "fiscal imbalance" — a convenient term that noone can precisely define or to which a value can be assigned — by reducing these ridiculous intergovernmental transfers, he will be blamed by every single provincial government that will not accept political responsibility for its own spending. It's a lose-lose game for any federal government.

1 Comment:

denisbhancock said...


Just wanted to drop a note- I took a slightly different tack on what some of Dalton is saying (see my recent blog "Is McGuinty Saying Harris Generated a Surplus?".

The idea is that, inadvertendly, Dalton is giving Mike Harris the ultimate compliment. While repeatedly saying he inherited a $5.6 billion deficit, he's also said the annual "fiscal imbalance" has increased from $21 B over the last 10 years (when the PCs were in power in Ontario).

By asking for this imbalance to be closed, he is effectively saying the "Common Sense Revolution" generated a $15.4 B annual surplus for Ontario, but the Feds took it all (and then some) to redistribute elsewhere.

Whether Dalton's numbers are right is another question. But in his double blame game, he's inadvertendly complementing the PC Conservatives for some remarkable fiscal management.