Monday, March 19, 2007

Why Im in Favour of Fixing the Fiscal Imbalance

This past weekend everywhere I looked I was being told about what to expect from today's budget. At the top of the list was the Conservative Government's attempt to fix the current fiscal imbalance. As a resident of Ontario I have been hearing for years about the fiscal imbalance. If you live in Ontario you pay more in federal tax than the federal government pays back to the province of Ontario.

There are two reasons why I think this fiscal imbalance needs to be fixed immediately:

1)I live in Ontario. Until 2006 I took Toronto's public transit at least 40 times/month and I know how poorly it operates at time. My fiance currently takes the GO train into work every day and we both experience the problems that delays can bring. We both have worked in Ontario's hospitals and we have seen the need for additional equipment/staff (at times). Ontario's fine Premier Dalton McGuinty (insert sarcasm here) has told me repeatedly that were it not Ontarians subsidizing the rest of Canada with their tax dollars, all this would be fixed.

2)The reason that I think carries the most water is that subsidizing other provinces makes us all worse off in the long run. Canada is a fairly left wing nation with a large social safety net which I definitely appreciate. It is something that makes us a role model for nations around the world. However, transfers from the rich to the poor provinces (within reason) is not something I think benefits the country as a whole. I think a perfect example of why this isn't necessary is Alberta. For the past few years Alberta has been booming. As a result there has been a huge influx of people looking for the highest paying jobs. The labour supply will move if given an incentive to. Instead though, Canada is looking to take money from Alberta and Ontario and give it to provinces that are not as rich to subsidize their job markets (either directly or indirectly) in the form of social programs. If the market doesn't demand jobs in all provinces, Canada shouldn't try to force it. In a global economy, long-term subsidies prevent innovation and reduce competitiveness.

10 Comments:

At 1:00 AM, Blogger JPostal said...

I would be interested to read the statistics showing Ontario subsadizing the rest of Canada. Being from the west (BC) we hear repeatedly that we (BC, Alberta, and Saskatchewan) pay a lot more in tax than we get back. Certainley in the past few years the west has been a major driving force of the Canadian economy with it's resource rich provinces. If you do have stats to back your post I would really like to read them so that I can educate myself.

 
At 10:14 PM, Blogger Jeadie5 said...

Here is the first link I could find. This article seems to suggest the Maritimes gets the majority of the benefit.

http://www.unontariofort.ca/english/whatsnew/051306post.asp

 
At 10:16 PM, Blogger Jeadie5 said...

http://www.answers.com/topic/equalization-payments

From the above link:

"In Canada, the federal government makes payments to less wealthy Canadian provinces to equalize the provinces' "fiscal capacity" — their ability to deliver government services. Currently Ontario and Alberta are the only provinces that do not receive equalization payments. Some economists have suggested that Saskatchewan and British Columbia will join the ranks of the "have" provinces (i.e., those provinces that do not receive equalization payments) in the near future."

 
At 1:46 AM, Blogger JPostal said...

Thanks for the link. Here is another one I found

http://www.fin.gc.ca/FEDPROV/eqpe.html

It is interesting that BC (my province) did not receive any payments from 1993-1999 and in 2006 we get 459 million. I would have thought it would have been the other way around considering the BC economy these past few years.

On a side note...do you think the proposed minimum wage increase in the 2007 Ontario budget will cause even more production/manufacturing jobs to be outsourced to out-of-province or out-of-country facilities?

 
At 9:47 PM, Anonymous Monty Loree said...

Hey GettingRich,
I saw your post over at CanadianCapitalist's blog and thought I should drop over.

We are running a Canadian Tour of Personal Finance blogs coming up on April 16.

I am looking for the first 10 personal finance blogs which want to participate.

This is similar to the Carnival of personal finance, if you're familiar with that.

Anyway,
If interested please do sign up at http://www.canadian-money-advisor.ca

Thanks and if you can, please tell a few Canadian Personal Finance Bloggers about the event!

 
At 1:06 AM, OpenID investorwithin said...

Very nice topic and well spoken I live in ontario too. Its hard to believe that the full potential of the economy can be reached if all this subsidizing occurs. There are a lot of problems in this problem due to the lack of money. If more money was used for those problems I think the whole country would benefit in the long run. Too much politics, not enough market.

 
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