On Oct. 5, Ottawa’s Parliamentary Budget Officer (PBO) released a report on the sustainability of governments’ finances in Canadian provinces and territories. While Canada is predicted to have a fiscal policy that is sustainable over the long term, provinces and territories are not.
The report states: ”Current fiscal policy in Newfoundland and Labrador is not sustainable over the long term. PBO estimates that permanent tax increases or spending reductions amounting to 6.5 per cent of provincial GDP ($2 billion in current dollars) would be required to achieve fiscal sustainability. … Such an adjustment would require a 26 per cent increase in the tax burden (including federal transfers) or a 21 per cent reduction in program spending, on average, relative to our baseline projection.”
The PBO report’s assessment of our province is related to projections that we will have the most rapidly aging population in country, the greatest population decline, the lowest life expectancy and the lowest net in-migration in Canada. This will cause a demographic shift — fewer and older people, which means higher health costs and fewer wage earners to pay for services.
Interestingly, the report does not do an in-depth review of resource revenue as related to our capacity to generate our own source revenue, but references that transfers from the federal government — such as the Canada Health Transfer, the Canada Social Transfer and Equalization (we currently receive $0 out of the $18.3 billion Equalization fund) are projected to decrease for N.L.
All agree that expenditure reductions need to be part of fiscal policy, and this needs immediate attention; but we also need a plan that creates the conditions to grow our economy, for investment and entrepreneurs to thrive so more people can work, live and contribute here.
Our requests in the past two budgets that the Ball government begin the discussion with the federal government have been met with silence. Our elected Liberal MPs in Ottawa also remain quiet.
The report also notes: “With the exception of Quebec and Nova Scotia, current fiscal policies across provinces and territories are not sustainable over the long term.”
While the PBO is pessimistic about our province, it is optimistic about Quebec and Nova Scotia, saying their approaches are sustainable.
Regarding Equalization: “In our projections, Quebec’s share of the total federal Equalization envelope increases from 60 per cent in 2017 to 75 per cent in 2091.”
Think about that. In 2017-18, of the total $18.3 billion the federal government is allocating in Equalization, Quebec is receiving $11.1 billion — 60 per cent of the total. Our province is receiving zero.
By 2091, the PBO estimates Quebec’s share will grow to 75 per cent of the total.
Yet the PBO tells us Quebec’s economy will be fiscally sustainable when they become even more dependent on Equalization by the end of the century than they are today?
A more detailed discussion of the term “fiscal capacity,” and how that determines what provinces get and do not get in Equalization, needs to be had in this country, including a discussion of issues such as demographics, aging populations, health-care delivery, taxation programs and what provinces can and cannot include in the fiscal capacity definition when deciding on eligibility for Equalization.
Our requests in the past two budgets that the Ball government begin the discussion with the federal government have been met with silence. Our elected Liberal MPs in Ottawa also remain quiet.
Nova Scotia has been mentioned as having strong financial sustainability in the future when it receives $1.8 billion in Equalization this year from the $18.3 billion available.
How is that fair to a province like Newfoundland and Labrador?
Premier Ball should demand that Ottawa revisit this national program so it is open and fair to all Canadians. Reasonable taxation for a reasonable level of services is how the program is described. Taxation in this province is nothing of the sort.
Ottawa should step in and use its fiscal and economic levers to help provinces bridge tough periods, seize opportunities, prosper and become self-reliant.
If Newfoundland and Labrador were being treated fairly, we wouldn’t be talking about raising taxes through the roof and slashing health services at the same time that Quebec and Nova Scotia are slashing taxes, safeguarding services and balancing annual budgets, while swimming in Equalization.
Keith Hutchings, MHA Ferryland
Opposition Finance critic
