Finance Minister says Provincial fiscal inbalance not a federal issue, says to raise taxes
Globe and Mail
Finance Minister Jim Flaherty said provinces should consider raising taxes rather than expecting Ottawa to hand over billions of dollars in new money as he kicked off a second day of talks on fixing the fiscal imbalance.
"It's not the responsibility of the federal government to tax Canadians in order to fund provincial programs that provinces choose to conduct. That's their jurisdiction and they have the taxation revenue sources that we have," Mr. Flaherty said Tuesday morning.
"That's an important thing to remember: we're a federation in which the provinces have substantial taxing powers," he said.
His comments were reminiscent of what former Liberal finance minister Ralph Goodale used to say when he beat back demands for more cash from the provinces.
"Both our federal and provincial governments have access to the same sources of revenue to fund their activities ... they have complete autonomy to set their own fiscal policies, to make their own decisions on personal and business tax rates and on how they spend the tax dollars they receive," Mr. Goodale said in March, 2005, rejecting the notion of a fiscal imbalance.
Separately, Saskatchewan Finance Minister Andrew Thomson said he is concerned about what he calls the Conservatives' "weakening resolve" to honour their campaign promise to fix the fiscal imbalance.
"They now appear to be backing down on this," Mr. Thomson said. "I think it's now become a game of cat and mouse. They keep changing the message."
Mr. Thomson said Mr. Flaherty's suggestion that the provinces raise taxes to pay for programs also makes him question whether Ottawa has a sincere desire to address the issue.
"It's particularly difficult to tell a province like us to raise our sales tax to pay for health care and education when we know we're sitting right next door to [sales] tax-free Alberta," he said.
"I think there is some question as to whether it is a divide-and-conquer approach," he said.
The finance minister said he thinks the meeting should not just be about extra cash Ottawa might have for the provinces. He said he sees it as a chance to push for economic reforms that will make Canada more competitive.
Mr. Flaherty's trying to convince the provinces to agree to form a common securities regulator and chop inter-provincial barriers to the movement of goods and skilled labour – a big problem when Alberta's red-hot economy is hungry for talent.
"We have to watch U.S. house prices, we watch commodity prices. We are a net exporter of energy as you know now, so we're always concerned with prices of commodities," Mr. Flaherty said "We have some labour market challenges in terms of shortages of skilled workers, particularly in . . .western Canada. So we want to talk about that, in terms of labour mobility, which is very important between the provinces as well as (for) newcomers to Canada."
Mr. Flaherty, whom provinces are pressing for a better equalization deal and more per-capita transfers, warned Monday evening that his counterparts shouldn't expect a bonanza. "Billions and billions of dollars — that's not realistic," he said.
He said the fiscal imbalance is moderating because the Tories have sworn off running big surpluses, but that spending is needed mainly in two areas. "We want to move to fiscal balance, but that's primarily dealing with issue of postsecondary education and infrastructure."
Ontario Finance Minister Greg Sorbara said the fact that Ottawa is projected to run a healthy surplus for the foreseeable future means there's still a problem.
"The federal government has more resources than it needs to discharge its services and, by and large, most of the provinces have fewer resources than necessary to discharge [their] responsibilities primarily in the expensive areas of health care, education and postsecondary education."
Mr. Flaherty said he will listen to his counterparts, but also sees the meeting as a chance to target broader economic measures such as provinces forming a common securities regulator to make Canada more attractive for businesses raising capital.
"This isn't a meeting about how much more money is the government of Canada going to transfer to the provinces. If that's all this was going to be about, I imagine we could do it in a conference call and not get together and talk about all these other issues."
Mr. Flaherty has repeatedly pointed out that eight of the 10 provinces are running balanced budgets and suggested significant headway has already been made in resolving the situation because of a $42-billion health-care deal the former Liberal government signed in 2004.
New Brunswick Premier Bernard Lord said Mr. Flaherty's suggestion that the provinces raise taxes to pay for key programs is not an option.
"Six months ago, the Prime Minister made a commitment to address the fiscal imbalance in Canada," he said in an interview. "If the solution to that is . . . that the provinces just need to raise more taxes, that doesn't fix the fiscal imbalance. . . . I think Canadians pay enough taxes."
Ontario Finance Minister Greg Sorbara said the fact that Ottawa is projected to run a healthy surplus for the foreseeable future means there's still a problem.
"The federal government has more resources than it needs to discharge its services and, by and large, most of the provinces have fewer resources than necessary to discharge [their] responsibilities primarily in the expensive areas of health care, education and postsecondary education."
Provinces are divided on how Ottawa could share wealth with poorer provinces. Mr. Flaherty warned yesterday that Ottawa could impose its own equalization deal if provinces can't agree on a new formula.
"At the end of the day, if there's not an agreement, the federal government can't just ignore its constitutional responsibility."
