Saturday, November 12, 2005

Sask: Raise a flag

The Saskatchewan government has taken it's campaign for more generous handouts from Alberta and Ontario to the interweb.

The equalization scheme is flawed in many ways, and it's certainly problematic that our equalization welfare payments are reduced by MORE than we take in in surplus oil and gas revenues.

The problem is that equalization, like all welfare programs, are more often a hindrance than they are help. This is how AIMS' Brian Crowley puts it:

For the rest, the first order effect of welfare matches our intentions: we intend to prevent destitution and tide people over. Welfare achieves this.

But there are undeniably second order effects of welfare. In particular, there are th problems associated with what has come to be known as the welfare trap. As we, in our good intentions, make welfare benefits more generous, we blunt the economic and social enticements to return to the workforce and to become self-supporting. This takes the form, not merely of higher benefits, but also of taxes that are too high on low-income people, plus the added penalty of the withdrawal of benefits as income rises.

The combined result of these factors is that the highest marginal tax rates in our society are paid, not by people at the top end of the income scale, but by people trying to escape poverty and dependence. They actually make themselves worse off by working. So the second order effects of a social welfare policy intended to be kind and generous, can in fact be cruel and destructive if you believe that pride and self-worth come from each person putting forth their best efforts to be a productive and contributing member of society, and if you believe that the long term result of dependence on state benefits is a whole host of social dysfunctions.


We can fiddle around with equalization and therefore make it a better welfare program, but it's still just a welfare program with all the inherent problems. Crowley goes on:
The reason that I raise this in the context of equalization is that this massive federal programme subsidizes some very specific things and taxes some others. And the net effect has been significant damage to the ability of the less-developed provinces to close the disparity gap with either the national average, or the wealthier provinces.

Apologists for the current regime say that it was never equalization’s purpose to “close the disparity gap” with the rest of the country, but simply to compensate for its existence. But what we have discovered after nearly half a century and nearly $200-billion in equalization payments (NOT adjusted for inflation) is that incentives matter, and the incentives attached to equalization can penalize the poorer provinces for developing their economy, and encourage them to settle for permanent reliance on federal transfers.

“Sharing” has its virtues, but surely the prime object behind our fiscal arrangements should not be to maintain poorer provinces in a state of splendid dependence, but rather to build their capacity to pay their own way. The greatest victory of fiscal federalism could and should be the elimination of the need for equalization payments.

Read the whole thing.

6 comments:

Anonymous said...

Money for nothing. I think that this is nothing but a distraction; if we see "future wide open" commercials back on SK tv, we will know that an election is near.

I searched "raiseaflag" this am and the search engine only brings up skinheads: how embarassing and stupid of the radical left they would pick a name staked out by the evil radical right.

raiseaflag is the domain of fools.

PS

Anonymous said...

Didn't layton and Martin just have a very public break-up? Could that be the reason for the timing?

John Murney said...

David, please correct me if I'm wrong, but isn't the Raise A Flag campaign about Saskatchewan keeping more of its own oil and gas revenue? Is that a bad thing? I'm genuinely confused here.

Anonymous said...

I thought that we keep our resource revenue: but that the amount we receive in equalization is decreased as a result of the windfall: and why shouldn't it? If SK has truly joined AB and AN and maybe BC as have provinces, due to our resource revenue, why is this an issue? please correct me if I'm wrong.

PS

David MacLean said...

John, the beef is that our welfare payments (equalization) get reduced when we have high oil and gas revenues. In fact, as Courchene’s paper documented, our equalization payments are reduced by even more than we actually earn in revenues.

The system is flawed, to be sure. But there is no difference from complaining that your EI payments were cut off after you find a job.

That said, if we're not on welfare in the first place we don't have to worry about being jobbed by the system.

John Murney said...

Awesome, thanks David.

CTF You Tube Channel

Canadian Taxpayers Federation's Fan Box