Wednesday, November 08, 2006

Sask: Equalization deal won't lower taxes

I sense there is a growing misunderstanding in Saskatchewan about what a new equalization deal can and cannot do for Saskatchewan. For readers outside the province, the Saskatchewan government has been campaigning for years to get a deal from Ottawa that would exclude oil and gas from the equalization formula -- along the same lines as what some Atlantic provinces have obtained.

Now it seems that all good things promised by the Saskatchewan government are somehow contingent upon receiving more generous support payments from Ottawa.

The government even promises more equalization payments will help us all achieve our dreams and desires, and I read Saskatchewan political columnist Murray Mandryk echo that statement in a recent column. Indeed, the only thing holding us back as a province is the equalization program. (Read with John Lennon's Imagine playing softly in the background.)

Imagine how a Fair Equalization Deal could help us build the province that we have all dreamed of, a strong and vibrant province where our young people will find their futures. You know that you can trust Lorne Calvert and the NDP government to be there for you, to help make these dreams a reality.

So what is stopping us?

The question really is, WHO is stopping us?

The problem with equalization handouts is they do, in reality, the exact opposite of what is promised. Equalization actually creates incentives to NOT develop a strong and vibrant economy. Think of it this way: If equalization was all the province made it out to be, wouldn't Atlantic Canada be a beacon of hope for the rest of the country? They have, after all, been recipients of generous handouts for decades.

How does equalization hold a province back? Consider taxes, for example.

The Saskatchewan government promises that if we achieve a better deal from equalization it can significantly lower taxes which would help grow the economy.
Imagine how a Fair Equalization Deal could help us all build a stronger economy. With lower taxes and a greater investment in post-secondary education and skills training together, we could grow an economy that will create more jobs and provide greater economic opportunities for young people.

The catch is that part of the equalization formula is based on the province's "fiscal capacity." To put it simply, equalization looks at a province and says "if you can afford to cut taxes, you don't need as much welfare." The feds reduce the payments to the provinces if they cut taxes.

If a government wants to cut taxes, it's hit with a double whammy. First, it must forego the revenue it collected before the tax was reduced. Second, it must see its transfers from Ottawa reduced as well. In fact, the same rule applies to economic development as a whole. The more successful a province becomes, the less welfare it gets.

It's tough enough to get a government to cut taxes without the strong disincentives equalization brings. The equalization program can't and won't save us from decades of crappy government economic policies.

Imagine if the government sold you some magic beans.

13 comments:

Chad Moats said...

Actually David, it is based on government revenue not just taxes and it was created to insure no one province had to raise taxes too much and become uncompetitive. Therefore lowering taxes should actually increase equalization, depending on other provinces', in the formula , actions.
If they all lower taxes then it stays even, if they all raise taxes then the average goes up and Saskatchewan goes down, giving us more money.
As for equalization keeps poor provinces down, take a look at life in the maritimes prior to equalization. You will see that this region wasn't better off under the control of only the invisible hand, economically.
It is best to have a mixed economy and the CTF's support of ag subsidies leads me to believe you think as much, as well.

David MacLean said...

Actually Chad, every point you have made here is wrong. But at least you playing yourself this time.

David MacLean said...

You want me to compare living conditions pre-1957 to now?

Chad Moats said...

Please explain to us unemucated , how it works ?
So, it's not based on government revenues as an average of 5 or so provinces ?
"Playing myself ", did you mean with ?

Scott Hennig said...

http://www.aims.ca/library/incentives.pdf

Chad Moats said...

The report was written 4 years ago, using data from the 90s. It even stress that in actuality most provinces are lowering taxes to compete with each other.
It is a good theory but that is all it is, as the actors involved are not acting in this manner.This is because it also encourages them to lower rates, its intention.
Yes, equalization needs to be reformed and yes, provincial governments should be concentrating taxation in smart areas. But this is a red herring because it is simply not happening. Name a current provincial government that is actually raising taxes in the areas identified.

David MacLean said...

The intention of equalization was NOT to see provinces lower taxes. IT was to see similar levels of government services at comparable tax rates.

The program doesn't entirely prevent tax reductions but it does foster spending increases. And if you look at the provinces receiving equalization, they all have higher taxes than those provinces that don't.

I'm glad you playing yourself instead of Oliver, the 93 year old cancer victim who loves STC.

Chad Moats said...

Ok, Mclean that accusation is stepping over the line. You sure you want to go there ?
I'll speak you about at Noah's.

R.S. Porter said...

I liked it better when you spent your time losing an election.

Is that over the line?

VanderHum said...

''The problem with equalization handouts is they do, in reality, the exact opposite of what is promised. Equalization actually creates incentives to NOT develop a strong and vibrant economy.''

Not unlike agricultural subsidies. If ag subsidies were the answer, wouldn't the agricultural industry be a beacon of hope for all industry?

Giant Political Mouse said...

The Saskatchewan Government has said that they will devote 1/3 of the 800 million to tax relief. Thus, if there was an equalization deal then property taxes would be reduced by at least 250 million. How can you say that an equalization deal would not lower taxes?

David MacLean said...

Do you believe everything the government tells you? The government has the fiscal room to reduce school taxes right now but they haven't seen fit to do so.

If the province is successful in getting the $800 million out of Ontario and Alberta, be sure that spending will rise significantly. Everyone will line up for their funding priorities -- especially public sector unions.

The government is already increasing spending by $500 million per year...another $800 million would last another year and a half, tops.

Giant Political Mouse said...

So your logic is, the government said they will lower taxes when the feds come through with a deal. they must be lying, therefore an equalization deal cannot lower taxes?

That's pretty weak if you ask me. Am I then allowed to tell you what you will or will not do with any money that the government gives you? I.e. the "beer and popcorn comment" from the last federal election campaign?

Example:

You: Give us money back in tax cuts because we know how to spend it better.

Me: No, you will spend it on beer

You: No I won't

Me: Your lying.

You see how that doesn't get us anywhere. If the government doesn't live up to that commitment THEN you can accuse them of lying but you can't pre-judge them.

CTF You Tube Channel

Canadian Taxpayers Federation's Fan Box