Provincial governments in Canada are having a St. Augustine moment.
In his fifth-century work Confessions, the Christian theologian famously, and perhaps ironically, pleaded: “Lord, make me chaste, but not yet.”
Similarly, provincial premiers may be issuing their own entreaty of: “Please deliver unto me a budget surplus, but not yet.”
The magnitude of the federal government’s fiscal rescue in 2020 and 2021, coupled with a faster-than-expected economic recovery and bubbling inflation, has sent provincial revenues on a rocket ride. That’s good news – but not the best timing for provinces in the middle of tricky labour negotiations.
Sharing the pain is a political slogan with a reasonable chance of success, if a province is struggling to dig its way out of a big deficit. That’s the approach Alberta Premier Jason Kenney took in the spring, when his government vowed to bend his province’s pay rates for public-sector workers down toward the national average. “... We no longer have the revenue to justify higher comparative wages,” Alberta Finance Minister Travis Toews said during his budget address.
Except now, revenue has soared, the deficit has dropped substantially – and a return to surplus next year is even possible. There’s less pain to share, at the very least. And possibly, some gains for unions to seek at the bargaining table.
Mr. Kenney has lots of company. New Brunswick’s Progressive Conservatives went out of their way to warn its public-sector unions that the province’s good fiscal fortune was a temporary phenomenon. In Quebec, Premier François Legault’s government is in the midst of talks with daycare support workers, a task presumably made trickier by that province’s booming fiscal prospects, including cutting a cheque to all households.
Robert Hogue, senior economist at the Royal Bank of Canada, points out a parallel pressure coming to bear on those negotiations: higher inflation. Not only have inflationary pressures boosted the nominal growth in GDP (and along with it, tax revenues), he notes. Rising prices mean added motivation by unions to secure cost-of-living increases.
So, for provincial governments entwined in labour negotiations, improved bottom lines may be welcome, but arriving just a little too early.
Responding to last week’s Tax and Spend newsletter on Quebec and equalization, one online reader commented that Alberta had received about $11-billion more from the federal government than the province had paid in. In rebuttal, another reader contended that all provinces received more than they had paid.
Both claims are true, sort of, but are wrong on one specific. And there’s a wider intimation that is incorrect. First, that specific error, or at least incorrect implication. Neither the Alberta government, nor that of any other province, is paying anything. The fiscal flows statistic reported by Statistics Canada is measuring federal tax revenue flowing from the province. It’s a small but important caveat.
Now, on to the wider contentions. Yes, Alberta was a net recipient of federal spending in 2020 ($10.9-billion) for the first time in 55 years, as University of Calgary economist Trevor Tombe discusses here. (For an excellent visualization of that data, check out Prof. Tombe’s work on FinancesoftheNation.ca.) So, the first reader is correct. And so is the second reader: All provinces were net recipients, a consequence of the massive deficit that Ottawa recorded in the first year of the pandemic.
However, some (including the headline writer for Prof. Tombe’s analysis) have intimated that this is synonymous with Alberta becoming a have-not province. That is wrong – that term is used for provinces with below-average fiscal capacity receiving equalization. It’s a different measure than the fiscal flows measured by Statistics Canada. Alberta still leads the provinces in fiscal capacity, although the gap has narrowed because of the travails of its energy industry.
Disaster assistance: The Canada Revenue Agency is encouraging individuals, businesses and first responders affected by B.C.’s flooding disaster to request taxpayer relief. In a news release issued last week, the CRA said it’s putting in place measures to ensure those facing “extraordinary circumstances will be treated fairly.” The agency said those owing a tax debt and requiring assistance could contact collection officers. And the CRA noted that is has the ability to cancel or waive penalties and interest in such circumstances. But there’s no blanket policy – each request will be assessed individually.
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