Remember the Resistance? The four small-c conservative premiers were lined up on a magazine cover alongside a pre-election Andrew Scheer and touted as the real counterweight to Prime Minister Justin Trudeau.
More recently, last year’s election left an apprehended national-unity crisis in its wake, with the revival of the Bloc Québécois and the seething rejection of Mr. Trudeau’s Liberals in Alberta and Saskatchewan.
Those things have dissipated during the coronavirus crisis, when co-operation has become the watchword. Maybe that harmony will only be temporary.
But the crisis is likely to have a more lasting effect on the federation: Ottawa will emerge more powerful, the provinces weaker.
It seems as if it should be the other way around. Mr. Trudeau’s government is pouring out spending on emergency benefits, a 75-per-cent wage subsidy and business aid. Parliamentary Budget Officer Yves Giroux’s forecast for the 2020-21 federal deficit is now a whopping $252-billion.
But most of the provinces were already in a squeeze. Their deficits and debt have now ballooned, too. And they’re going to face pressure to keep spending after the crisis.
Amazingly, it will be the feds that will have the relative room – fiscal and political – to spend in the next few years. You can expect premiers to look to Ottawa for help to keep budgets in line, pay for projects and avoid doing the thing most want to avoid: raising taxes.
University of Ottawa professor Patrick Leblond said Ottawa’s deficit is eye-popping, but as long as such shortfalls only last a year or two, they won’t be disastrous. Federal debt is relatively low as a proportion of the economy. Interest rates are near zero, so the cost of carrying the extra debt is small. Even if debt rises from 31 per cent of GDP to 50 per cent or 60 per cent, he said, “it is not a catastrophe.”
Some of that is true for provinces, too. Their revenues are plummeting. Ontario’s Financial Accountability Office predicts provincial debt will rise to a record 49.7 per cent of GDP. But low interest rates mean debt itself is not a crisis for provinces, either, said Mostafa Askari, chief economist at the Institute of Fiscal Studies and Democracy.
The difference is Ottawa’s finances were already on a sustainable track. Before the coronavirus, the PBO judged the feds could spend $41-billion a year without raising the debt-to-GDP ratio.
One can argue about Mr. Trudeau’s spending versus Stephen Harper’s, but federal finances have more or less been on a sustainable path since Jean Chrétien was in power in the mid-1990s, when then-finance minister Paul Martin revamped federal spending.
The provinces, meanwhile, bear the brunt of rising health care costs for an aging society. Just four provinces have finances on a sustainable track, the PBO reported. Only Quebec really had substantial room. But Quebec already has relatively high debt and taxes, too.
When the crisis hit, a few provinces had trouble borrowing. Newfoundland Premier Dwight Ball said his province had run out of time. Manitoba Premier Brian Pallister wanted Ottawa to borrow on behalf of the provinces. Instead, the Bank of Canada started buying provincial debt.
As they emerge from crisis, provinces will face political pressure to spend. There will be calls for health care improvements. Quebec Premier François Legault and Ontario Premier Doug Ford, above all, will face calls to permanently boost spending on long-term care for seniors. Cities – a provincial responsibility – will be complaining about their own revenue shortfalls.
What will provinces do? Alberta has low debt, but its budgets were already hit by collapsed oil prices and its credit rating had been cut. Jason Kenney does not want to be the premier who imposes a sales tax. Mr. Legault was both increasing spending and cutting taxes. The small-c conservative premiers once dubbed the resistance – Mr. Ford, Mr. Pallister, Mr. Kenney and Saskatchewan Premier Scott Moe – will face tough budget decisions next year.
Mr. Trudeau, however, has made “we’ve got your back” his new slogan. The tone of federal-provincial relations had already changed, as Deputy Prime Minister Chrystia Freeland was dispatched to listen to premiers. The coronavirus crisis saw Mr. Ford lauding federal help and Mr. Legault asking for the army for seniors’ homes.
Ottawa is already launching a post-COVID-19 infrastructure program, and instead of equal shares, Ottawa will pay 80 per cent. And as Mr. Trudeau’s government starts scaling back emergency spending, the provinces will be getting in line.