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Quebec is not the poor cousin but a model for how federalism works

The runup to the recent Quebec election prompted a revival of the argument that only federal transfers keep that fiscally-challenged province afloat. For example, Mark Milke of the Fraser Institute argued in the National Post that Quebec is "massively subsidized by the rest of Canada."

This argument is hugely overdone. And it contradicts a more effective and positive argument for federalism, namely that it has been no barrier to the construction of a distinctive and progressive social model in Quebec.

Federal cash transfers to Quebec through equalization and the Canada Health Transfer and Canada Social Transfer are, it should be recalled, funded from the federal tax base that includes Quebec itself. Quebec contributes 19 per cent of Canadian gross domestic product.

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There is no doubt that federal programs result in a net transfer of fiscal resources from the rest of Canada to Quebec, but the overall scale is quite modest.

A recent study by the Quebec research institute IRIS shows that Quebec receives 26 per cent of all federal transfers, only modestly higher than its 23-per-cent share of the Canadian population.

The fiscal reference tables produced by the federal Department of Finance show that federal cash transfers contribute 23 per cent of the Quebec government's total revenues, just a bit higher than the all-province average of 21 per cent.

While the Fraser Institute and other conservative think tanks have propagated the myth that the rest of Canada, especially Western Canada, funds Quebec's generous social programs, the fact of the matter is that Quebec imposes relatively high provincial taxes to support its own progressive policy choices.

Quebec accounts for 23 per cent of the Canadian population, 26 per cent of all provincial government spending and 25 per cent of all provincial own source revenues. Thus most of the difference in the level of provincial spending compared to the rest of Canada is paid for by own source revenues.

Personal income tax rates are significantly higher in Quebec, starting at 16 per cent on taxable income below $41,000 and rising to a top provincial income tax rate of 25.75 per cent on incomes above $100,970. By contrast, the basic personal income tax rate in Ontario is 5 per cent on the first $40,120 of income, rising to 11.16 per cent on taxable income of above about $80,000, and to 13.16 per cent above $514,000.

The Quebec sales tax, levied in addition to the federal GST, is 9.97 per cent, almost two percentage points higher than the Ontario share of the HST.

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A more positive argument for federalism is that it has allowed Quebec to construct a distinctive and progressive social model. As detailed in a major recent study by political scientist Alain Noël, Quebec's New Politics of Redistribution, the model has been built on broad social consensus, often cutting across provincial political party lines.

Under the broad umbrella of family policy, Quebec provides highly-subsidized, high-quality child care services; much higher child cash benefits than other provinces; and much more generous maternity and parental leave benefits than the Employment Insurance program in the rest of Canada. Quebec also has much lower tuition fees for postsecondary education, a markedly less punitive social assistance program, and has established a public prescription drug insurance plan.

In the realm of labour market policy, there is much more investment in worker training than in other provinces and generally higher employment standards to protect precarious workers. Employers and unions play a major role in labour market program administration, as in much of Europe.

Strikingly, Quebec has lower rates of poverty than in the rest of Canada. The proportion of Quebec residents falling below the low income line (defined as 50 per cent of the provincial median income for a comparable household) is 10.0 per cent compared to13.9 per cent in Canada outside Quebec.

To summarize, modest fiscal transfers from the rest of Canada plus a provincial choice to invest significantly in social programs have helped build a social model in Quebec that is unique in Canada.

That is a powerful argument that federalism is working reasonably well.

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Andrew Jackson is the Packer Professor at York University and senior policy adviser to the Broadbent Institute.

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