In defence of have-not provinces

Good parents teach their children to stand on their own two feet; to rely on themselves, not others; to work hard for what they have.

So it is understandable that many, if not most, Manitobans are none too impressed with our ranking as a "have-not" province.

Unsurprisingly, fiscally conservative think-tanks love to shame Manitoba for its long-standing reliance on federal equalization payments.

But other than the obvious damage to both our collective pride and our reputation among our neighbours, are Manitobans tangibly suffering as the collection baskets of confederation?

According to the federal Department of Finance, Manitoba is one of six provinces that will collect equalization funds this year. Our tab comes to $1.67 billion, the third-highest behind Quebec ($7.82 billion) and Ontario ($2.20 billion).

While anyone, even governments, must admit Manitoba gets a substantial chunk of change, some perspective is in order. As much as $1.67 billion sounds like (and is) a lot of money, it covers just 15 per cent of the $11.35 billion the province plans to spend this fiscal year.

Yet providing such context does nothing to repress the frustrations of the Canadian Taxpayers Federation. One can feel the aggravation emitting from the keyboard of CTF Manitoba director Colin Craig every time he writes about our have-not state of affairs. "Not only has Manitoba's increase in dependency (on equalization and other handouts) increased over the last 10 years, it was the highest increase in the country," he wrote in his 2008 Economic Report Card for the province. "The province needs to rein in its insatiable appetite for spending."

Craig is spot-on in suggesting in his report card and in other writings that Manitoba has a spending problem. But the presumption that equalization payments are the cause is faulty. People like Craig may think clawing back or abolishing equalization payments would force Manitoba into fiscal responsibility, but how realistic is that?

Governments in Canada, progressive and conservative alike, have a lengthy history of free-spending ways. Would the Manitoba government, regardless of who is in power, really slash $1.67 billion in spending if it wasn't enjoying the freebie from Ottawa?

A more likely scenario is that the province would continue spending at the same or similar levels, bridging the financial gap with a mixture of taxes that are higher and a debt that is deeper.

Manitoba taxes are not low, but equalization payments could be the very thing separating us from even higher rates, something Craig would be the first to deplore.

(There is the obvious counter-argument that Ottawa could lower federal taxes if equalization payments were scaled back. But even in the unlikely event the feds did so, the savings would be spread over millions upon millions of taxpayers across Canada rather than hundreds of thousands across Manitoba).

One critique of equalization that rightly gains little traction with Manitobans comes from the Frontier Centre for Public Policy. A posting on its website is straightforwardly titled Equalization Pays for Manitoba's Cheap Hydro.

It points out that revenue from hydroelectricity falls outside the boundaries of the equalization formula since it involves a renewable resource. This allows Manitoba (along with Quebec) to underprice its electricity.

According to the centre, had Manitoba Hydro charged market value for its electricity in 2006, the Crown corporation would have generated an extra $1.2 billion. The centre advocates deducting that amount from Manitoba's equalization proceeds.

It is difficult to argue with the notion that the federal government and the "have" provinces are in effect subsidizing cheap electricity in Manitoba. And we probably are receiving more than our fair share as a Canadian province.

But back to the central question: Is this really bad for us as Manitobans?

It is not polite to say so out loud, but if our taxes, provincial debt and electricity bills can be kept down through the generosity (forced as it may be) of other provinces, then who are we to complain?

Only the most masochistic of fiscal conservatives would welcome a day when Manitobans' lives become less affordable just so we can earn a gold star called "have" status.

Jonathon Naylor is a freelance writer and editor of the Reminder newspaper in Flin Flon.

Republished from the Winnipeg Free Press print edition August 13, 2011 A17