The road to imbalance

While it's tough to disagree with Carol Goar that it's a plus to see Jim Flaherty's rare willingness to actually talk about substantive policy at the Fiscal Federalism conference, Flaherty's actual policy of looking for excuses to demolish Canada's federal government leaves much to be desired:

The government's objective is not solely to put money back in taxpayers' pockets, Flaherty said. It is to give the provinces an opportunity to increase their share of the national tax take.

By reducing federal taxes, Ottawa creates room for the provinces to raise theirs without imposing an additional burden on taxpayers.

There is a catch, of course. The provinces have to convince their citizens that they're better off paying for improvements in health care, education and social programs than getting a tax break.

But Flaherty considers that fair.

Needless to say, Flaherty is all too happy to ignore the realities facing provinces who would otherwise like to take over some of that tax room. But in fact, any prospect of provinces moving into the extra "room" is remote at best for the short term.

The first difficulty is that inter-provincial competition makes it difficult for any one province to take the first step absent some agreement. And the problem is magnified when most provinces are fighting to keep their workers from moving to a province which (for all its readily-visible warts) can afford to keep running for the foreseeable future without raising taxes no matter how much federal contributions are reduced. This problem could be overcome with a move toward tax harmonization...but the Cons don't seem the slightest bit interested in trying to create national movement in that direction.

Moreover, while Flaherty claims to have a genuine interest in opening tax room rather than merely cutting taxes generally, his party's public rhetoric is strongly to the contrary. And however little evidence there is behind the constant whine that Canadians pay too much in taxes, the Cons' constant repetition of that mantra will lead to an even greater perception problem for provinces who would otherwise want to make the case that program investment is worthwhile.

It's in order to deal with difficulties like those that it makes sense for the federal government to collect a relatively high proportion of taxes for distribution to the provinces. Instead, Flaherty's "road map" goes nowhere but to greater interprovincial disparity and poorer services for Canadians. Which may leave Canadians looking forward to the opportunity to put somebody else at the wheel.