Saturday, June 02, 2012

On federal cases

Paul Krugman compares the effects of burst housing bubbles in Florida and Spain to point out how the EU's lack of genuine fiscal federalism has exacerbated its crisis. But there's an important lesson to be learned for Canada as well.

After all, the Harper Cons and their big-business allies are doing their utmost to criticize precisely the stabilizers that have helped to prevent North American sub-national jurisdictions from facing the same calamity as countries like Spain and Greece. From general equalization payments to targeted health care funding to employment insurance benefits, each of the stabilizers that helps to prevent regional collapse is under attack either by the Cons directly or their ideological allies.

And the preferred replacement for genuine federal transfers is the allocation of "tax points". That's supposed to allow provinces room to raise money for themselves - which of course means an added bonus for whoever is doing well at a particular moment. But it would also ensure that a province with a collapsing economy falls into the same trap that's bedeviled the struggling states of Europe, as a combination of strict outside constraints and nonexistent federal support would make it impossible to take the steps needed to reverse a collapse.

So if we want to avoid having Quebec or Ontario turn into Greece down the road, here's one suggestion: don't let the Cons have their way in building firewalls between provinces.

[Edit: added labels.]

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