Sunday, October 06, 2013

Fool me twice

Andrew Coyne has a suggestion as to how the Cons might extort some increased adherence to free-market fundamentalism from the provinces:
It’s the balance between spending and revenues, not just the totals, that matters. The federal government, as the PBO numbers show, will have substantial fiscal “room,” revenues in excess of what it needs to pay its bills, while the provinces will be in substantial structural deficit. Ottawa has the money, in other words, and the provinces need it — desperately.

This puts the feds in a very strong bargaining position. Rather than simply hand over the loot, as the provinces will inevitably demand, they can use it as leverage: a transfer of x number of GST points, say, in exchange for dismantling provincial trade barriers.

Ottawa will have the fiscal clout to bring some order at last to this chaotic economic union. It should begin thinking how to use it.
Of course, the first problem with Coyne's pretense to compromise is the fact that both proposed actions in fact represent hard-right steps: tax cuts and the elimination of regulations don't reflect a tradeoff, but a complete capitulation to the corporate agenda on the part of provincial governments who may not entirely agree with it.

And the "tax room" theory serves only to exacerbate inequality among the provinces - replacing fiscal federalism which provides stability for all provinces with a go-it-alone philosophy.

But let's put those general problems aside in favour of a more specific reality about the Cons' posturing around tax points. Because the Cons have made exactly the same promise of offering provinces tax room before - and then used any effort to follow up as an opportunity to bash the provincial governments in question.

Again, here's how Jim Flaherty first presented the Cons' GST cuts:
Our government firmly believes that unanticipated surpluses, the last area I wanted to mention, should be used primarily to reduce the debt and reduce federal taxes rather than to launch new policies in areas where the federal government is not best placed to design or deliver programs.

This, in turn, creates tax room that provinces and territories can consider filling for their specific needs and purposes.
So what happened when Ontario tried to take Flaherty up on the offer in order to fund public transit?
“We did not lower the GST to have it taken away from Ontarians by the Wynne government with a new sales tax hike,” said Flaherty, who cut the federal levy from 7 per cent to 5 per cent prior to harmonization.
In sum, any provincial leader would have to be painfully gullible to think that the Cons will let further federal tax slashing open the door to provincial revenue gathering. And so if the provinces have any desire to be able to deliver programs for the public benefit, their ask needs to be for direct funding - lest their bargaining position get all the worse with time.

[Edit: fixed wording.]

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