Saturday, August 26 2000
The St. John’s Telegram

The ‘haves’ versus the ‘have-nots’

By Peter Fenwick

It started as a debate over health-care funding, but it has escalated into a full-blown war over how to develop the “have-not” regions of the country.

At the recent premiers conference, the Atlantic Canadian premiers wanted funding for health care over and above the increased transfer payments that all provinces would receive on a per capita basis. Alberta Premier Ralph Klein and others said no. If there was to be additional help for have-not provinces it should come from the equalization program, the $10-billion program that directs more than $3 billion a year to the Atlantic provinces. While Klein won out, the Atlantic premiers had a good case.

All four Atlantic provinces have been growing more slowly than the rest of Canada, and in Newfoundland the population has actually dropped — some 40,000 people over the last six years. The migrants did not leave just one corner of the province where a proportional number of schools, hospitals and roads could be mothballed. The population dropped all over rural Newfoundland, leading to a loss of taxpayers, but to no appreciable savings in service costs.

The Atlantic provinces are also losing many of their newly minted university graduates — up to half depart the region within three years of graduation — after consuming up to $50,000 in provincial taxpayers’ dollars to finance their education. When premiers Tobin, Hamm, Binns and Lord asked for more in the Canada Health and Social Transfer (CHST), it was because they were spending more — and receiving less.

It was against this backdrop that Tobin took on Klein and Stockwell Day when John Mykytyshyn, the then Canadian Alliance director, made his comments about “lazy” Atlantic Canadians. Tobin accused Klein of sharing Mykytyshyn’s attitude and being stingy when it came to sharing the wealth of the country.

But it is not hard to understand Klein’s attitude. Besides the equalization transfers, there are regional transfers in other programs. The employment insurance program is the next largest. In Atlantic Canada, the generally higher unemployment rates mean that unemployed Atlantic Canadians receive considerably more from the fund than they, and their employers, contribute. This is subsidized by taxpayers in other provinces. Worse, from Klein’s viewpoint, the benefits for seasonal workers last much longer in areas of high unemployment, like Atlantic Canada.

Day also questioned federal agencies like the Atlantic Canada Opportunities Agency (ACOA) that are subsidizing companies in Atlantic Canada. A growing number of studies question whether this kind of direct subsidy is doing any long-term good. During the last 30 years many billions of dollars in regional development funding have been pumped into Atlantic Canada, and into Quebec, with little discernable effect on the region’s general level of prosperity. Unemployment is still high, income levels are still low.

Questioning these two policies would certainly provoke Tobin. In the last four years, he has used a variety of federal-provincial industrial incentive programs to gain a spot on the podium of almost any business announcement made in the province. Some, like the ACOA-funded call centre that sold portraits, were total disasters; others have yet to prove out. But Tobin is convinced government assistance is needed to stimulate the private sector. Attacking those programs is attacking the core of his development policies.

Ralph Klein and Stockwell Day are not business subsidy innocents. Tobin noted this when he launched his own counter-attack on industry support to aerospace, automobile and oil industry projects, some located in Alberta, others in Ontario and Quebec.

Tobin would also not take kindly to any attack on the employment insurance program, a program that he, and several of his cabinet ministers, are lobbying the federal government to enrich by eliminating the clawbacks for highly paid seasonal workers.

Prime Minister Jean Chretien is committed to making the changes, but others in the federal cabinet are opposed. If the federal government succumbs, the intensity rule that reduces benefits to seasonal workers with family income of more than $26,000 a year will be eliminated, along with the clawback of benefits to seasonal workers with earned incomes of more than $40,000 a year.

But in the national debate over sharing, Brian Tobin and the other Atlantic premiers now appear to be losing. The Canadian Alliance wants to see an end to all government subsidies by the federal government, including, one presumes, those that go to Alberta and Ontario companies.

Even the federal Liberals have scaled back their direct assistance to industry. They trashed the Canada Jobs Fund, the biggest pork barrel at their disposal, and in Atlantic Canada, the Liberals have tended to direct more of their aid to less market-driven agencies, such as universities and the National Research Council. The Human Resources Development debacle has even made the Liberals cut back on direct job creation. If Chretien were to leave, and Finance Minister Paul Martin were to take over, one suspects that even less direct aid to business would be forthcoming.

Direct aid to business is also highly questionable, and should be retired in favour of tax cuts across the board. But fair’s fair: cuts to ACOA should go hand in hand with cuts to similar programs in Ontario, Quebec, and yes, Alberta. On that point at least, Tobin was right.

Peter Fenwick works with the Atlantic Institute for Market Studies. He is based in Halifax, N.S. and can be reached by e-mail at peterwfenwick@aims.ca