Sunday, January 12, 2014

The Federal Government: money well wasted!

Every so often, one hears the argument that Quebec receives more money from Canada than it gives, and therefore independence for Quebec would be catastrophic. This argument usually comes from freedom-hating francophobes or colonized but well-paid francophones spouting this nonsense in various right-wing media outlets. The argument is also quite simplistic as it merely compares the sum total of money given to Ottawa from Quebec with the total amount spent by Ottawa in Quebec. It is also problematic in several ways.  First and foremost, it reduces Canada to an annual paycheck. If they were self-consistent, Canadians who invoke it should ask Quebec to leave as this would save Canada a lot of money and that apparently is what Canada is all about. Conversely if it could be shown, as Stéphane Gobeil does in his book Un Gouvernement de Trop (vlb éditeur, 2012), that Quebec wastes about two billion dollars every year just by staying in Canada, then federalists living in Quebec who make that argument should logically advocate independence. If the people making the money argument were motivated by principle, then they should reverse their position on Quebec independence. However, since they are clearly motivated by a self-serving desire to maintain the status quo, the illogic of their position is lost on them.

Nevertheless, I will persist in outlining the problems with the monetary argument, one of which is that it fails to distinguish between money spent and money wasted. As it happens, the Federal government is a very wasteful institution and in many different ways. It wastes money by duplicating many provincial services, and in Quebec’s case it does so in a way that frequently undermines Quebec government policy. Not only that, but when the Federal government provides services in a provincial domain, it usually does so far less efficiently than the provincial government. In fact, it cannot even properly do things in Quebec that are its responsibility, as the deplorable state of the Champlain Bridge attests. 

Furthermore, the monetary argument does not take into consideration transfers between Quebec and Canada that don’t show up on official government statistics. For instance, it probably does not consider hidden taxes and transfers imposed by the Federal government, the most egregious being the ongoing scandal that is the unemployment insurance. It’s no secret that the Federal government has long been tightening the eligibility to the insurance such that only 40% or less of the unemployed have access to it. All the while, the premiums stay as high as ever so that the program produces a huge surplus, which disappears into the Federal coffers. This is both a tax and a transfer, because those who don’t qualify go on welfare which is provincial. This type of passing the buck (not the bucks) is how Paul Martin "balanced the budget" in the 1990’s, by unloading services once paid for by the federal government onto the provinces, thereby saddling provinces with increased costs and forcing provinces to further unload services on to the municipalities.

The monetary argument also neglects all the Federal decisions over the years meant to favor Ontario’s economy to the detriment of everyone else’s. Indeed, Ottawa has always done whatever it can to boost Upper Canada’s then Ontario’s economy, everything from the offloading of half of Upper Canada’s debt onto Lower Canada with the Union of 1841, to the opening of the St Lawrence waterway to the Great Lakes in 1959, to the support of Ontario’s auto industry with Federal money (paid for by Quebec and the rest of Canada). In 2009, $13 billion federal dollars were handed over to this industry. Add to this the concentration of the Federal bureaucracy and financial institutions in Ontario and you get a commercial services surplus for Ontario of over $30 billion, while Quebec gets a deficit of $4.7 billion. 

According to Stéphane Gobeil's rummaging through the public accounts to check line by line to see where federal spending went, we discover that the Canadian Nuclear Safety Commission, with total expenditures of $138 million in 2009, spent less than 10% of its budget in Quebec. We also discover that the Department of Human Resources and Skills Development spends only 12% in Quebec in goods and services on a total of over $500 million across Canada. We even learn that subsidies are included in the portfolio of some departments, such as a check for $108 million to "The initiative to revitalize the Toronto waterfront” by the Ministry of Finance. Another example is the portfolio of Indian Affairs and Northern Development, which amounted to $7.4 billion in 2010. It should be noted that in a period of twelve years the bureaucratic costs of this ministry increased by 140% while transfers to Aboriginal people only grew by 50%. Quebecers finance 19.5% of this portfolio but receive less than half of that from Ottawa since Quebec has only 9.2% of Canada’s Aboriginal people. Despite this, Quebec does not receive the necessary resources from Ottawa to properly develop the North.

The result: 23.2% of spending is attributed to Quebec when in reality, both in terms of services received as actual expenditures, Quebec does not get its fair share in most cases, despite the explosion of spending ($30 billion federal deficit in 2009 and $55 billion in 2010). And this does not even take into account contracts for the construction of vessels for the Royal Canadian Navy: $33 billion to build boats in Halifax and Vancouver while Quebec will receive absolutely nothing. There are many examples of how Quebec gets short-changed on federal schemes that Quebec must pay into but hold little value for us, financially or otherwise. We never really hear about all of those programs, we only ever hear about equalization payments and we're endlessly told by the media that Quebec gets $7 billons dollars from Alberta!?!. First of all we pay about $3 billion into that scheme so the amount endlessly repeated should $4 billion. An important point, however, is the fact that Ottawa does not invest in economic development equally. Ontario and Alberta get the lion's share and the reality is that investing in Albertan oil enriches Alberta but also increases the value of the Canadian dollar which, in turn, hurts Quebec's exports. Equalization can be seen as a kind of compensation for this.

In any case, by establishing the actual share received by Quebec, the expenses that would be incurred by becoming an independent country (embassies, old age pensions, etc.) and the savings that eliminating a tier of government would bring in public administration, Gobeil estimates that Quebec would save about $2 billion. To my knowledge, the only person who has attempted to challenge Stéphane Gobeil's study was Professor Martin Coiteux, a member of the federalist think tank "The Federal Idea". The latter, who by his own admission has not verified public accounts, believes Gobeil underestimated some costs that would have to be assumed by an independent Quebec. He mentions national defense (Gobeil believes that Quebec could have an army and an air force for the equivalent to 0.93% of Quebec's GDP). Coiteux believes this impossible even though Canada spent only 1.1 % of its GDP on defense in 2005 while engaged in Afghanistan. Coiteux’s critique does not seem available on the web anymore but you can read Gobeil’s rebuttal here.