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Jay Currie

One Damn Thing After Another

7/08/2004

Transfer Payments

Over at Blogs Canada egroup there is a discussion going on about the prospects for Western political power. I have been commenting on transfer payments and am getting ready to write a piece on them.

The economics are fairly clear - years of transfer payments create dependancy and economies in decline in the receipient provinces. In the donor provinces the economics are equally destructive - taxes are set higher than they would otherwise be in order to finance the transfers. This, in turn, removes capital from those economies which ensures their rate of growth is reduced.

As for fairness - what transfer payments essentially do is root people in particular locations regardless of the economic viability of those locations - thus we have sports fishing in Newfoundland disguised as a commercial fishery.

The long term effect of intatutionalized transfer payments is roughly the same as handing welfare to generation after generation in the same family. It debilitates the receipients.

There is nothing wrong with short term, dire need, transfer payments; but ongoing, entrenched payments are, in Jane Jacob's memorable phrase, the "transactions of decline."

However, selling cuts to transfer payments will be tough indeed. But I suspect rather easier than pretending that the Tories are just rather more efficient Liberals.

Cutting transfer payments might begin with the capping of all non-healthcare related payments - of which there are many. Capping, with a modest inflation would act as rolling cut.

The other element might be capping the total per capita transfer from Ontario and Alberta. Again, this would reduce the total amount of money available for transfer and focus the minds of the politicians as to what really needs to be spent.

Finally, and importantly, there should be uniform standards for things like UI eligibility so that people in depressed regions are not rewarded for living in depressed regions. This is particularily true when there are emerging labour shrtages in some of the more dynamic regions of the country.

While the Ontario goose seems willing to continue being plucked there is no reason to believe that the Albertans will keep putting up with sending billions down the road. Especially if there is no end in sight or potential reduction.