Ottawa’s Secret Provincial Rescue Plan – The Globe and Mail


We got into debt so you don’t have to. This has been Ottawa’s response whenever it has been challenged over the hundreds of billions it has spent to fight the economic ravages of the coronavirus.

The Liberals used this mantra to highlight how they increased income supports to support household (and, to a lesser extent, business) finances. But it turns out that at least some provinces have indirectly benefited from Ottawa‘s spending madness.

Ontario’s final accounts for the last fiscal year showed an unusual $ 13.4 billion increase in personal and corporate income taxes over what was forecast in last November’s budget, a major factor in the province which resulted in a much lower than expected deficit for the last fiscal year.

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This is a significant departure from what typically happens in times of recession, when economic contraction leads to lower household incomes and corporate profits, as well as lower personal income taxes. individuals and companies.

Why was the coronavirus contraction different? Ottawa transfers to individuals and businesses and, to a lesser extent, to provincial pandemic programs. This flow of spending has not only supported household and business income; it’s taxable. So all those billions of dollars sent under the Canada Emergency Benefit and the Canada Emergency Wage Subsidy Program ended up spilling into the economy – and pouring into provincial coffers. It is a roundabout way to help support provincial finances. Nonetheless, Ottawa’s spending on income support represents a very real, albeit unreported, tax rescue.

Tax matters

In a recent email (and letter to the editor), Victoria’s Constance Smith writes that much of the discussion about the federal government’s debt burden hinges on bad measurement. Ottawa measures its debt burden by calculating the net federal debt and then comparing it to the size of the national gross domestic product.

Ms Smith and others point out that such a calculation does not take into account debts incurred by provinces and other subnational governments. This is particularly problematic for a decentralized federation like Canada.

But there is an even greater distortion that makes Canada’s position more beautiful: to use net debt rather than gross debt. Net debt subtracts financial assets while gross debt does not. How does it work for Canada? As the Fraser Institute has willing, the calculation of net debt includes the assets of the Canada and Quebec pension plans, even if these funds are placed in escrow to be used only for the payment of pension benefits.

Exclude these assets and only look at gross debt, and the relative performance of Canada’s debt is much less positive. On a net basis for general government debt, Canada ranks first in the G7 and 11th among 29 advanced economies in 2020. Using gross debt, however, Canada falls to fourth in the G7 and 25th. in total.

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Campaign element

Need (a lot) of improvement: Federal government is worst-in-class in Canada for financial reporting, says report released last week by the CD Howe Institute which ranks Ottawa, provinces and territories on the accessibility, timeliness and reliability of their budget documents. The federal government scored an F in 2021 on the annual ranking, down from a B in 2020, in part because it took so long to produce a budget. Meanwhile, Nunavut was a star student, scoring A-, down from D in 2020.

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