Saturday, January 21, 2012

Wall Strikes Out on Fiscal Federalism

By Erin Weir
Progressive Economics Forum
January 21st, 2012

Saskatchewan’s Brad Wall recently issued a statement exhorting his fellow Premiers to blaze largely unspecified new trails on healthcare, Employment Insurance and Equalization. Unfortunately, he misses the ball on all three issues.

Greg Fingas and Verda Petry have already refuted Wall’s call for further healthcare privatization.

On Employment Insurance, Wall implies that eastern Canadians are collecting excessive benefits funded by western Canadians. He goes even further than the old Lotto 10-42 stereotype, alleging that people can work for just over 10 weeks and collect almost 52 weeks of benefits.

The number of benefit weeks available depends on the regional unemployment rate and on how many hours the unemployed individual had paid EI premiums. As far as I can tell, Wall or his staff picked out the minimum number of insurable hours and the maximum duration of benefits from the highest-unemployment regions. Of course, as I point out in today’s Regina Leader-Post, someone with just the minimum hours would not get the maximum benefit:

No labour shortage

As reported in the Jan. 11 story “Wall wants health innovation cash,” Premier Brad Wall stated that federal Employment Insurance (EI) “discourages Canadians from moving here” despite “a serious labour shortage.”

Far from a labour shortage, Saskatchewan has thousands of job seekers who cannot find work. The provincial unemployment rate has jumped to 5.2 from 4.1 per cent since October.

Wall inaccurately claimed, “In some regions, a person can work just over 10 weeks and receive almost a year’s worth of EI benefits.” In regions with the highest unemployment rates, including northern Saskatchewan, the minimum threshold to qualify for benefits is 420 insurable hours (10.5 full-time weeks). But someone with just this minimum could not collect benefits for the maximum of 45 weeks.

Most unemployed workers do not get EI. The percentage receiving benefits is 34 in Saskatchewan and 39 nationally.

Rather than making EI more accessible to Saskatchewan workers, Wall’s stated goal is to make it even less accessible elsewhere to prompt more migration. How small a minority of jobless workers does he think deserve benefits?

The premiers should endorse the Canadian Labour Congress proposal to lower regional eligibility thresholds to a common national standard. Doing so would help the growing number of unemployed workers, reduce provincial welfare costs and remove the supposed incentive to stay in regions with high unemployment.

Erin Weir, Toronto
Weir is a Saskatchewan expatriate and economist with the United Steelworkers union’s Canadian National Office.

Wall goes on to argue that, by subsidizing poorer provinces, “Canada’s Equalization system works similarly to discourage labour mobility in a way that hurts the national economy.” There may be some legitimate technical debates about how the Equalization formula measures hydroelectric revenues and the property tax base. But Wall’s attack on the program is a bit strange given that the Saskatchewan government was receiving Equalization until the relatively recent run-up in global commodity prices.

His claim about labour mobility also misses the issue of fiscally-induced migration. Imagine someone offered jobs paying $50,000 in a rich province and $55,000 in a poor province. The national economy would be best served by them taking the higher-paid job (which would be more productive in a neoclassical economic model).

But what if the poorer province must levy 20% taxes to fund its public services, while the rich province can charge only 10%? The financial incentive would be to take the lower-paid job in the rich province ($45,000 vs. $44,000 after-tax). By allowing all provinces to provide roughly comparable services at roughly comparable tax rates, Equalization helps ensure that migration is based on actual economic opportunities rather than on fiscal differences between provinces.

There may be problems with “the same old dynamics of federalism,” but Wall does not hit them.

1 comment:

  1. Equalization also assumes the maintenance of a core Canadian value, that we care about one another as a nation, and we work together to ensure a common standard of living no matter where we are in the country. This shared, cooperative, collective (gasp) value is under attack by Conservative spin doctors across the land, including Wall. It's dirty socialism, or communism don't you know, and Wall will be one of the architects of its end.