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Ottawa Pocketed $25 Billion from BC Since 2001

Under BC Liberal reign, we've paid $25 billion more to feds than came back. That's unprecedented.

Will McMartin 6 Dec 2010TheTyee.ca

Tyee contributing editor Will McMartin is a veteran political advisor and analyst. Read his previous columns here.

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Ottawa's 'generous attitude' to B.C. proves a myth.

The mainstream news media's beatification of Gordon Campbell continues apace. Saint Gordon, we are told repeatedly, transformed B.C.'s finances, built many wonderful roads and bridges, healed the lame and gave sight to the blind.

Except, well, the darn facts just keep getting in the way.

Take the media's oft-repeated assertion that Campbell fundamentally altered federal-provincial relations between Ottawa and British Columbia. Instead of adopting the confrontational approach of many previous B.C. premiers, Campbell had a conciliatory, friendly relationship with Ottawa that supposedly yielded enormous riches for our Pacific province.

Yet, a simple examination of readily-available empirical data shows that the opposite is true -- far from bringing wealth into British Columbia, Campbell oversaw an unprecedented shift of monies out of our province, and into federal coffers.

Indeed, an analysis by The Tyee of Statistics Canada's annual publication, Provincial and Territorial Economic Accounts, shows that since nice-guy Campbell took over the premier's office in 2001, British Columbians have paid in excess of $25 billion -- yes, billion -- more into Confederation than we received back from Ottawa.

What did 'new era of cooperation' net BC?

Long a bastion of BC Liberal fandom, the Vancouver Sun's editorial page began to trumpet our soon-to-be ex-premier's federal-provincial policies shortly after Campbell announced his imminent retirement.

"He stopped the long tradition of feuding with Ottawa," bubbled a Sun editorial published on Nov 4. "The new era of cooperation has resulted in hundreds of millions of federal dollars flowing into B.C. projects, including the Canada Line and the wildly successful 2010 Winter Olympics."

A column by Barbara Yaffe also appeared that same day in the Sun. "Gordon Campbell had a remarkable record when it came to getting along with Ottawa, at every turn transforming potential conflict into cooperation," read her column's opening sentence.

She continued: "And Campbell's efforts have paid off, with a succession of prime ministers maintaining a positive and generous attitude toward B.C."

Generous? Well, Yaffe seems to think so. Near the end of her column was this whopper: "And federal dollars accompanied all the praise..."

Golly. Maybe Gordon Campbell truly does deserve sainthood.

Except, when one attempts to determine just how great was Gordon Campbell at getting monies from Ottawa for British Columbians, the opposite is found to be true. Far from bringing newfound riches to B.C., Campbell actually saw an enormous -- and historic -- outflow of cash from our province to the rest of Canada.

Instead of becoming wealthier, British Columbians actually were made poorer as a result of Campbell's non-abrasive approach to federal-provincial relations.

True, Ottawa's transfers to BC rose...

There is no question that Ottawa's transfers to the B.C. government -- and, indeed, to all provincial governments -- rose significantly over the last decade.

The reason for this goes back to the introduction of the Canada Health and Social Transfer (CHST) by Jean Chrétien and Paul Martin in 1995 as a means to combat Ottawa's enormous budgetary deficits and the country's soaring debt. The CHST, which replaced two main transfer programs to the provinces (Established Programs Financing and the Canada Assistance Plan), significantly slashed federal outlays.

In 1995, Canada's provincial and territorial governments received federal transfers totaling $33.1 billion; one year later that figure had collapsed to $28.8 billion, and by 1997 it had fallen further to just $25.1 billion. (See here.)

Soon, as Canada's deficit disappeared and federal revenues began to explode (thanks to the global commodity boom that favoured resource-based economies), Ottawa's transfers to provincial governments turned in the opposite direction and soared ever higher.

In 2001, when Gordon Campbell and his BC Liberals took power in British Columbia, federal cash transfers to all of the provinces hit $34.8 billion, or slightly higher than their pre-CHST level.

By 2008, however, that figure had nearly doubled, to $61.4 billion.

As a proportion of Canada's economy, federal cash transfers to provincial and territorial treasuries climbed from a nadir of 2.7 per cent of gross domestic product in 1997/98, to 3.0 per cent in 2001/02, to a very generous 4.1 per cent of GDP in 2009/10. (See Table 31 here.)

All of Canada's provinces -- those headed by milquetoast nice-guys such as B.C.'s Campbell, as well as those headed by confrontational, loud-mouth bullies like Newfoundland's Danny Williams -- benefited from Ottawa's largesse.

Heavenward

Let's look at B.C. alone. Federal cash transfers to Victoria, after averaging $2.6 billion annually in the early 1990s, fell to just $2.1 billion in 1996 with introduction of the CHST, and then collapsed under $1.9 billion in 1997. (See here.) Then they moved heavenward.

In 2001, the year that Gordon Campbell became premier, B.C. obtained $3.1 billion in cash transfers from Ottawa. By 2008, that number had leaped upward to $5.5 billion.

This looks to be a good thing at first blush, but a couple of factors ought to be considered.

One is that a significant portion of the federal monies flowing to the B.C. government under Gordon Campbell's leadership were equalization payments -- a total of $2.4 billion from 2001/02 to 2006/07 -- as our Pacific Province achieved "have-not" status under the BC Liberals.

The other is that the tidal wave of federal transfers allowed the Campbell administration to dramatically reduce its own revenue sources (by slashing corporate and personal income taxes, and abolishing the corporation capital tax).

As a consequence, because federal revenues were growing rapidly while own-source income was plunging, Victoria became increasingly reliant on Ottawa's beneficence.

In 1997/98, federal government transfers were just 9.1 per cent of the income in B.C.'s consolidated revenue fund; by 2009/10, that figure had more than doubled to 18.7 per cent.

As B.C.'s auditor general noted in 2005, our province had "a growing dependence on federal transfer payments," which made British Columbia "increasingly vulnerable to the fiscal decisions of another level of government..."

The point is, though, that all Canadian provinces benefited from rising federal transfers over the last decade, not just Campbell's B.C.

Beyond Ottawa's transfers to provinces

So far we've looked only at Ottawa's transfers to provincial and territorial governments. Yet these annual payments represent a mere fraction (about one-fifth) of all the monies the federal government sends to the provinces each and every year.

There are several other categories of federal transfers in addition to those that go to provincial treasuries:

- Payments to individuals (for Canada Pension Plan payments, Employment Insurance payments, and so on)

- Transfers to businesses

- Transfers to local (municipal) governments

- The purchase of goods and services (including salaries and benefits for federal employees working in B.C.)

And in addition to those outlays are the annual interest charges on our national debt. That is, a portion of the federal government's yearly interest costs are allocated to British Columbians, to represent our contribution to servicing Canada's outstanding financial obligations.

582px version of Chart 1 - Federal expenditures and revenues

In 2001, when Gordon Campbell and his BC Liberals won election to government, Ottawa's "total current expenditure" in British Columbia totaled $20.1 billion.

By 2008, the latest year for which figures are available, the comparable figure had risen to $25.3 billion. That's a nifty increase by any measure.

BC's enormous payments to Ottawa

Yet, the increase in monies sent from Ottawa to British Columbia -- the provincial government, individuals and businesses -- over the past decade was dwarfed by the enormous growth in the payments we've made to the federal government.

Those payments include income taxes (from both individuals and businesses), excise taxes, the goods and services tax, and contributions to social insurance plans.

In 2001, the federal government collected almost $22.5 billion from British Columbia. As mentioned earlier, that same year Ottawa sent back to the province just $20.1 billion, leaving B.C. short by $2.4 billion.

Under Campbell's stewardship, the outflow of monies from B.C. to the rest of Canada then skyrocketed ever higher.

In 2007, Ottawa took a record-high $31.0 billion from British Columbians, and sent back a mere $24.6 billion.

The stunning shortfall: $6.4 billion.

In 2008, the revenue and expenditure figures were $29.7 billion and $25.3 billion, respectively, and B.C.'s deficit with Ottawa came in at $4.4 billion.

Years when BC won the equation

B.C. has not always been a "net loser" vis-à-vis Confederation.

Over 12 consecutive years, from 1982 to 1993, our province was a net beneficiary from federal government revenues and expenditures (that is, more monies flowed into British Columbia from Ottawa, than flowed out of the province).

But in every year since 1994, the outflow of monies from British Columbia has been larger than those coming in from Ottawa.

And since Gordon Campbell's election as premier, the fiscal balance deteriorated significantly.

582px version of Chart 2 for McMartin, Dec. 5, 2010

From 2001 to 2008, B.C.'s net losses from federal government revenues and expenditures added up to an astonishing $25.4 billion.

In a way -- as is argued by the media elites -- Gordon Campbell certainly was very good for federal-provincial relations. But that good was demonstrably better for Ottawa and other Canadian provinces (which subsequently received the monies taken from B.C.), than it was for hard-working British Columbians whose tax dollars were shifted eastward in ever-increasing volume.

The truly remarkable thing is that all of the data needed to assess Gordon Campbell's record on federal-provincial relations is readily available to the mainstream news media but, for reasons known only to them, they've opted to ignore it.

Saint Gordon? Sure, but only if you're blind to the empirical evidence.  [Tyee]

Read more: Politics

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