No quick fix for equalization between provinces.

[Mad_Michael]

I provided proof that Ontario has the highest corporate tax rate and then showed that business subsidies are not higher then the national average in Atlantic Canada...so is it perhaps, just perhaps, the economic problems that have plagued the region may not be all our own doing.

You have done neither.

[Canuck E Stan]

Greed knows no bounds in Atlantic Canada

Consider this: When equalization began 50 years ago, the Atlantic provinces had per capita incomes around two-thirds that of the national average, while Ontario had incomes about one-quarter above -- a gap of about 50 points. Today, Newfoundland and Nova Scotia have incomes over 90% of the national average, while (as I said above), Ontario's are at around 100%.

Instead of 50 points, the Ontario-Atlantic income gap today is less than 10 points. Yet federal transfers to Newfoundland and Nova Scotia -- equalization, plus health and social transfers-- now account for far more of those provinces' budgets than they did when the income gap was five times are large.

Even though Newfoundland and Nova Scotia have per capita incomes rapidly approaching Ontario levels, Newfoundland gets nearly 60% of its provincial budget from Ottawa and Nova Scotia nearly 40%, while Ontario gets less than 16%.

It's little wonder than that after all federal transfers are accounted for, Ontario is the least fiscally capable province in the country -- the least!

According to Halifax's Atlantic Institute for Market Studies, Ontario is third in fiscal capacity (behind Alberta and B.C.) "before equalization," but dead last after. As a result, as my colleague Andrew Coyne pointed out last week, "for 2007-08, Newfoundland's per capita revenues, equalization included, total $7,094, to Ontario's $6,631."

Both premiers have argued that since Alberta's resource wealth is not included in equalization payments, theirs should not be either.

But there is a critical difference: Alberta is not demanding equalization payments. Alberta is not insisting it should get extra funds from Ottawa even though it is booming. It is not, as Newfoundland and Nova Scotia are, insisting the rest of the country still treat it as if Albertans were poor when they are not.

And that's where the greed factor comes into play by the Atlanic provinces.

[jbg]

I provided proof that Ontario has the highest corporate tax rate and then showed that business subsidies are not higher then the national average in Atlantic Canada...so is it perhaps, just perhaps, the economic problems that have plagued the region may not be all our own doing.

You have done neither.

Remember, in Canada, a proof is a proof.

[geoffrey]

I don't know where it was mentioned, but I do second that Ontario has an oppresive corporate tax regime. That's where my support for Nova's arguments end.

[Mad_Michael]

I don't know where it was mentioned, but I do second that Ontario has an oppresive corporate tax regime. That's where my support for Nova's arguments end.

Oh, I'll certainly agree that Ontario has an ugly tax regime. No disputes there!

My point is that the level of tax (within a certain range) probably is one of the lesser important government effects upon the operation of private commerce in any given region. Quebec's language laws gave Ontario a free corporate bonus cheque that still pays dividends to this day.

And as for Atlantic Canada, I'm certainly not suggesting that they are the victims entirely of thier own design. My argument here has been directed at the opposite point, that 'central Canada' is not to be blamed for causing economic weakness in Atlantic Canada.

Atlantic Canada has many geographic and historical reasons for having a weak economy, just as Ontario has equal reasons for having a relatively stronger one. And Alberta is blessed with oil/gas otherwise they'd be struggling like Manitoba.

[geoffrey]

My point is that the level of tax (within a certain range) probably is one of the lesser important government effects upon the operation of private commerce in any given region. Quebec's language laws gave Ontario a free corporate bonus cheque that still pays dividends to this day.

Agreed.

Atlantic Canada has many geographic and historical reasons for having a weak economy, just as Ontario has equal reasons for having a relatively stronger one. And Alberta is blessed with oil/gas otherwise they'd be struggling like Manitoba.

I know, it must be terrible to be in Atlantic Canada. Being located right next to the biggest US market, loaded with natural gas and oil and a massive forestry industry. Very tough indeed.

--

By the way, Andrew Coyne, as usual, sums up my views nicely on the topic:

http://andrewcoyne.com/columns/2007/06/soo...lways-caves.php

The accord was never broken. The provinces can choose to keep it. What these whining brats called Atlantic Premiers want is the accord and the benefits of the new agreement. Unfortunately, you generally can't pick and choose what you want from various contract proposals.

Williams is dead wrong. If he doesn't want resources included, he has that option. Just means no new money for him. He'll have to deal with the consequences of telling his people.

It's a great deal for Atlantic Canada. It gives them a choice. I can't believe anyone is complaining about it. Anyone that falls for such a claim should not have the right to vote as they are clearly incapable of reaching a rational conclusion.

[jbg]

Atlantic Canada has many geographic and historical reasons for having a weak economy, just as Ontario has equal reasons for having a relatively stronger one. And Alberta is blessed with oil/gas otherwise they'd be struggling like Manitoba.

Japan and South Korea do not have much in the way of resources. They do not look like Manitoba, Saskatchewan, PEI, Nova Scotia or NL economically.

Williams is dead wrong. If he doesn't want resources included, he has that option. Just means no new money for him. He'll have to deal with the consequences of telling his people.

To paraphrase Mulroney (in the debate with Turner), "he has the option". Williams is "flippin' mad". He must be right, therefore.

[NovaScotian]

I don't know where it was mentioned, but I do second that Ontario has an oppresive corporate tax regime. That's where my support for Nova's arguments end.

And as for Atlantic Canada, I'm certainly not suggesting that they are the victims entirely of thier own design. My argument here has been directed at the opposite point, that 'central Canada' is not to be blamed for causing economic weakness in Atlantic Canada.

I am not suggesting that the central Canadian economy itself caused the decline of the maritime economy post 1900. However, many economic historians would argue that decisions and policies passed by parliament( 75% Central Canadian MPs at the time) to help grow the central Canadian economy, damaged the maritime economy in the long run.

[Canuck E Stan]

I am not suggesting that the central Canadian economy itself caused the decline of the maritime economy post 1900. However, many economic historians would argue that decisions and policies passed by parliament( 75% Central Canadian MPs at the time) to help grow the central Canadian economy, damaged the maritime economy in the long run.

Example?

[NovaScotian]

Japan and South Korea do not have much in the way of resources. They do not look like Manitoba, Saskatchewan, PEI, Nova Scotia or NL economically.

Japan and South Korea may be natural resource poor, but they have plenty of human resources. Keep in mind Japan has 25X more people then these 5 provinces.

Lack of arable land and thus lack of population has always been one of the Atlantic coast's largest obstacle.

[jbg]

I am not suggesting that the central Canadian economy itself caused the decline of the maritime economy post 1900. However, many economic historians would argue that decisions and policies passed by parliament( 75% Central Canadian MPs at the time) to help grow the central Canadian economy, damaged the maritime economy in the long run.

Not that the militant trade unions and overall anti-business atmosphere helped either.

Japan and South Korea do not have much in the way of resources. They do not look like Manitoba, Saskatchewan, PEI, Nova Scotia or NL economically.

Japan and South Korea may be natural resource poor, but they have plenty of human resources. Keep in mind Japan has 25X more people then these 5 provinces.Lack of arable land and thus lack of population has always been one of the Atlantic coast's largest obstacle.

Exactly. Manitoba, Saskatchewan, PEI, Nova Scotia and/or NL have people also, with educations subsidized by other Canadians. They should not be basket cases.

[NovaScotian]

Example?

The history of the Maritimes is actually quite full of examples and unfortunately it is unknown to the general population. People assume that region was always a poor, backward, economically dependent region. Anyway, here are some examples of federal policy, both positive, some mixed and others very negative. These are some snips from David Kilgour's website. He was a liberal MP for Edmonton and holds a degree in economics.I am using quotes from him because I do not think I could say it as well, nor do I have the time to write it all out.

The National Policy(1878-1879) - positive beginning, negative outcome.

By the mid-l880s, Maritimers controlled three of Canada’s five sugar refineries, one of three national glass works, two of seven ropeworks and eight of twenty-three Cotton mills. Nova Scotia’s iron and steel industry and related sectors were also thriving. In the decade of the 1880s, Nova Scotia increased its industrial output by two-thirds, substantially greater than the growth in Québec and Ontario. Nova Scotia’s per capita growth in manufacturing led the nation and Saint John’s exceeded that of Hamilton. The rapid industrialization, for a time, abundantly fulfilled the hopes of Maritimers to become a prosperous and cultural model for Canada and to play a role similar to the one New England has long played in the United States."

Another was the Bank Act of 1871

A number of Ottawa policies played a significant role in the economic subjugation of Maritime Canada. One was the branch banking system established by Parliament’s Bank Act of 1871. Quite predictably, it quickly shifted all real banking clout to a small number of banks in Montréal and Toronto. As the historian T.W. Acheson notes: "Between 1900 and 1920 every component in the century-old Maritime banking system was swept away and replaced by branches of great national banking consortia." Central Canadian shareholders took control of the Bank of Nova Scotia, for one, and moved its effective ownership and directors to Toronto.

Railway Policy, initially favorable quickly turned sour

While it lasted, the regionally-oriented freight rate system permitted the Maritimes both to industrialize and to share in the general economic prosperity accompanying the settlement of Western Canada. It was probably the only way Maritimers could benefit over a longer term from Macdonald’s National Policy. In 1912, Central Canadian manufacturers astonishingly persuaded the newly-elected government of Robert Borden, himself from Halifax, to completely abolish the east-west differential of the Intercolonial. A final Ottawa nail in the region’s manufacturing coffin was added in 1919 when the Intercolonial was absorbed in the nationalized Canadian National Railway and its management abruptly moved from Moncton to Toronto. The special freight rates for sugar and coal were quickly eliminated and its freight charges generally levelled with those in Central Canada. By 1920, cumulative freight rate increases had the effect of raising rates on the Intercolonial by 140 to 216 per cent. The new rate was a terrible blow, further maiming a regional economy already in shock from attempting to adjust to a host of technological changes.

The region had started to face population problems because of efforts to settle the west. Of course, the forthcoming economic collapse resulted in a massive exodus from the region and further put the region into economic decline

Rapidly growing out-migration itself became the major cause of Maritime economic grief. At least 100,000 people, including my great grandparents, left the Maritimes in each of the decades between 1881 and 1931, mostly the young, skilled and ambitious. At least three-quarters of these talented Canadians appeared to follow the traditional Maritime route to the United States. Prince Edward Island was the worst affected and it would not regain its 1881 population level until a full century later in 1986. The loss of so many vigorous people from those provinces, which as a whole in 1881 held only 871,000 persons, was clearly the main cause (or some say the major symptom) of the region’s economic and political decline.

The decline of the regional population had a highly negative impact on the local industry which survived. The common pattern was for machine shops, cotton mills, rail car factories and steel mills either to be transferred to Ontario or Québec, closed by head offices, or forced into bankruptcy.

[NovaScotian]

Now the region could have possibly gained back some of its economic loses in WW2 if is wasn't for a few politicians and business men.

It is now well documented how Maritime coal, steel, shipbuilding, ship repair and manufacturing companies were, for more than a year into the war, denied federal funds for modernization and expansion. The historian Ernest Forbes states that C.D. Howe and his controllers "with the realization of impending commodity shortages and the great strategic importance of the region, finally turned to Maritime industries only to encounter manpower shortages and a limited infrastructure." The C.D. Howe vision, Forbes concludes, "of a centralized manufacturing complex closely integrated with the United States apparently did not include the Maritimes in any significant role."

The case of the Dominion Steel and Coal Company (DOSCO), the largest manufacturing employer in the Maritimes and one of Canada’s "Big Three" steel producers, is illustrative. Howe provided $4 million in tax money to assist each of its two Ontario competitors, the Steel Company of Canada in Hamilton and Algoma Steel in Sault Ste. Marie, to modernize and increase capacity. Arthur Cross, DOSCO’s president, was reduced to pleading that his was the only primary steel producer in the country receiving no government assistance whatsoever. A continued failure to provide a level playing field for all, Cross wrote to Howe, would make inevitable the conclusion that Ottawa was intending "to discriminate against the post-war future of this corporation and in favour of its Central Canadian competitors."

Howe’s unexplained hostility towards DOSCO and his campaign to concentrate steel manufacturing on the Great Lakes alone had devastating repercussions for the Maritime steel industry. In 1944, Ottawa’s steel controllers were even advised by Howe to use DOSCO "to the minimum extent possible even if we have to buy the steel from the United States" as reported by Duncan MacDowall in his book on the Algoma Steel company. Nor was DOSCO included in the federal government’s invitation, extended to other companies as part of the postwar economy adjustment plans, to develop proposals for a sheet steel mill."

What happened to DOSCO after the war? Falling to modernize like its Ontario cousins. DOSCO became inefficient and struggled greatly. It was bought and created into a crown corporation and became a political hot potato, incurring create public debt to the province and Canada

As the war escalated, the federal government eventually made an investment in Maritime plants and equipment. It was modest and involved industries with poor prospects for post-war continuation. None of the 28 federal Crown corporations that existed at the time had its head office in the region. Of $823 million of Ottawa wartime spending on industrial expansion which could be identified on a provincial basis, the Maritime share was a pitiful 3.7 per cent. PEI didn’t receive a dime; Nova Scotia-- $20.8 million; New Brunswick -- $6.5 million.

After the war, Ottawa started allocating money to enable industries to make the transition to peacetime production. By mid-1945, 48 per cent of the funds went to Ontario, 32 per cent to Québec, 15 per cent to British Columbia and the remaining 5 per cent was divided among the remaining six provinces under the assistance formula used. Ministry of Reconstruction officials justified this grossly discriminatory approach with gibberish and doubletalk. The problem of transition, gushed one, will be "most acute in the Maritimes. .. where wartime dislocations have been superimposed on the special problems of a depressed area." The post-war reconstruction policy reinforced the dreadful economic status quo for Maritime Canada.

Federal wartime policy was destructive to the Maritimes mainly because it created virtually no industries of a lasting nature. Compared to its two major competitors who received some of Howe’s millions, DOSCO came out of the war weakened. Canadian National’s repair shops in Moncton were undermined by the presence of a modern new shop in Montréal, converted by the railway -- at C.D. Howe’s suggestion -- from a munitions factory at the end of the war.

The result of this policy set the Maritime provinces(as well as the Praires) further behind, while Ontario and Quebec enjoyed an tremendous economic government fueled boom

Down Home

[jbg]

Very interesting read, indeed. Similar things happened to the "Rust Belt" in the US, in favor of the South and West. However, what about my question concerning the hferocity of Maritime labor unions?

[NovaScotian]

Very interesting read, indeed. Similar things happened to the "Rust Belt" in the US, in favor of the South and West. However, what about my question concerning the hferocity of Maritime labor unions?

I believe the labor union problem was mainly a Cape Breton issue in the coal and steel industries in the 1920's. Unlike most of North America the Maritimes never experienced the 'roaring 20's. The region was much poorer then it had been 30 years earlier. So radicals gained prominence in the unions.

It is hard to say what effect this had on the region as a whole. It could have played some role of discouraging investment in the 20's and 30's, but in general it would have been small compared to the lack of competitive rail service and regional capital for investment, which was pumped out of the region by the banks(illegal today).

[jbg]

Very interesting read, indeed. Similar things happened to the "Rust Belt" in the US, in favor of the South and West. However, what about my question concerning the hferocity of Maritime labor unions?

I believe the labor union problem was mainly a Cape Breton issue in the coal and steel industries in the 1920's. Unlike most of North America the Maritimes never experienced the 'roaring 20's. The region was much poorer then it had been 30 years earlier. So radicals gained prominence in the unions.

It is hard to say what effect this had on the region as a whole. It could have played some role of discouraging investment in the 20's and 30's, but in general it would have been small compared to the lack of competitive rail service and regional capital for investment, which was pumped out of the region by the banks(illegal today).

Thanks for explanation.