Is Quebec subsidized by the rest of Canada?

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Appeared in the National Post, March 2014

There is nothing like an election to bring out the optimistic side in people and some mythmaking. In Quebec, recent attention focused on Premier Pauline Marois and her musings that if her party wins the provincial election, and if separation one day occurs, that Quebec would keep the Canadian dollar, seek a seat on the Bank of Canada, and that Quebecois might have dual citizenship.

Some of the Marois musings could theoretically occur though much is in the realm of fantasy. But here's a myth relevant to any musings about possible separation and one often promulgated by Quebec elites:  That Quebec is not subsidized by the rest of Canada.

Over the years, former Bloc Quebecois leader Gilles Duceppe promulgated this notion; so too former Quebec Finance Minister Raymond Bachand under the last Liberal government. Both argued with a straight face that Quebec was not subsidized.

A modified version of this claim was resurrected again by a Quebec-based think tank this month. In a short paper, it claimed that Quebec isn't all that dependent on the rest of Canada; it pointed to how the Maritimes are comparatively more dependent. And anyway, depending on the year, equalization payments from the federal government to Ottawa account for just three to six percent of Quebec government spending.

Let's introduce some clarity to these Quebec claims: Taxpayers in every province pay federal taxes but that doesn't mean certain provinces are not subsidized by taxpayers in another. It matters where federal taxes originate and where they are later spent, on a net basis.

Statistics Canada data (which regrettably ends in 2009) when averaged out between 2000 and 2009, gives an idea of how dependent a province is (or is not) on federal transfers.

This data measures all the money that flows into federal coffers on a per province basis and all the money later spent in each province. It includes, for instance, transfers to provincial governments, payments to individuals (think employment insurance) and other big-ticket expenses such as federal infrastructure spending.

The numbers are not beyond some criticism: If the federal government pays a head office in Montreal for a product actually manufactured in Ontario, the federal spending in reality benefits Ontario.

Such occasional wrinkles aside though, the data shows that, as a percentage of GDP, taxpayers in three provinces contribute more in revenues than is later spent by the federal government:  Albertans contribute more (by 6.1 percentage points) Ontarians contribute more (by 3.8 points) and British Columbians contribute more (by 1.7 points).

The other seven provinces were all net 'takers' from the federal purse. On average, federal spending was two percentage points of GDP higher than federal revenue in Quebec; in Prince Edward Island, federal spending was almost 20 percentage points higher.

None of this is surprising or necessarily unfair, at least in some specific cases. You would expect, for example, the federal government to spend less per person in Alberta on employment insurance than in Nova Scotia as Alberta has a lower unemployment rate.

In dollar terms, the 2000 to 2009 average shows that Albertans lost the most, with a net loss of $3,852 per person annually in the federal taxing/spending equation. (British Columbians lose $666 per person and the figure in Ontario is $1,548.) Quebecois are net gainers, with $730 per person to the good, while Prince Edward Islanders have won the lottery, with $5,838 in federal spending per person, in their favour.

So Prince Edward Island (and other provinces in Atlantic Canada) is indeed more dependent on federal transfers than Quebec when measured per person. And the $730 per person balance in Quebec's favour may not seem like much but in 2009, Prince Edward Island had just 140,000 people; Quebec had over 7.8 million people—or 56 times as many as Prince Edward Island.

That much larger Quebec population matters a lot to Albertans, British Columbians and Ontarians who finance Quebec's provincial government. In 2009, those population figures mean there was a $5.7 billion net federal transfer to Quebec. (In contrast, PEI’s net transfers cost the rest of Canada $817 million.)

Perhaps Quebec can live without $5.7 billion every year (a number likely higher now), but in 2009, that was already equivalent to 42 per cent of the amount of revenues from Quebec's consumption taxes ($13.5 billion) and almost as much as Quebec paid in interest on its debt that year ($6.2 billion).

That raises the question of how an independent Quebec would pay for any revenue loss. Last time, I checked, Quebec was not undertaxed. Regardless, no one, least of all anyone in Quebec, should buy the myth Quebec isn't massively subsidized by the rest of Canada. It surely is.

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