Tax Cuts and the "Fiscal Imbalance"

The Canadian Centre for Policy Alternatives (CCPA)this week released Tax Cuts and the "Fiscal Imbalance," by CCPA Senior Economist Marc Lee.

From the CCPA news release:

This new study warns that solving the alleged "fiscal imbalance" runs the risk of becoming a downsizing exercise for the federal government.

The study, authored by CCPA Senior Economist Marc Lee, breaks the "fiscal imbalance" code. Different definitions of the term "fiscal imbalance," in a context of federal-provincial fights over cash and partisan politics, have muddied the waters of the debate.

"The term 'fiscal imbalance' is a loaded one," says Lee. "It is a pejorative term that implies that balance must be restored. But a careful look at Canadian history and other federations worldwide suggests that Canada does not have deep structural problems that need to be fixed."

To date, the issue has revolved around provinces seeking more money from Ottawa. The report warns that, in its current incarnation, more radical decentralization measures could be put on the table due to pressure from influential lobby groups, like the Canadian Council of Chief Executives.

"Missing from the story is tax cuts and tax competition," Lee adds. "Provincial governments undercut their fiscal positions through tax cuts over the past decade. The decentralization push hinges around deep federal tax cuts to pay for the elimination of federal transfers for health care, post-secondary education and social welfare."

The complete report can be downloaded from the CCPA's web site: http://www.policyalternatives.ca