Federal transfers cause fiscal illusion

Transfer GST revenue to provinces in place of transfer payments, says School of Public Policy paper

CALGARY, Dec. 15 /CNW/ - In a paper released today titled Fixing the Fiscal Imbalance, author Ken Boessenkool argues that federal transfers create a fiscal illusion for voters and reduces accountability for provincial governments to spend responsibly.

Boessenkool argues that it is time to eliminate most federal transfers and hand over the GST to provinces. He argues that provinces would have a more direct understanding of the need to align spending with revenues, as opposed to continually demanding additional revenues from Ottawa. Further, taxpayers would understand the direct connection between the services they receive and the taxes they pay.

The paper argues that the transfer of GST revenues to the provinces should be done in conjunction with equalizing those revenues to ensure that no province is worse off than they are today.

"A (GST) transfer would put an end to the continued renegotiation of federal transfers and end the resulting fiscal illusion for voters," says Boessenkool. "If provinces wished to spend more on health care they would have to increase taxes directly, and face the wrath of voters on Election Day if their decisions were the wrong ones. Both levels of government would have much stronger incentives to act responsibly."

A copy of the paper is available at www.policyschool.ca, then click on "latest papers".

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