Who Gets What Federalism

The recent Mowat Centre report on Ontario’s fiscal gap with Ottawa and the lament that Ontario puts more into Confederation than it gets out brought to mind a poll done in 2005 by EKOS that showed that 51 percent of Canadians believed their province was putting more money into Confederation than it gets out. Of course, the proportion varied by province with 70 percent of Albertans feeling this way, 55 percent of Ontarians, 45 percent of Atlantic Canadians and 44 percent of Quebecers.  According to Frank Graves, the President of Ekos:  “Such a pervasive sense of being short-changed does not augur well for the health of federalism”.

If we are going to practice “who gets what federalism”, why not also look at the explicit role of the federal government in terms of its employment across the provinces? Figure 1 shows the distribution of federal general government employment by province and territory.  Figure 2 shows the distribution of federal government wages and salaries paid to its employees by province and territory.  Figure 3 calculates the value of federal government wages and salaries per federal employee on a provincial-territorial basis.  Finally, the distribution of federal government business enterprise employment is presented in Figure 4.  The data is from Statistics Canada, Table 183-0002.

 

 

So, how is Ontario doing? In 2011, Ontario accounted for 39 percent of Canada’s population and 37 percent of its GDP.  However, 43 percent of federal general government employees were to be found in Ontario and they accounted for 45 percent of the wage and salary bill.  Moreover, Ontario also accounted for 42 percent of federal business enterprise employment.  As well, if one calculates federal wages and salaries per employee, outside of the territories, Ontario federal government workers were the best paid in the country.  The average wage and salary bill per federal employee in Ontario was $76,339 with the next highest being BC at $73,484. On the other hand, Quebec accounts for 23 percent of the population and 20 percent of the GDP and accounted for 21 percent of federal general employment, 19 percent of federal business enterprise employment and 20 percent of federal wages and salaries.  Its federal employees on average only earned $69,162.  Alberta, with 11 percent of the population and 17 percent of Canada’s GDP accounts for only 7 percent of federal general government employment and wages and salaries as well as only 3 percent of federal business enterprise employment.  Its federal employees only earned an average wage and salary of $68,661.

So despite being hard done by in other ways, how does Ontario manage to account for such a large share of federal government employment?  Is it a fiscal gap or imbalance brought about by the nefarious structure of a federal system tilted in Ontario’s favour?  Is it something the other provinces should be concerned about?  More likely, it is what happens when the federal capital happens to be in your province.  Ottawa accounts for a very large chunk of federal employment and Ottawa is in Ontario.  Along with federal employment, one can imagine that as a result of this geographic reality, the federal share of procurement of supplies and services in Ontario is also larger than its population share.  Then there is the spending by federal crown corporations and enterprises.  This may not be enough to offset the fiscal gap but one imagines that Ontario business must do very well with such a large federal presence in their province.

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Comments

[Nick Rowe]

Is there any data on Federal Government employment in Ottawa-Gatineau? If we could subtract that from Ontario and Quebec, it would be interesting to see how much it changed the picture.

[Livio Di Matteo]

Hi Nick:
I do remember seeing some stats on federal employment by CMA a while ago. I will have to hunt it down again.

[Livio Di Matteo]

Well, I found that in 2011, out of total federal employment of 423,595, there were 135,865 in Ottawa-Gatineau. This is 32 percent of total federal employment. In 2011, total federal employment in Ontario was 181,272 while in Quebec it was 87,067. Thus, Ottawa-Gatineau accounted for half of federal employment in Ontario and Quebec.

[Mark]

As you note this is largely due to the capital which employs more people in more highly compensated positions.

The Mowat report is based on aggregate federal program spending. Wouldn't this account for labour income in the capital region?

The fact that Ontario seems to be getting less than its 'share' from the federal government (according to Mowat), while having a greater share of the employment, would point to less spending elsewhere. Perhaps on activities that would be more beneficial to the province such as infrastructure?

[Bob Smith]

Mark,

Looking at federal employment doesn't really telll us much about the the distribution of federal spending, since direct federal spending accounts for less than half of all federal spending. Most of the what the federal government does is pump money out to different levels of government (equalization, health and social transer, grants to municipalities) or to individuals (benefits for the elderly - the single biggest category of spending on the federal books - and employment insurance). The Ontario fiscal "gap" (and it's hardly unique to Ontario, its much larger, in per capita terms in BC and Alberta) arises from three factors.

First, equal per-capita funding of spending progras will cause more money to flow to poorer provinces than the residents of those provinces pay in federal taxes since every province receives the same per-capita spending, but the residents of richer provinces pay more taxes per capita, by virtue of being richer. It's kind of hard to argue that such a gap is inappropriate if you think that the federal government should treat (in terms of both spending and taxation) similarly situated Canadians equally (and certainly, no one complains about similar redistribution within regions in Ontario). To the extent that that's the source of the fiscal "gap" the complaint by the Mowat Center is badly off base.

Second, the population of Ontario has characteristics that cause Ontarians to receive less federal money. For example, Ontario has one of the lowest percentages of the population over age 65 (13.5% in 2008 behind Alberta's 10.5% and compared to 15.4% in Nova Scotia). Since a big chunk of federal funding is support for the elderly that means, on a per capita basis, Nova Scotians are going to receive more federal money (all else being equal) than Ontarians (and, the first issues applies here to, on a per capita basis, Nova Scotians will pay less in taxes to fund those benefit, than Ontarians). Again, though, to the extent this is the source of the gap it's really hard to complain if you believe that the government of Canada should treat all Canadians equally. The only way you could close the gap would be to (i) cut benefits for Nova Scotians, (ii) force them to move to Ontario, or (iii) increase taxes for Nova Scotians - none of which seem like plausible alternatives.

Third, federal programs treat Ontarians (and Albertans and British Columbians) differently than other Canadians. In the case of Equalization, hey, that's part of the constitutional arrangement and there is a principled basis for suggesting that we want all Canadians to have a more or less equal level of public services, so we really can't complain about it. On the other hand, in the case of EI, the differential treatment is patently offensive, since there is no principled basis for treating an unemployed Ontarian differently from an unemployed Nova Scotian. A fair EI system would likely still result in a fiscal gap (for the reasons set out above), but it would probably be narrower.

Of those three sources of the "fiscal gap", only the third, and then only in certain cases, really provide Ontarians with grounds to complain. Frankly, I think the Mowat Center embarassed themselves with their report and really risk being seen as the mouthpiece for whining from the Ontario government.

[Paul Friesen]

Glad to see I'm not the only one fed up with the sort of whining in the Mowat report. Laissez-faire economics does not produce fair results. Some regions have natural resources. Some have industrial clusters. Regions without much of either will tend to be poor. Within a single country like Canada, people can move around to regions with better employment prospects, which keeps regional inequality from getting too bad, but I think it's perfectly appropriate to try to even things out a bit with various kinds of transfer. We should not expect every region to get exactly as much out as they put in. Ontario is still a rich province and will probably bounce back more if we don't kill this recovery with austerity before it really gets going.

[Determinant]

Moral of the story: don't have all your federal employment in one government ghetto (Ottawa).

[Determinant]

Moral of the story: don't have all your federal employment in one government ghetto (Ottawa).

[Determinant]

Moral of the story: don't have all your federal employment in one government ghetto (Ottawa).

[Jacques René Giguère]

Paul Friesen: yes. And we have to factor in that lots of people in poorer areas own modest but long-ago paid-up houses. Moving entail losing the only capital they have, finding housing at a much higher price and , very often, at nor that mucg higher pay.
If you really want people to move, socialize housing, at least in part , the way we socialize roads and most schooling.

[Jacques René Giguère]

Paul Friesen: yes. And we have to factor in that lots of people in poorer areas own modest but long-ago paid-up houses. Moving entail losing the only capital they have, finding housing at a much higher price and , very often, at nor that mucg higher pay.
If you really want people to move, socialize housing, at least in part , the way we socialize roads and most schooling.

[Jacques René Giguère]

Paul Friesen: yes. And we have to factor in that lots of people in poorer areas own modest but long-ago paid-up houses. Moving entail losing the only capital they have, finding housing at a much higher price and , very often, at nor that mucg higher pay.
If you really want people to move, socialize housing, at least in part , the way we socialize roads and most schooling.

[Patrick Griffiths]

Say you're an out of work welder or heavy machine mechanic in Southern ON (e.g. Caterpillar victim). Is it realistic to think someone in their late 40's or 50's with 2 kids, a spouse, with severe liquidity constraints and perhaps $200K in equity in their post war bungalow is going to be able to get themselves and their possession to Fort Mac and get established, even assuming they have employment? Just compare housing. If they can find anything at all it'll be at least $600K in Fort Mac. If they have younger kids who need care, that's $2K a month, unless they manage to bring Gramma along with them.

Relocating a single 20-something is relatively easy. Relocating a family with ties to their community is a different matter entirely.

[developers]

I will be fascinated and interested in what you really are currently talking about the following.