Okay, David MacKinnon, Stop

David MacKinnon worked in senior capacities in the Nova Scotia and Ontario public services. The Prince Edward Island native is a frequent commentator on Canada’s fiscal arrangements and currently lives in Wellington Ontario. — CB Post, 25 April 2019

 

That’s the bio that appears at the end of David MacKinnon’s recent op-ed piece in the Cape Breton Post (title: “Another view on equalization payments: Subsidy dependence ‘has led the region nowhere‘”).

In the piece, MacKinnon states quite emphatically that facts “matter” and yet…his bio leaves a few rather salient ones out.

For example, it fails to note that MacKinnon is a senior fellow with both the Halifax-based Atlantic Institute for Market Studies (AIMS) and the Winnipeg-based Frontier Centre for Public Policy, two well-known, right-wing think tanks.

It also fails to note that he has been beating the drum about Equalization for “30 years or more” as he told TVO host Steve Paikin in 2010. Look him up on either the Frontier Centre website or the AIMS website and you’ll find more articles on the subject of Equalization than it is possible for any one human to read.

So voluminous is the anti-Equalization propaganda being churned out by these think tanks, it caught the eye of an actual economics professor at the University of Alberta back in 2012.

I say “actual economics professor” because MacKinnon, although he occasionally styles himself as “professor,” doesn’t actually appear to be one. His bio lists no teaching positions and his formal education consists of a BA from Dalhousie with “honours  economics” and an MBA from York University.

He also lists a CIBC “Centennial Fellowship” that allowed him “to study at York, Harvard and Oxford Universities as well as the European Institute of Business Studies,” and I was so intrigued by this — and could find so little information about it online — that I went the extra mile and contacted the CIBC archives to find out more about their Centennial Scholarships. And they sent me this (scroll to page two to see the recipient from PEI):

Centennial Intl Fellowship Winners_CA_May Jun 1967_p 20-21

(Brochure courtesy of CIBC Archives)

(You’ll note that as part of his 1967 fellowship, MacKinnon got to visit all of Canada’s “economic regions” to “gain first-hand knowledge of Canada’s potential.” I wonder if this is when he first became so impressed with Ontario and Alberta?)

The bottom line here, of course, is that “Professor” MacKinnon is a man with an MBA.

 

Frontier economics

But Melville L. McMillan is a professor — now emeritus — of economics at the University of Alberta and it was he who, in 2012, became aware of the “surprising amount of media attention” being paid to equalization in Canada. As he explained in the introduction to the paper he wrote that year — Alberta and ‘Equalization’: Separating Fact from Fiction or Sorting Out Some Implications and Options in Canadian Fiscal Federalism:

Part of that discussion has been focused on the federal government’s formal Equalization Program (a half-century-old federal-provincial transfer program that reduces fiscal disparities among provincial governments) but much extends to encompass, often under the term ‘equalization’, other major federal-provincial transfers and also to include the even broader distributive implications of federal government financing and expenditures.

What Professor McMillan also noticed was that:

…much of that discussion is incomplete, confusing, suggests misunderstanding, and too often results in misrepresentation of the various programs, their consequences and their alternatives. Assuming that the public discussion is to inform and stimulate knowledgeable and thoughtful debate, too much of the attention has not contributed effectively to that end.

He then went a step further, noting that the media attention appeared to stem:

…mostly from reports and articles emerging from a small number of organizations, most notably the Frontier Centre for Public Policy. The products from the Frontier Centre have been uniformly critical of Equalization and, more generally, other federal-provincial transfers and federal activities resulting in some interprovincial redistribution.

And then he went one step further than that, noting:

One of the more receptive avenues has been the National Post, a newspaper that declares that it would be pleased to see equalization and its affiliates killed.

And now I will go a step further still and remind you that the Cape Breton Post has recently dumped the too-expensive Canadian Press newswire service in favor of a combination of Reuters and … Postmedia.

Lucky us.

 

Crank

Economists like Prof McMillan are obviously far better qualified than I am to critique MacKinnon, so I will quote economists in this article, but first I want to point out that even someone like me, with a couple of undergrad economics courses under my belt, can see that MacKinnon is not a serious thinker. In fact, I would argue MacKinnon is not a thinker at all — MacKinnon is a crank in the traditional British sense of the word: an “annoyingly eccentric person” who is “overly enthusiastic about a particular subject or activity.”

Had he be born a century earlier, in Tunbridge Wells, he might have beat the drum for nudism or the benefits of an all-lettuce diet but because he was born in the 20th century in PEI (where he was apparently traumatized by his too-easy access to public services) he beats the drum about Equalization.

He seems to do most of his lecturing on the rubber chicken circuit and has a particular affinity for Rotary Clubs. His credibility seems to have peaked with that 2010 TVO interview and a 2012 Globe and Mail interview with John Ibbitson (who doesn’t seem to understand Equalization or other federal-provincial transfers, either).

This is the kind of thing he tells Rotary Clubs. In 2012, after announcing to the members of the Ottawa West club that he would debunk the “myths” of equalization, he said:

The first myth is that equalization, the largest regional subsidy program, is required by the constitution. Federal leaders and Premiers from recipient provinces have often said this.

Put simply, it isn’t true.

The constitution requires a commitment in principle to equalization, whatever that means, and I’ll leave it to the lawyers in the room to decipher that.

The commitment, whatever it is, can be fulfilled at any significant level of funding rather than the $15 billion that is currently being spent each year.

Think about that. In the span of four sentences he said:

• there is no constitutional requirement for Equalization;
• there is a constitutional requirement for Equalization but I don’t understand it;
• there is a constitutional requirement for Equalization but it can be met for less than $15 billion.

In another of his anti-Equalization diatribes he describes “Maxine” Bernier (long may she thrive) as the only person in Canada “aside from the efforts of two think tanks in Atlantic Canada and Manitoba” (i.e. the Atlantic Institute for Market Studies and the Frontier Centre, both of which he belongs to) doing anything to “generate more public debate” on the issue of regional subsidies.

As it happens, Bernier, who broke away from the federal Conservatives to form his own People’s Party in 2018, was in New Brunswick in January drumming up support for his policies. They include abolishing equalization and the Atlantic Canada Opportunities Agency in favor of slacker environmental regulations that will allow have-not provinces (or, in NB premier Blaine Higgs’ words, “force” them) to “develop their resources” and become “more prosperous.” Read: build a pipeline for Alberta bitumen, allow fracking and watch the good times roll — provided the floods don’t get you first. (Bernier is also in the news this week for being popular with Canada’s alt-right who apparently like his anti-immigration policies.)

My point is: you cannot take David MacKinnon seriously.

And yet, people do.

 

Independent

I would also note that MacKinnon’s failure to include his right-wing think tank associations in his Cape Breton Post bio is probably no accident — he’s been known to pass himself off as an “independent” observer.

Journalist David Climenhaga called him out on it in 2016, when MacKinnon and three other Frontier Centre fellows made up a “blue-ribbon” “expert” panel on Equalization for Alberta’s Wildrose Party. Climenhaga likened this to having four members of the Women’s Christian Temperance Union discussing provincial liquor sales:

They may be experts on the effects of demon rum, but their recommendations are predetermined by a particular set of beliefs.

Likewise, the Wildrose Party’s “Equalization Fairness Panel” will make recommendations that are predetermined by a particular set of beliefs and political goals – in this case, the Frontier Centre’s consistent neoliberal attack on interprovincial equalization and the Wildrose Party’s desire to use the widely misunderstood program as a wedge issue against New Democrats in Edmonton and Liberals in Ottawa.

In the case of the Wildrose panel, Climenhaga said the Frontier Centre’s goals were clear — grind the anti-Equalization axe and get Wildrose elected:

No matter how wrong-headed, both are perfectly acceptable goals in a democratic society. But no one should be fooled by the Wildrose Party’s invitation to make submissions [into thinking] that by doing so they are in any way doing anything but helping the party’s political program and publicizing the think tank’s neoliberal economic nostrums, which are closely related.

And no one should be fooled into thinking that MacKinnon’s critique of Nova Scotians for Equalization Fairness (the target of his Post article) is anything other than him taking an opportunity to publicize those same economic nostrums — which is why his affiliation with the Frontier Centre and AIMS should have been made clear.

 

Haves and have-nots

Okay, now back to MacKinnon’s wrongheaded ideas about Equalization.

On his planet, it is a system that transfers the wealth of “have” provinces like BC, Alberta and Ontario to “have-not provinces” like Nova Scotia, New Brunswick, PEI and — most aggravatingly — Quebec, causing irreparable damage to the “have” provinces in the process. (Ontario, he told Paikin in 2010, is in danger of “fading away” as a result of unfair equalization.)

It’s an argument you’re hearing a lot these days from Alberta, where the new premier, Jason Kenney, has promised to hold a referendum on Equalization.

But it’s based on a misunderstanding — a misunderstanding perpetuated by people like David MacKinnon, aided and abetted by journalists who don’t understand Equalization either (even Steve Paikin launched his discussion with MacKinnon by saying, this was “one of the hardest to understand subjects about public policy that we will ever discuss on this program” — simultaneously suggesting the subject was beyond the grasp of his audience and that MacKinnon must be some kind of genius.)

But the underlying principle of equalization is not that hard to grasp, as economists like McMillan and Trevor Tombe, an associate professor of economics at the University of Calgary, keep trying to tell people. I’ll quote Tombe because his efforts are the more recent. He wrote in the Globe and Mail in 2018:

Some provinces have an easier time raising revenue than others, so equalization provides additional funds to lower-income provinces to ensure adequate public services can be provided to all Canadians.

I’ll spell it out a little more: some provinces have an easier time raising revenue than others because their populations are younger and richer (I’m looking at you, Alberta). In response to this situation, the anti-Equalization crowd could say, “Too bad, so sad” low-income provinces should just accept the hand that’s been dealt them. That’s a legitimate, if rather cold, response to the situation.

But as a country, we’ve decided that will not be our response — we’ve decided everyone in Canada should receive a reasonably comparable level of services at a reasonably comparable level of taxation and Equalization is the program we’ve established to achieve that.

So what you can’t do, argues Tombe, is complain that a system designed to assist low-income provinces is assisting low-income provinces.

 

Formulaic

Explaining how Equalization is calculated is one of those evergreen topics for Canadian media outlets, so I might as well join the crowd. According to Tombe, the formula used for the annual calculation:

…asks what a province’s revenue would be if all its tax rates equalled the national average. Alberta would raise $12,327 per person, more than any other province, followed by B.C. at $11,052. Quebec is far behind, at $8,123, and Prince Edward Island lags even further, at $6,648, according to Finance Canada calculations. Equalization tops up provinces below the national average, which is why a province as populous as Quebec receives payments.

There are other complicating factors — there is more than one tax base to consider (consumption, income, property, business); only 50% of resource revenues are counted (as an incentive to provinces to develop their resources); and there’s a cap to ensure the program doesn’t become too expensive (it is set to match a fixed share of Canada’s GDP).

There is also a data lag — equalization for 2018-2019 is based on data from 2017-2018 — so “to help improve the stability and predictability of payments from year to year, the formula also uses an average of the three prior years.”

But while I will probably never take up calculating Equalization payments as a leisure activity, the basic concept is reasonably straightforward — a fact that gets lost in the noise around things like the current recession in Alberta. As Tombe points out, Alberta’s economy did indeed shrink 12% between 2014 and 2017, but the province still came out on top, with a GDP per capita in 2017 of $77,500 in 2017 compared to a national average of $58,000.

And true, Alberta is running a deficit — but why is it running  deficit? Says Tombe:

Simple: its tax rates are low. To illustrate this, I plot Alberta’s actual revenue as a percentage of what could be raised if each province had tax rates equal to the current national average. Alberta is, by far, the lowest tax jurisdiction (nearly 30% below the national average) while Quebec is the highest (nearly 30% above). Alberta’s deficit is a choice, and largely unrelated to the federal equalization program.

Raising the floor

The point is made every year (and I picture David MacKinnon plugging his ears and humming so as not to hear it) that Equalization comes from federal funds. There are no province-to-province transfers of hard-earned money.

Moreover, as McMillan explains:

The capacities of the high capacity provinces are not affected and, in particular, are not reduced by Equalization.

That is, the program works by bringing low capacity provinces up to the average and not by bringing down the capacity of high capacity provinces – that is, by raising the floor not lowering the ceiling.

Here are the graphs he used to explain provincial differences in per capita fiscal capacity in 2010-2011. The blue portion of each column is per capita fiscal capacity based on 50% of natural resource revenues, the red shows per capita fiscal capacity based on 100% of natural resource revenues:

That year  (2010-2011) PEI’s per capita fiscal capacity was $4,705.

Alberta’s was $12,091 with 50% of resource revenue included in the calculation and $13,847 with 100% of resource revenues included. (You’ll note, those figures are very close to the 2017-2018 figures quoted by Tombe.)

Equalization doesn’t bring every province up to Alberta’s level, nor does it bring every province down to PEI’s level — it brings those below the average (roughly $7,000) – up to that average:

Look at the graph — Alberta hasn’t lost anything, at 50% NRR, its fiscal capacity remains significantly higher than that of the next highest province, Saskatchewan.

The cost of this whole program in 2010-11 was $14.4 billion or $421 per Canadian. That’s a significant amount, but as McMillan explains, as a percentage of GDP, it has averaged 0.83% since 2001. And as mentioned earlier, it’s capped each year at a certain percentage of GDP.

In 2018-2019 the total cost of the program was $18.96 billion.

 

One-trick Pony

As further evidence of David MacKinnon’s crank status, I’d note that the man was foolish enough to point to healthcare — healthcare! — as proof that people in “Nova Scotia and Cape Breton” have more access to “provincial programming” than “many Canadians living elsewhere.”

First of all, this means he’s conflating Equalization with the Canada Health Transfer (CHT), which is extended to all provinces and which is based purely on population so Ontario gets more than Nova Scotia, full stop. What a province does with those funds is pretty much up to the province, so if MacKinnon is not happy with his access to healthcare in Ontario he needs to talk to someone in Ontario.

(Although I’m thinking the people administering the healthcare system in Ontario may find MacKinnon’s method of measuring access to healthcare services as dubious as I do: he counts hospitals. Because, as we all know, healthcare comes down to the number of hospitals you have, not how many doctors and nurses are working in them, or how often their Emergency Departments are closed, or what kind of specialists are on staff there, or how many of their beds are occupied by people waiting for beds in long-term care facilities.)

On MacKinnon’s planet, hospitals are apparently fully automated healthcare delivery centers, proximity to which equals access to healthcare.

Charles Sampson of NSEF responded to MacKinnon in Monday’s Cape Breton Post, noting MacKinnon’s conflation of the CHT and Equalization (and making the additional point that the federal contribution to healthcare has been steadily declining, which might also help explain the gaps in Ontario’s healthcare system).

The NSEF gets a lot of grief for supposedly confusing federal Equalization with Nova Scotia’s provincial equalization program, but I think they are simply arguing that the principle of equalization — that Canadians should receive reasonably equal services at reasonably equal rates of taxation — should apply to municipalities as well as to provinces. Just as Alberta has an easier job raising money than Nova Scotia, so Halifax has an easier job than the CBRM.

The Nova Scotia government can, of course, respond that Equalization transfers are unconditional — how recipient provinces spend them is entirely up to the provinces — and the government would be right. Because Equalization is a far from perfect system — something I should probably have admitted earlier. There’s always room for adjustments (lots have already been made). But adjustments are a far cry from abolition, which is what people like David MacKinnon advocate — and advocate on the basis of an incorrect understanding of how the system works in the first place.

Although if we’ve established nothing else today, surely we’ve established that nobody should be listening to David MacKinnon.