Regional Development

The goal of equality of opportunity for Canadians has led to persistent efforts by governments to reduce the economic gaps between richer and poorer regions of the country. Most of these efforts, especially those through regional development agencies and the Employment Insurance system, have shown little success in closing these gaps. The time has come for new approaches.

• A dynamic labour market is essential if overall employment is to grow as fast as possible. Uncompetitive companies must be allowed to fail in order to let new firms achieve their full potential in creating more and better jobs. Government subsidies and rigid labour laws and regulations may appear to protect some jobs in the short term, but they undermine both business investment and human initiative. Governments must encourage change, not stagnation, if they really want to help more Canadians get ahead.
• The equalization program is the federal government's primary means of distributing money from Canada's "have" provinces to those that "have not". Its goal, which is to ensure that all provincial governments have the capacity to offer equivalent public services, is a defining feature of the Canadian federation. The CCCE has steadfastly supported this mechanism.
• The one weakness of the equalization formula, as noted by some Atlantic provinces in recent years, is that success in boosting the economy of a "have not" province does not produce corresponding revenue gains for the province's government. For provinces as for families, an excessive marginal "tax" rate hurts efforts to get ahead. Reducing the rate at which benefits are clawed back, on the other hand, assumes a willingness to live with greater inequality, whether between families or regions.
• Extensive use of transfers between governments in addition to equalization has distorted decision-making and blurred accountability. Federal, provincial and municipal governments should review current arrangements and consider the possible benefits of realigning tax powers to match spending responsibilities.
• The Employment Insurance system includes real disincentives for Canadians to move away from regions of high unemployment in search of more stable employment. As a general principle, the CCCE favours investment in people rather than places, investing in their skills without influencing their choices on where in Canada to put these skills to work.
• Business subsidies through regional development programs have proven ineffective in spurring sustained economic growth. Instead, they have tended to prop up failing companies and discourage investment in newer and more competitive businesses. The most effective spur to business growth, in urban and rural regions alike, would be to reward success through lower taxes instead of supporting the status quo through subsidies.