Fiscal Adjustment and Economic Development: A Case Study of Nova Scotia 9781487596088

Table of contents :
Preface
Contents
Tables and Figures
I. Introduction
II. The Economy of Nova Scotia: A Geographical and Historical Perspective
III. Federal-Provincial Fiscal Relations
IV. Municipal Organization and Finance in Nova Scotia
V. Why Nova Scotia is a Low-Income Province
VI. The Pattern for Optimum Economic Adjustment: Further Analysis in the Nova Scotian Context
VII. Principles of Fiscal Adjustment
VIII. The Present Fiscal System in Nova Scotia and the Criterion of Fiscal Equity
IX. A Programme for Fiscal Adjustment in Nova Scotia
X. A Brief Summary of Results, and Conclusions
Selected Bibliography
Index

Citation preview

FISCAL ADJUSTMENT AND ECONOMIC DEVELOPMENT This study is an attempt to find a solution to the problem of fiscal adjustment between a province or a state and its municipalities-a pressing problem throughout Canada and the United States and in many other countries in view of the great disparities in the revenue-raising capacity of municipalities, their limited tax bases, and the pressure on them to provide higher levels of public services. The principles developed are of general applicability, but their use is illustrated by using Nova Scotia as a case study. The first of the series "Atlantic Provinces Studies" was established by the Social Science Research Council of Canada to encourage research on the economic and social problems of the Atlantic Provinces. JOHN F. GRAHAM is Fred C. Manning Professor of Economics and Head of the Department of Economics and Sociology at Dalhousie University. Dr. Graham is General Editor of the Atlantic Provinces Studies which this book inaugurates.

ATLANTIC PROVINCE S STUDIE S A serie s o f studies , edite d b y Joh n F . Graham , sponsore d by th e Socia l Scienc e Researc h Counci l o f Canada , an d published wit h financial assistance from the Canada Council. 1. Fiscal Adjustment and Economic Development: A Case Study of Nova Scotia. By JOH N F. GBAHAM

FISCAL ADJUSTMENT AND ECONOMI C DEVELOPMENT

A Cas e Stud y o f Nova Scoti a

JOHN F . GRAHA M

University of Toronto Press

© UNIVERSITY OF TORONTO PRESS

Printed in Canada

1963

TO HAZE L MARI E GRAHA M

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Preface A SUBSTANTIA L SECTIO N o f th e literatur e o f publi c financ e deal s wit h fiscal adjustmen t i n a federa l countr y betwee n th e federa l govern ment and the stat e o r provincial governments. Little has been writte n on fisca l adjustmen t betwee n stat e o r provincia l government s an d municipal governments . Thi s stud y wa s undertake n i n a n effor t t o fill part o f this gap. It wa s also prompted b y the general concer n ove r the present fiscal plight o f the municipalities in Nov a Scoti a an d else where i n Nort h America . Th e fac t tha t Nov a Scotia , lik e th e othe r three Atlantic Provinces, is economically retarded i n compariso n wit h the rest of the countr y suggested th e desirabilit y o f relating the treat ment of provincial-municipal fiscal adjustment to that province's prob lems o f economi c development . Consequently , an attemp t ha s bee n made t o develo p genera l principle s o f provincial-municipa l fisca l adjustment whic h are consisten t wit h optimu m allocatio n o f resource s and to apply them to Nova Scotia. I hav e drawn heavil y o n th e writing s o f Professo r J . M . Buchanan on th e subjec t o f federa l fisca l adjustmen t an d o n a journa l debat e between him and Professo r A. D. Scott on the effect s o f federal grant s on resource allocation . M y intellectual deb t t o bot h me n i s consider able. I a m indebted t o Professor J . N. Wolfe who first suggested to me the genera l lin e of approach that has been followed. The ide a o f inte grating th e treatmen t o f fiscal adjustment an d economi c development in a low-incom e province wa s suggeste d b y Professo r Car l S . Shou p who sponsore d the dissertatio n o n which thi s boo k is based an d gav e generously of his time and energ y in the cours e of its preparation . Hi s stimulating questions , trenchan t criticisms , an d patienc e ar e i n larg e measure responsible for any merit this study may have. Most o f th e writin g wa s don e whil e I wa s o n leav e a t Columbi a University in th e academi c yea r 1958- 9 wher e I ha d th e privilege o f participating i n the Publi c Financ e Worksho p sponsored by the For d Foundation an d directe d b y Professo r Shoup , the member s o f whic h read an d criticize d a preliminary draf t o f the study . This final version was prepared mainl y i n the summe r of 1961, whe n I ha d th e capabl e assistance o f Mis s Joyc e Wyman in revisin g th e statistica l an d othe r empirical materia l an d i n typin g an d checkin g th e manuscript . A s with previou s drafts , I ha d th e exper t hel p o f Mrs . Parker Hamilto n

viii

Preface

with th e typin g o f part o f the manuscript . O n ver y short notice , Mrs . Helen J . Stei n o f th e Nov a Scoti a Researc h Foundatio n kindl y dre w the map for the endpapers . Professor J . H . Aitchison , m y frien d an d colleague , gav e continua l and vita l encouragemen t an d painstakingl y rea d th e whol e o f th e preliminary draf t fro m th e poin t o f vie w o f a politica l scientis t an d suggested numerou s improvement s i n styl e an d content , a t a tim e when hi s energie s wer e alread y severel y taxe d b y othe r tasks . Pro fessor N . H. Mors e read chapte r n an d made valuabl e suggestion s fo r its revision . Professo r W . R . Maxwell , whil e m y departmen t head , gave his ful l suppor t an d postpone d hi s ow n muc h deserve d leav e of absence an d bor e th e burde n o f extr a student s s o that I coul d hav e the necessary leave to finish the original version of this study . The generou s assistanc e o f numerou s publi c servant s an d other s consulted was invaluable. Unfortunatel y , I cannot name them becaus e of th e controversia l natur e o f some of the view s expresse d here . I t i s not to be assumed that they would agree with these views . On at least two occasions , the Canadia n Tax Foundation cam e to th e rescue wit h information which was not readily available elsewhere . Grateful acknowledgmen t o f financia l assistanc e i s mad e t o th e Nova Scoti a Researc h Foundatio n fo r supportin g researc h o n invest ment in Nov a Scoti a which eventuall y le d m e int o thi s fiel d o f study , to th e Canad a Counci l fo r a fellowshi p an d gran t whic h mad e i t possible fo r m e t o tak e a year' s leav e an d fo r financia l assistanc e i n publishing thi s book , t o th e Publi c Financ e Worksho p a t Columbi a University fo r a fellowshi p an d grant , an d t o th e Socia l Scienc e Research Counci l o f Canad a fo r a gran t fo r typin g expense s an d a grant fro m it s Atlanti c Province s Studie s projec t fo r Mis s Wyman' s assistance. I ha d th e pleasur e and goo d fortune to have Mrs . A. M. Magee , of the editoria l departmen t o f the Universit y o f Toront o Press , edi t th e manuscript and see the book through the press. My wif e bor e th e rea l brun t o f th e writin g o f thi s boo k an d per formed man y tiresom e chore s suc h a s proofreadin g an d checking . Without he r support an d encouragement, I coul d no t have writte n it . This boo k i s th e firs t i n th e serie s o f Atlanti c Province s Studies , which wa s establishe d b y th e Socia l Scienc e Researc h Counci l o f Canada in August, 1959, followin g a request by the Atlanti c Provinces Economic Council that i t conside r ways of furtherin g researc h o n th e Atlantic Provinces . The purpose s of the projec t ar e t o giv e assistanc e to scholars, in the Atlantic Provinces and elsewhere, who are interested

Preface

ix

in undertakin g fundamenta l studie s o f thei r ow n choosin g o n th e economic, social , an d political condition s an d problems o f the Atlanti c Provinces; t o publis h i n th e Atlanti c Province s Serie s thos e studie s appropriate fo r publication; an d i n so doing to help provid e a favourable environmen t fo r researc h i n th e socia l science s i n th e Atlanti c Provinces. I t i s hoped tha t th e studie s will she d ligh t o n the economic and social problems of the Atlanti c Provinces and help i n the formula tion o f policies fo r their solution . Mos t of the financia l suppor t fo r th e programme ha s bee n generousl y provided b y th e Atlanti c Province s Research Boar d an d th e Canad a Council . The programm e has bene fited considerabl y fro m th e continuou s co-operatio n o f th e Atlanti c Provinces Economic Council. JOHN F. GRAHA M Halifax, Nova Scotia March 6,1963

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Contents

I. H.

PBEFACE

VU

TABLES AND FIGURES

XV

INTRODUCTION

3

THE ECONOMY OF NOVA SCOTIA: A GEOGRAPHICAL AND HISTORICAL PERSPECTIVE

8

The Geograph y o f Nov a Scoti a 8 The Economi c History o f Nov a Scotia 1 3 The Relativ e Size and Growt h of the Nov a Scotian Economy 2 2 m. FEDERAL-PROVINCIA L FISCA L RELATION S 3

The Histor y o f the Financia l Arrangement s 3 Conditional Federa l Grants : A Résumé 4 The Principle o f Fiscal Equit y wit h Respect to Nova Scotia 4 Current Publi c Financ e i n Nov a Scotia 4 IV.

MUNICIPAL ORGANIZATION AND FINANCE IN NOVA SCOTIA

History and Natur e of Local Government in Nov a Scotia 5 Major Responsibilitie s of the Municipalitie s an d Provincia l Participation 5 Protection t o Person s an d Property ; Publi c Works ; Education; Health ; Social Welfare Other Provincia l Financia l Relie f t o th e Municipalitie s i n Recent Year s 8 The Postwar Revolution in Provincial Participation i n Local Functions 9 V.

WHY NOVA SCOTIA IS A LOW-INCOME PROVINCE

The Natur e o f It s Resource s 9 Natural Resources: Their Kind , Quality, and Quantity ; Labour; Capital—Adequacy of Supply

1

1 1 2 7 51

1 6

7 1 93

3

xii

Contents The Us e o f It s Resource s 11 Agriculture; Forestry ; Fisheries ; Mining ; Th e Touris t Industry; Manufacturing

VI.

THE PATTERN FOR OPTIMUM ECONOMIC ADJUSTMENT: FURTHER ANALYSIS IN THE NOVA SCOTIAN CONTEXT

143

Some Sociologica l Factor s i n Economi c Chang e 14 The Parado x o f Emigratio n Accompanie d b y Lac k of Adjustment; The Happy Low-income Casual Worker

3

The Proble m of the Declinin g Communit y 14 The Ghos t Tow n a s a n Objective ; Som e Secondar y Effects o f Factor Migration ; Implication s o f a Declin ing Farm Population

6

The Halifa x Area: A Special Cas e 15

1

Factor Adjustment s Appropriate t o Nov a Scoti a an d th e Scott-Buchanan Controvers y 15 The Effect s o f Public Service s o n Factor Mobilit y 15 Highways an d Roads ; Education ; Healt h an d Socia l Services A Concluding Statemen t 16 VH.

3

PRINCIPLES OF FISCAL ADJUSTMENT

3 9 9 171

The Principl e o f Fisca l Equit y an d It s Applicabilit y t o Provincial-Municipal Fisca l Adjustmen t 17 A Criticis m o f th e Us e o f th e Fisca l Residuu m i n Imple menting th e Principl e o f Fisca l Equit y 17

6

The Principl e o f Fisca l Equit y an d th e Condition s fo r Economic Equilibrium 18

0

The Variatio n o f Incom e amon g Localitie s o f a Provinc e and amon g Provinces 18

2

The Additio n o f the Egalitaria n Postulat e 18

3

The Effec t o f Income Transfers on Allocation o f Resources 18

7

Conditional an d Unconditional Grants and Public Welfare: The Conflic t o f Loca l an d Provincia l Interest s 18 The Conflict of Federal an d Provincial Interest s i n th e Case o f Federa l Grants ; Th e Applicabilit y o f Condi tional and Unconditiona l Grant s t o Provincial-Munici pal Fiscal Adjustment

1

9

Contents xii VID.

THE PRESENT FISCAL SYSTEM IN NOVA SCOTIA AND THF. CRITERION OF FISCAL EQUITY

K.

195

An Over-al l Vie w of the Nov a Scotian Fiscal System 19 Provincial Taxes ; Purel y Provincia l Services ; Loca l Services, an d Genera l Service s fo r whic h th e Munici palities Hav e Som e Responsibility ; Provincia l Fisca l Practices an d th e Fisca l Equit y Criterion ; Loca l Ser vices and the Fiscal Equity Criterio n

6

Municipal Taxe s i n Nov a Scoti a 21 Property Taxes ; Th e Cit y o f Halifax ; Th e Pol l Tax ; Other Possible Sources of Revenue

1

Provincial Revenue s and Fisca l Flexibilit y 21

8

The Redistributiv e Effect s o f th e Nov a Scotia n Fisca l System 21

9

Conclusions 22

2

A PROGRAMME FOR FISCAL ADJUSTMENT IN NOVA SCOTIA

Fiscal Adjustment by Means of Grants 22 An Evaluation o f the Extensio n of the Pottie r Formul a as a Basi s fo r Adjustment ; A n Evaluatio n o f Rowat' s Recommendations a s a Basi s fo r Adjustment ; Grant s for Loca l Services ; A Suggeste d Syste m o f Grant s t o Implement the Principle o f Fiscal Equity

X.

i

223

3

Fiscal Adjustment by Mean s o f a Redistributio n o f Func tions o r Revenues 24 Differential Provincia l Taxatio n a s a n Adjustmen t Devic e 24

3 6

The Recommende d Programme of Fiscal Adjustmen t 24 The Cos t o f the Propose d Programm e to th e Provinc e 25

7 1

A BRIEF SUMMARY OF RESULTS, AND CONCLUSIONS

254

SELECTED BIBLIOGRAPHY

261

INDEX

271

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Tables an d Figure s TABLES

I. Populatio n Growt h i n Canad a an d Nov a Scotia , 1851-1956 2 2 II. Compariso n of Personal Income Per Capita for Nova Scotia and Canada , 1926-59 2 3 III. Capita l Expenditur e Per Capit a i n Nova Scotia over the Perio d 1949-5 6 Compared wit h Tha t in Canada 2 4 IV. Compariso n of Nova Scotia and Canada with Respect to Personal Income, Gross Product, an d New Capita l Investment pe r Capita , 1946-5 6 2 5 V. Postwa r Growt h of the Nov a Scotian an d Canadia n Economies a s Reflecte d i n Constan t (1949 ) Dolla r Estimates of Personal Income per Capita , Gros s Product pe r Capita , an d Ne w Capita l Investmen t pe r Capita 2 6 VI. Persona l Incom e per Capit a an d Som e of It s Components: A Comparison of Nova Scotia and Canada , on th e Averag e for 1958-6 0 2 7 VII. Certai n Measure s for Nov a Scotia Expresse d as Percentages o f Totals fo r Canada , 195 6 2 8 VIII. Percentag e Contributio n o f Industria l Sector s t o Gross Provincial Product and Gross National Product for Nov a Scoti a an d Canada , 1951 , Usin g Morse' s Classification 2 9 IX. Percentag e Contributio n o f Industria l Sector s t o Gross Provincial Product and Gross National Product for Nov a Scoti a an d Canada , 1951 , Usin g D.B.S . Classification 2 8 X. Pe r Capit a Ne t Valu e of Production by Province s in 1958, an d Percentag e Variation s Fro m th e Nationa l Average 3 0 XI. Estimate s o f Ne t Genera l Revenu e fo r Nov a Scoti a and Al l Provinces fo r the Fisca l Year Ended neares t to December 31,196 0 4 6

xvi

Tables and Figures

XII. Estimate s o f Majo r Revenue s (Includin g Grants-in Aid an d Shared-cos t Contributions ) pe r Capit a fo r Nova Scoti a an d Al l Province s fo r th e Fisca l Year Ended nearest t o Decembe r 31 , 1960 4 XIII. Estimate s o f Net Genera l Expenditures an d Grants in-Aid and Shared-cost Contributions for Nova Scotia and Al l Provinces fo r Fisca l Yea r Ende d neares t t o December 31 , 1960 4 XIV. Revenue s o f Nov a Scotia n Municipalitie s i n 195 9 (Calendar Year) 5 XV. Analysi s of Contributions, Grants, and Subsidie s fro m the Provinc e of Nova Scotia to th e Municipalitie s i n 1959 6 XVI. Pe r Capit a Revenues of Nova Scotian Municipalitie s in 195 9 (Calenda r Year ) 6 XVII. Expenditure s o f Nova Scotian Municipalities i n 195 9 (Calendar Year ) 6 XVIII. Pe r Capit a Expenditure s o f Nov a Scotia n Munici palities i n 195 9 (Calenda r Year ) 6 XIX. Allocatio n o f Cost s of Educatio n i n Nov a Scotia fo r Selected Years , 1870-1940 6 XX. Municipa l an d Provincia l Outlays for Public Educa tion i n 195 9 (Calenda r Year ) 7 XXI. Unconditiona l Provincia l Grant s t o Nov a Scotia n Municipalities a s Ratio s o f Ta x Renta l an d Tax sharing Payment s fro m th e Dominio n and , fo r Selected Years , of Municipa l Tax Revenue s 8 XXII. A Compariso n o f Unconditiona l Grant s pe r Capit a and Expenditur e per Capit a fo r th e Thre e Type s of Municipality 9 XXIII. A Compariso n o f Unconditiona l pe r Capit a Grant s With Tota l Ta x Revenu e pe r Capit a fo r th e Thre e Types o f Municipalit y 9 XXIV. Member s of the Labou r Forc e without Job s Seekin g Work as a Percentage o f the Total Labour Force , fo r Nova Scoti a an d Canada , for Selecte d Year s 10 XXV Distributio n o f Mal e Wag e an d Salar y Earner s b y Occupational Groups , and Median Earnings fo r eac h Group, fo r Nov a Scotia an d Canada , 195 1 10

8

9 9 0

1 2 3 7 4

9 0 1 3 5

Tables and Figures xvi XXVI. Populatio n Distributio n b y Ag e for Nov a Scotia an d Canada, 1951 an d 195 6 10 XXVII. Percentag e o f Mal e an d Femal e Populatio n i n th e Labour Forc e in Nov a Scotia an d Canad a i n 195 1 10 XXVIII. Ne t Valu e of Production pe r Worke r b y Industr y i n Nova Scotia as a Percentage o f Net Valu e of Production i n Ontario , 195 3 10 XXIX. Educationa l Leve l o f th e Labou r Forc e fo r Nov a Scotia an d Canada , 195 1 10 XXX. Estimate d Importance of Various Factors Accounting for th e Disparit y i n pe r Capit a Earne d Incom e be tween Ontari o and the Atlantic Region, 1951 10 XXXI. Cas h Incom e Fro m th e Sal e o f Far m Product s an d Net Income of Farm Operator s fro m Farmin g Opera tions fo r Nov a Scotia , 195 9 11 XXXII. Leadin g Manufacturin g Industries o f Nov a Scotia , 1958 13 XXXIII. Provincia l Proportion s fo r th e Nov a Scotian Munici palities Base d o n th e 195 8 Equalize d Assessment s and o n th e 195 7 Cos t o f the Foundatio n Progra m 16 XXXIV. Unifor m Assessment s per Capit a o f Nov a Scotia n Municipalities, 195 8 19 XXXV. Incom e pe r Taxpaye r o f Payer s o f Personal Incom e Tax fo r th e Countie s of Nova Scotia, 1958 19 XXXVI. Propert y Ta x Revenue s of Nova Scotian Municipali ties i n 195 9 a s Percentage s o f th e 195 8 Unifor m Assessments 20 XXXVII. Actua l Municipal Assessments in Nova Scotia in 195 8 as Percentage s o f Unifor m 195 8 Assessment s Made by Revaluatio n Commission 20 XXXVIII. Divisio n o f Municipa l Expenditure s i n Nov a Scoti a into Loca l an d Genera l Services , 195 9 20 XXXIX. Rati o of Municipal Assessments of Personal Propert y to Commissio n Valuation, 1958 21 XL. A Provincia l Gran t Schem e t o Enabl e th e Munici palities t o Maintai n a Foundatio n Programm e for a Service wit h a Unifor m Tax Burden , wit h n o Flat rate Gran t 22

i 6 7 7 8 9 6

5 2 8 9 0 1 2 3

6

xviii

Tables and Figures

XLI. A Provincia l Gran t Schem e t o Enabl e th e Munici palities t o Maintai n a Foundatio n Programm e fo r a Service with a Uniform Ta x Burden, with a Flat-rate Grant o f 10 Per Cen t 22 XLII. A Provincial Gran t Schem e t o Enabl e th e Munici palities t o Maintai n a Foundatio n Programm e fo r a Service with a Uniform Ta x Burden, with a Flat-rate Grant o f 20 Per Cen t 22 XLIII. Provincia l Grant s t o Suppor t Non-capita l Cost s o f Foundation Progra m fo r Educatio n i n Nov a Scoti a with an d withou t 2 5 Per Cen t Minimu m 22

7

7 8

FIGURES

1. Locatio n an d 195 6 Populatio n o f Nov a Scotia' s 2 4 Rura l Municipalities, 3 9 Towns, an d 3 Cities 5

3

2. Graphica l Illustration s o f th e Egalitaria n Postulat e 18

5

FISCAL ADJUSTMEN T AN D ECONOMIC DEVELOPMEN T

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I

Introduction

IT is TH E PURPOSE o f thi s stud y t o determin e principle s o f provincial municipal, o r state-municipal , fisca l adjustmen t consistent wit h soun d economic development , tha t i s wit h optimu m allocatio n o f resources , and t o appl y thes e principle s i n a cas e stud y o f Nov a Scotia. Mos t of the theoretica l discussio n i s relevan t t o an y provinc e o r stat e i n a federal country , and muc h o f it t o fiscal adjustment between an y tw o levels o f government, whether a countr y has a federal o r unitary for m of government. Ordinarily the theoretical argumen t would come at the beginnin g of a combine d theoretica l an d empirica l study ; but, a s an examinatio n of the relatio n o f fisca l adjustmen t t o economi c developmen t i n Nov a Scotia require d th e introductio n o f muc h materia l o n th e economi c and fiscal structure of the province before discussing provincial-municipal fiscal adjustment, the mos t satisfactory arrangement seemed t o b e that followe d her e o f placin g th e theoretica l discussio n afte r thi s background materia l bu t befor e th e empirica l chapter s o n fisca l adjustment in Nova Scotia. Nova Scoti a i s a low-incom e province . Ove r th e five-yea r period , 1956-60, it s averag e annua l persona l incom e pe r capit a wa s $1,077 , compared wit h $1,45 1 for Canada , an d $1,72 1 for Ontari o an d $1,72 7 for Britis h Columbia, the richest provinces. The amount for Nova Scotia was onl y 74.2 pe r cen t o f tha t fo r Canada , 62. 6 per cen t o f tha t fo r Ontario, and 62. 4 per cen t o f that for Britis h Columbia. 1 Being a poo r province, Nov a Scoti a canno t tolerat e wast e o n a scal e tolerabl e b y Ontario o r Britis h Columbia . O f grea t importanc e t o a ric h province , iQalculated fro m Dominio n Burea u o f Statistic s (hereinafte r D.B.S.) , National Accounts Income and Expenditure, 1960 (Ottawa: Queen's Printer, 1961) , p. 40 .

4

Fiscal Adjustment and Economic Development

the best allocation o f resources is, therefore, of even greater importanc e to a poor on e like Nova Scotia. It i s more urgent fo r a poo r tha n fo r a ric h provinc e t o find the optimu m divisio n betwee n th e publi c an d the privat e sectors , fo r in a poor provinc e th e balanc e a t th e margi n between publi c good s and private good s is at a point wher e margina l social benefit and marginal social burden ar e greater tha n in a wealthy province, assumin g similar attitude s toward s public an d private good s in the two provinces; 2 an d i t i s more urgent tha t th e resource s withi n both sectors be put to their most effective uses. All four o f the Atlantic Provinces (th e term includes Newfoundland, which Maritim e Province s doe s not) ar e low-incom e provinces. Nova Scotia ha s th e highes t persona l incom e pe r capit a o f th e four . Thei r economies ar e sufficientl y alik e t o mak e applicable t o al l som e of th e generalizations whic h ca n be mad e abou t Nov a Scotia. Bu t there ar e also important respect s i n which they diffe r an d th e discussio n wil l b e less equivoca l i f reference i s made throughou t onl y to Nov a Scotia . There ar e man y determinant s o f th e allocatio n o f resources , som e within th e reac h o f democrati c governmen t an d som e not . I t i s on e of the primary functions o f government to determine the broad divisio n between th e publi c an d private sectors , an d ther e ar e many decisions of governmen t tha t affec t th e allocatio n o f resource s withi n bot h sectors. Amon g th e latte r i s the patter n o f provincial-municipa l fisca l relations. Thi s patter n obviousl y affect s th e allocatio n o f resources i n the publi c sector . I t als o affect s i t i n th e privat e sector . Th e patter n of fisca l relation s i s b y n o mean s th e mos t importan t determinan t i n the latter sector, but i t is one which is under the contro l of government and on e whic h a poo r provinc e canno t affor d no t t o exploi t t o th e full.3 Improve d allocation of resources resulting from fiscal adjustments would i n turn hav e favourable fiscal consequences. Althoug h it i s un likely tha t Nov a Scotia , eve n i f it s resource s wer e use d a s effectivel y as possible , coul d expec t t o hav e a s high a pe r capit a incom e a s th e more favourabl y endowe d provinces , it s fiscal capacity wil l neverthe less be greater with improved use of resources. It i s the concer n o f this stud y to explai n wh y Nov a Scotia i s a lowincome province an d t o conside r wha t pattern o f provincial-municipa l fiscal relations woul d b e mos t conduciv e t o th e bes t us e o f it s re sources. To achieve this purpose i t will be necessary t o determin e an d 2

Compare A. C . Pigou , A Study in Public Finance (3r d edition , revised ; Lon don: Macmilla n and Co., 1949), pp. 31-2 . 3 This study , then , i s not primaril y concerne d wit h mor e direc t way s o f influen cing economic development, suc h as subsidies an d tax concessions t o industries.

Introduction

5

apply th e principle s o f fiscal adjustment consistent wit h th e bes t us e of th e province's resources ; an d als o to discover th e effect s o n resource allocation o f particula r kind s an d level s o f governmen t services . Where the y ar e relevant , th e traditiona l norm s o f publi c finance , equity in particular, will also be brought into the discussion . A consideration of provincial-municipal fiscal relations woul d appear to be timely, for it is becoming more and more evident that substantia l changes in municipal finance in Canada, generally , ar e sorely needed. Property wa s possibl y a n adequat e loca l ta x bas e whe n financia l demands on the municipalities were fairly modest; but a s the demand s of societ y fo r service s hav e grown , an d a s wha t wer e onc e regarde d as local services hav e come to be considere d genera l service s o f wide r interest, no t onl y hav e loca l revenue s becom e inadequate , bu t th e appropriateness o f municipa l responsibilit y fo r providin g man y o f these traditional services can be called into question. Therefore, in any consideration o f adjustment s i n provincial-municipa l fisca l relations , these problems must be dealt with . Much o f th e treatmen t o f fiscal adjustment wil l b e relate d t o th e principle o f fisca l equit y develope d b y J . M . Buchanan. 4 Thi s prin ciple wil l b e discussed a t lengt h late r on ; the followin g terse descrip tion is intended merely to give the reader an initial inkling of its meaning an d significance . Buchanan argues tha t i f th e fisca l treatmen t o f otherwise similarl y situate d taxpayer s i n differen t provinces 5 i s no t equal, there will be pressure on those less favourably treated t o move themselves o r thei r capital , o r both , t o wher e th e treatmen t i s mor e favourable. Th e pressur e ma y tak e th e for m o f heavie r ta x burdens , inferior services , o r a combinatio n o f both. I n a federa l countr y lik e Canada o r th e Unite d States , whic h i s economicall y integrated o n a national scale i n that labou r an d capita l ar e fre e t o mov e throughout the country according to the marginal productivity rule, it is anomalous that differentia l fisca l pressure s i n th e differen t province s o r state s should caus e factor s t o b e locate d wher e thei r productivit y i s les s than it would be elsewhere . To eliminat e differentia l fisca l pressure s an d thei r harmfu l effect s on the allocation of resources, Buchanan proposes that transfers should be mad e from high-incom e to low-incom e provinces, eithe r b y means 4

J. M . Buchanan , "The Pur e Theor y o f Governmen t Finance : A Suggested Approach," Journal of Political Economy, XLVI I (December , 1949) ; an d "Federalism an d Fisca l Equity, " American Economic Review, XL (September , 1950), passim. 6 Buchanan, sinc e he develop s his argument s wit h regard t o th e Unite d States , refers t o "states, " but "provinces " i s mor e appropriat e i n this , Canadian , context.

6

Fiscal Adjustment and Economic Development

of equalizatio n grant s fro m th e federa l government , o r b y mean s of differential federa l tax rates in the differen t provinces , to make possibl e equal fisca l treatmen t o f equals . Eve n wit h perfec t allocatio n o f resources throughou t th e nation , province s woul d stil l diffe r i n pe r capita incom e becaus e o f lac k o f uniformit y i n th e distributio n o f natural resources an d o f high- an d low-incom e occupations, an d fiscal adjustment a s jus t describe d woul d therefor e stil l b e necessary . Although Buchana n develope d thes e proposition s wit h referenc e to fiscal adjustment at the federal-provincial level , they ar e also applic able at the provincial-municipal level. Indeed, fo r the principle o f fiscal equity t o b e full y applie d i n a federa l countr y i t mus t b e followe d through a t th e provincial-municipa l level . Th e federa l governmen t makes grant s t o provincia l governments , no t t o individuals ; whethe r the principl e o f fiscal equity is implemented o r not depend s upo n th e effects o n individual s o f th e provinces ' us e o f th e grants . Thi s poin t requires emphasis , fo r to o ofte n discussion s i n publi c financ e sto p with consideration o f relations between government s of different level s or betwee n government s an d th e peopl e a s a whole ; whereas , ulti mately, public policy of the type envisaged her e can only be meaningfully assesse d in term s of its effec t o n individua l citizens . A provincia l government ha s considerabl y mor e freedo m t o effec t adjustmen t between itsel f an d it s municipalities, sinc e the y ar e it s ow n creations , than ha s th e federa l governmen t t o effec t adjustmen t betwee n itsel f and th e provinces , whic h posses s a larg e amoun t o f sovereignt y i n their own right. Since th e ai m o f thi s stud y i s t o arriv e a t a prescriptio n fo r fisca l adjustment whic h wil l b e conduciv e t o optimu m allocatio n o f re sources, it wil l b e necessar y to determin e wha t economi c adjustments are require d t o achieve , o r a t leas t approach , thi s optimum . Deter mining the desirabl e direction s o f economic development is no simpl e task. At many points empirica l evidence is unavailable or inconclusive, and assumption s have had t o be mad e unsupported b y suc h evidence . However, in most cases these can be supported at least by the informe d opinions o f people o f good judgmen t who ar e familia r wit h th e prob lems of Nova Scotia. (Thes e opinions have been solicite d i n confiden tial interview s conducte d b y th e write r wit h abou t twent y suc h people. ) Each person was chosen for his special knowledge about some particular aspec t o r aspect s o f th e econom y o f th e province . Thes e interviews wer e valuabl e a s source s o f informatio n an d o f judgments not availabl e elsewher e and a s checks on the soundnes s of the writer' s

own reasoning.

Introduction

7

Some essential backgroun d material is introduced i n chapter s n , m, and rv. One cannot clearly understand the provinces's presen t economi c problems withou t knowin g something o f its geograph y an d it s econo mic history , henc e chapte r n . Sinc e th e abilit y o f a low-incom e pro vince t o effec t adjustment s relating t o it s municipalitie s i s t o a larg e extent determine d b y it s relation s wit h th e Dominion , an d sinc e th e degree t o which optimum fiscal adjustment can be accomplished i n th e nation a s a whole depend s initiall y upo n fiscal adjustment amon g th e provinces, chapte r m o n federal-provincia l relation s i n Canad a ha s been included . Finally , i n orde r t o discus s adjustment s in provincial municipal relation s i t i s necessary t o kno w about municipa l organization an d financ e i n Nov a Scotia an d abou t provincia l participatio n i n the performanc e o f municipal function s (chapte r rv) . Thes e chapter s and chapter s v and vi, although integrated wit h th e res t o f the study , are writte n s o tha t the y ca n stan d b y themselve s fo r th e benefi t of readers no t concerne d wit h th e theor y an d problem s o f fisca l adjust ment, whic h ar e th e cor e o f th e study . Chapte r v n o n th e principle s of fisca l adjustmen t ca n als o be rea d i n isolatio n fro m th e res t o f th e study, a s thi s theoretica l discussio n i s relevan t t o an y provinc e o r state. Inevitably muc h o f th e statistica l dat a use d wil l ge t ou t o f dat e quickly; bu t i t i s hope d tha t the y adequatel y serv e thei r analyti cal an d illustrativ e purpose s an d tha t thei r organizatio n i n thi s study will continue to be sufficiently relevan t tha t th e reader intereste d in doing so can readily bring them up to date himself. Since chapte r v i s essentiall y a continuatio n o f th e discussio n i n chapter n , ther e woul d b e som e valu e i n puttin g the m nex t t o on e another; but , a s this study is primarily concerned wit h publi c finance , it wa s decided t o introduc e th e materia l i n chapter s m an d r v at thi s early stage , rathe r tha n afte r chapte r v . Thi s arrangemen t ha s th e further advantage s tha t chapte r v i develop s directl y fro m chapte r v and tha t th e mai n threa d o f th e argumen t run s withou t interruptio n from chapte r v t o th e en d o f th e study . Eve n so , th e reade r ma y prefer t o ski m chapter s m an d i v fo r th e presen t an d examin e them in more detail later, in conjunction with chapters vm and ix.

II

The Econom y o f Nov a Scotia : A Geographica l an d Historica l Perspective

THE GEOGRAPHY OF NOVA SCOTIA1

NOVA SCOTI A i s a lon g narrow peninsula hel d b y th e continen t a t th e middle and thrust out into the north Atlantic Ocean which ha s carve d a heavil y indente d coastlin e alon g th e whol e o f th e par t directl y exposed t o it . Th e provinc e run s northeas t t o southwes t fo r a tota l distance o f 37 4 miles , o f whic h Cap e Breto n Island , no w joine d t o the mainlan d b y a causeway , account s fo r 106 . Th e widt h range s from 6 0 to 10 0 miles. Nova Scotia is 21,068 squar e mile s i n area . Like the othe r Maritim e Province s an d th e Ne w Englan d States , Nov a Scotia i s par t o f tha t ancien t geologica l formation , the Appalachia n Region. Althoug h a n uplan d extend s lik e a backbon e fo r th e entir e length of the province , th e regio n is not reall y a single formation, but consists of five groups of highlands and a s many lowlands. The populatio n o f Nov a Scoti a wa s estimate d i n th e 196 1 censu s to b e 730,007 , abou t 4. 0 per cen t o f tha t o f Canad a an d abou t 38. 8 per cen t o f tha t o f th e Atlanti c Provinces . Halifax , th e capita l an d largest city, accounted for 92,511 persons; Sydney for 33,617; and Dart ïMuch of the materia l i n this section i s based upon : S . A. Saunders, Studies in the Economy of the Maritime Provinces (Toronto : Macmilla n Compan y o f Canada, 1939), pp. 1-13 ; A . W. Currie, Economic Geography of Canada (Toronto : Macmillan Compan y of Canada , 1945) , pp . 1—101 ; an d Jame s Wreford Watson, "The Geography, " i n Canada, edite d b y Georg e W . Brow n (Berkele y an d Lo s Angeles: University of California Press, 1950), pp. 33-52.

The Economy of Nova Scotia: A Perspective 9 mouth for 46,966; the thirty-nine incorporate d towns , ranging from 800 to 24,186 , fo r 172,573 ; an d th e rura l areas , includin g villages , fo r th e balance of 391,340. Of th e many rivers, the longest, the Mersey , is only about fifty miles long. Their shortnes s i s determined b y th e smallnes s o f th e provinc e and by the fact tha t most of them flow southeast or northwest, that is, in the shor t directions. Onl y a few o f the river s ar e usefu l fo r naviga tion, bu t the y d o provid e som e electric power , practicall y al l o f th e potential o f any significance having already bee n developed , an d the y are valuabl e t o th e fishing industry a s spawnin g ground s an d t o th e tourist industry for sport fishing, as are the numerous lakes. The largest lakes, th e Bra s d'O r Lakes , ar e reall y a n inlan d ar m o f th e se a an d almost cut Cape Breton Island into two parts. The continenta l influenc e o n th e climat e o f th e prevailin g wind s from th e wes t an d northwes t i n the winter , an d th e sout h and south west i n th e summer , is modifie d b y th e oceani c influences . The Gul f Stream i s deflected eastward, away fro m th e land , of f Halifax, by th e Labrador Current , whic h sweep s dow n aroun d th e easter n en d o f Labrador. Th e ne t resul t i s i n genera l a cool , humid , temperat e climate, with pleasant but shor t summers and moderately cold winters. The variet y o f influences , however , produce s considerabl e variatio n for th e siz e of the province; the southwester n part, fo r example, comes more unde r th e influenc e o f th e Gul f Strea m an d th e northeaster n part mor e under th e influenc e o f the Labrado r Current . Th e averag e temperature a t Halifa x fo r th e yea r aroun d i s 44 ° F. , fo r Februar y 23° F., and fo r July and August 64° F. Th e averag e annua l precipitation a t Halifa x is about 5 5 inches distribute d fairl y evenl y throughout the year , whil e tha t fo r th e provinc e a s a whol e i s abou t 4 5 inches . The soil, which is of the brown podsolic type, is in general " . .. thin, low in fertilit y an d organi c matter , and highl y acid" 2 an d s o require s considerable fertilize r and lime . There is , however, grea t variatio n i n the qualit y o f soil over even very small areas, an d some , such a s tha t in the Annapoli s Valley, is of much better tha n averag e quality. Frui t (mainly apples ) i s grown in th e Annapoli s Valley, and poultr y farm ing, dair y farming, livestock raising , an d mixe d farmin g ar e carrie d on in most of the agricultura l areas. The climat e and soi l are generall y suitable for forest growth . It ha s 2

W. M. Drummond, W. Mackenzie , et al., Progress and Prospects of Canadian Agriculture ( A stud y for th e Roya l Commissio n o n Canada's Economic Prospects ; Ottawa: Queen' s Printer , 1957) , p . 146 . Th e Roya l Commissio n o n Canada' s Economic Prospect s will sometime s b e referre d t o hereafte r a s th e Gordo n Commission, after it s chairman, W. L. Gordon.

10

Fiscal Adjustment and Economic Development

recently bee n estimate d tha t o f th e tota l lan d an d fres h wate r are a of 13,342,11 0 acre s i n th e province , 9,378,51 8 (70. 3 pe r cen t o f th e total) ar e productiv e fores t lan d an d 1,453,37 8 (10. 9 pe r cen t o f th e total) ar e agricultura l an d othe r improve d land. 3 O f thi s tota l are a of productiv e forest , 55 per cen t contains softwood , 39 per cen t mixe d wood, an d th e balanc e o f 6 pe r cen t hardwood. 4 Althoug h lumbe r production ha s decline d wit h th e exhaustio n o f timbe r suitabl e fo r lumber, th e fores t industry , wit h prope r management , ha s a fairl y good long-ru n potential i n th e productio n o f pulp . The fisheries (both offshor e an d inshore ) ar e probabl y th e natura l resource i n whic h th e provinc e ha s th e stronges t natura l advantag e and th e greates t long-ru n economi c potential . Th e offshor e fisherie s on the variou s fishin g bank s of f the Nov a Scotia n an d Newfoundlan d coasts requir e fairl y larg e vessel s whic h ca n sta y awa y fro m por t fo r a numbe r o f days. They yiel d co d an d haddoc k i n th e main , but als o other varietie s o f groundfis h (fis h tha t fee d o n th e botto m o f th e ocean), suc h a s halibu t an d hake . Th e inshor e fisheries , extendin g over mos t o f th e water s nea r th e coast , especiall y o n th e Atlanti c shore, requir e smaller , frequently one-man , boats whic h g o out by th e day afte r cod , haddock, pollock, herring , mackerel , salmon , swordfish , tuna, an d shellfish (mainl y scallops, clams , and th e ubiquitou s lobster , the larges t singl e money-earner after cod) . Ther e ar e numerou s smal l fishing villages and a few fishing towns all around th e coast , especiall y on th e ver y heavil y indente d Atlanti c shore , wher e th e ocea n ha s carved ou t hundred s o f cove s with varyin g degree s o f shelte r an d a number o f fine big harbours . The man y varieties o f rock formation, of minerals, an d o f geologica l ages represente d i n Nov a Scoti a mak e i t a geologist' s paradise . Ye t though man y a geologis t ha s bee n know n t o wa x enthusiasti c abou t the minerals , economicall y exploitabl e deposit s ar e foun d t o consis t chiefly o f coa l an d industria l mineral s suc h a s salt , gypsum , an d barytes. Coa l deposit s bot h o n th e mainlan d an d o n Cap e Breto n Island have long held a dominant plac e in the province's economy , bu t can no w b e mine d onl y a t hig h cos t an d markete d outsid e o f th e Maritime Province s onl y wit h th e assistanc e o f larg e federa l freigh t subventions. Extensiv e gypsum deposits foun d in severa l part s o f th e province, especiall y i n Hant s County , accoun t fo r abou t 8 0 per cen t 3 Government o f Nov a Scotia , Departmen t of Land s an d Forests , The Forest Resources of Nova Scotia ( 1958), p. 28 . *Ibid., p . 74 . I n th e perio d 1952-6 th e provinc e produced an annua l average of 340,488,17 1 f.b.m . o f sawlog material and 354,87 6 cord s o f pulp woo d an d pi t props, ibid., p. 38.

The Economy of Nova Scotia: A Perspective 1

1

of Canadia n production. 5 Practicall y al l o f Nov a Scotia' s outpu t i s exported t o th e Unite d State s i n ra w form . Sal t i s mined a t Pugwas h on th e Northumberlan d Shor e an d i s als o obtaine d a t Nappa n nea r the Ne w Brunswic k border . Baryte s i s obtaine d fro m a n immens e deposit a t Walton near the souther n shore o f Minas Basin and shippe d to th e Unite d State s an d Sout h America . Limeston e an d buildin g materials, quarrie d mainl y fo r loca l use , accoun t fo r mos t o f th e res t of production . The manufacturin g of the provinc e i s mainly what migh t b e calle d primary manufacturing , as in th e case s o f fish and othe r foo d proces sing, the productio n o f primary iron an d steel , th e millin g o f lumber , and th e makin g o f pul p an d paper . Muc h o f th e secondar y manu facturing industr y is smal l an d supplie s onl y loca l markets , a s i n th e case of baker y products . Som e of the exception s ar e th e manufactur e of railwa y rolling stoc k a t Trento n a s a n adjunc t o f th e primar y stee l industry, o f som e textiles (severa l firm s suppl y nationa l markets) , of pleasure boat s a t Weymout h an d othe r centres , whic h ar e sol d i n th e United State s and elsewhere , an d o f confectionery at Halifax . Defence is a ver y importan t facto r i n th e manufacturin g picture, especiall y i n the Halifa x area , whic h i s th e easter n headquarter s fo r th e Roya l Canadian Navy . Shipbuildin g an d repairing , aircraf t repairing , th e production o f electroni c equipment , an d oi l refinin g ar e al l heavil y dependent o n the nava l installations . The tourist industry is important to the province , although it s valu e is difficul t t o measure . Th e mai n touris t attraction s ar e th e seacoast , both fo r it s sceni c beauty an d fo r recreation , th e summer s which ar e pleasant compare d wit h thos e o f th e larg e citie s o f centra l Canad a and th e easter n Unite d States , the spor t fishing and hunting , an d th e alleged leisurel y pac e o f life . Sinc e the provinc e i s not wel l endowe d with natura l resource s i n relatio n t o population , th e potentia l o f th e tourist industr y shoul d b e full y explore d an d exploited , althoug h th e shortness o f th e seaso n inhibit s investmen t o f capita l an d i s unsatisfactory fo r thos e requirin g year-aroun d employment . The Provinc e i s serve d wit h a variet y o f transportatio n facilities . Since th e 1930' s th e governmen t has vigorousl y pursue d a polic y o f paving al l trunk an d othe r importan t highways. A n extensive network of goo d road s i s importan t bot h fo r th e touris t industr y an d fo r th e motor truckin g industry , a s wel l a s fo r th e genera l facilitatio n o f 5 John Davis, Mining and Mineral Processing in Canada ( A stud y for th e Roya l Commission o n Canada' s Economi c Prospects ; Ottawa : Queen' s Printer , 1957) , p. 226.

12

Fiscal Adjustment and Economic Development

commerce—especially sinc e ther e ar e man y small centre s o f industr y connected wit h farming , fishing, an d forestry . The Dominio n Atlanti c Railwa y ( a subsidiar y o f th e Canadia n Pacific Railway ) run s fro m Halifa x throug h th e Annapoli s Valle y and o n to Yarmouth, with a ferry operatin g betwee n Digb y an d Sain t John, Ne w Brunswick , an d connectin g ther e wit h railwa y line s t o Boston (freigh t only ) an d Montreal . The mai n lin e o f th e Canadia n National Railways runs fro m Halifa x across the provinc e t o Moncton , New Brunswick , and fro m there , wes t t o Montrea l an d sout h t o th e United States . A branc h lin e fro m Sydney , wher e ther e i s a ferr y connection wit h Newfoundland, meets the main line at Truro. Another line runs fro m Halifa x to Yarmout h along the Sout h Shore. There ar e also othe r les s importan t line s o f th e tw o railroa d system s i n th e province. Trans-Canada Ai r Lines has flights connectin g Halifax, Sydney, an d Yarmouth wit h Montreal , Fredericton , Sain t John , an d Boston , an d with point s i n Newfoundlan d an d i n Europe . A regiona l ai r line , Maritime Centra l Airways , link s u p a large r numbe r o f Maritim e centres includin g som e of the smalle r ones. Shipping b y wate r i s o f cours e ver y importan t wit h a locatio n hic e Nova Scotia's . Halifax , th e mai n seaport , ha s a fine , well-service d harbour which is ice-free the year around . Its bus y season, like that of its rival , Sain t John , Ne w Brunswick , is i n th e winte r whe n th e St . Lawrence port s o f Quebe c an d Montrea l ar e icebound , makin g th e longer rail haul between centra l an d western Canad a an d th e easter n seaports necessary . However , Ne w Yor k an d othe r America n port s get a larg e par t o f thi s traffic , t o th e continua l annoyanc e o f Mari timers. In additio n t o th e traffi c o f tramp freighters, ther e are regula r calls b y liner s connectin g wit h Europea n an d America n ports. Ther e is now year-around ferry service between Yarmout h and Ba r Harbour , Maine; Caribo u (nea r Pictou ) an d Woo d Islands , Princ e Edwar d Island; Tormentine , Ne w Brunswick , an d Borden , Princ e Edwar d Island; an d Sydne y and Por t au x Basques, Newfoundland; as well a s the servic e alread y mentione d betwee n Digb y an d Sain t John . Ther e is als o considerabl e movemen t of freight a t othe r ports ; fo r example , iron or e and limeston e ar e brough t int o Sydney , and iron , steel , an d coal ar e shippe d fro m Sydney ; also, gypsum is exporte d fro m Hants port, apple s fro m Por t William s (nea r Kentville) , fish products fro m Lunenburg, an d newsprin t fro m Liverpool . In spit e o f al l thes e facilities , transportatio n remain s a basi c problem o f th e Nov a Scoti a economy , principall y becaus e th e lon g

The Economy of Nova Scotia: A Perspective 1

3

distance fro m centra l Canad a (ove r 800 miles to Montreal , an d abou t 1,200 t o Toront o fro m Halifax ) impose s seriou s disadvantage s upo n Nova Scotia n producers competin g in the mai n Canadian marke t area there, bu t als o becaus e th e heavil y indente d coast s o f Nov a Scoti a and Ne w Brunswic k mak e lan d transportatio n circuitou s an d awkward. THE ECONOMIC HISTORY OF NOVA SCOTIA6

The salien t feature of Nova Scotia's economi c history ove r th e pas t century has been the failur e of the provinc e t o adjus t satisfactorily t o the deterioratio n o f a well-integrated , sea-oriente d economy , fo r which it s resource s an d locatio n ha d bee n wel l suited , b y switchin g to a n inland-oriente d economy , for whic h the y wer e no t wel l suited . As a result , Nov a Scotia , lik e th e othe r Maritim e Provinces , ha s remained on the peripher y o f the transcontinenta l development o f th e Canadian nation. Even i f resources an d locatio n ha d bee n wel l suite d to a n inlan d orientatio n toward s centra l an d wester n Canada , th e fundamental change s required i n the firmly established economi c and social structur e o f th e provinc e woul d likel y hav e bee n difficul t t o make an d slo w i n coming . A s i t was , adjustmen t o f th e economi c structure wa s impeded b y th e unsuitabilit y o f resources and location . The economi c problems facing Nov a Scotia today ar e largel y o f thes e same origins and i t i s therefore necessary to hav e som e knowledge of the province' s economi c history to understand these problem s clearly . The grea t co d fisherie s of f the coast s o f Newfoundlan d and Nov a Scotia attracte d European s to the regio n afte r Cabot' s voyag e of 149 7 and continue d t o dominat e the econom y of what i s now Nov a Scoti a for mor e than tw o centuries . The Frenc h controlle d th e mainlan d of Nova Scotia for most of the perio d unti l 171 3 an d Cap e Breto n Island until 1763, whe n the Treat y of Paris gav e Britain all of France's Cana dian possessions except the small islands of St. Pierre an d Miquelon . In 6

Much o f th e materia l i n thi s sectio n i s base d upon : Saunders , Studies; S. A . Saunders, Economic History of the Maritime Provinces ( A researc h stud y pre pared fo r th e Roya l Commissio n o n Dominion-Provincia l Relations ; Ottawa : King's Printer , 1940) ; H . A . Innis , The Cod Fisheries: The History of an International Economy (revise d edition ; Toronto : Universit y o f Toront o Press , 1954) ; B. S . Keirstead, The Theory of Economic Change (Toronto : Macmilla n Compan y of Canada , 1948) ; W. T. Easterbroo k an d Hug h G . J. Aitken , Canadian Economic History (Toronto : Macmilla n o f Canada , 1956) ; Georg e W . Brown , éd. , Canada (United Nation s Series , edite d b y Rober t J . Kerner ; Berkele y an d Lo s Angeles : University o f California Press , 195 0 ) ; and R . D. Rowland , Some Regional Aspects of Canada's Economic Development ( A stud y fo r th e Roya l Commissio n o n Canada's Economic Prospects ; Ottawa : Queen's Printer, 1958).

14

Fiscal Adjustment and Economic Development

1763, Nov a Scotia include d al l o f wha t ar e no w th e thre e Maritim e Provinces, bu t i n 176 9 Princ e Edwar d Islan d an d i n 178 4 Ne w Brunswick an d Cap e Breto n Islan d wer e mad e separat e provinces . The presen t boundarie s o f Nov a Scoti a dat e fro m 182 0 whe n Cap e Breton Island was again made part of Nova Scotia. In th e las t quarte r o f the eighteeent h century , fishing was still th e main occupation , bu t forestry , shipbuilding , an d trading , mostl y with Grea t Britain , New England, an d the West Indies , were develop ing rapidly . Farming , excep t i n th e Ba y o f Fund y region , develope d more slowl y an d wa s mainly a subsistenc e occupation . I t wa s a t thi s time that , unde r th e stimulu s o f Britis h mercantil e polic y whic h pro vided protecte d market s in th e Britis h Wes t Indie s fo r Nov a Scotia' s cod and , durin g th e Napoleoni c wars , i n Britai n fo r it s timber , th e "Golden Age " o f th e wood-wind-wate r econom y began . Thi s wa s a period whe n the product s o f the fores t an d se a were carrie d i n wind propelled woode n ships, which saile d th e seve n seas. For Nov a Scotia this er a o f prosperity laste d unti l th e thir d quarte r o f the nineteent h century, an d wa s share d b y th e othe r Maritim e Provinces , especiall y New Brunswick , an d als o b y Ne w England . Extensiv e shipbuildin g all along the coas t of Nova Scotia was stimulated b y the natura l desir e of th e peopl e t o carr y thei r ow n fis h an d lumbe r t o market s an d t o bring neede d agricultura l commoditie s and manufacture s bac k home . These development s wer e bot h accelerate d b y an d conduciv e t o th e influx o f large number s o f Unite d Empir e Loyalist s afte r 178 3 an d o f British settlers and British capital . The shipbuilding an d carrying trade, which had begu n fro m natura l roots t o suppl y loca l needs , extende d fa r beyon d loca l demands . I n fact th e Maritime s became a majo r commercia l maritim e power . I n the middle of the nineteent h centur y the y stoo d fourt h in the worl d i n registered tonnage. 7 The n a s no w i t wa s commo n fo r th e sam e individual t o engag e i n farming , fishing , an d forestr y activities , an d not uncommo n for hi m als o t o buil d hi s ow n shi p an d carr y hi s ow n produce t o market . Smal l manufactorie s develope d i n man y centres , partly in response t o local demand and partly t o provide th e seagoin g traders wit h mor e diversified cargoes. Halifax was the mos t importan t commercial centre, bu t th e activities describe d abov e wer e well distri buted alon g the coast . Throughout mos t of the first half o f the nineteent h centur y the pro vince depende d upo n import s fo r man y o f it s foodstuffs . Agricultur e continued t o lag for a number of reasons: men tended t o be drawn into ''Report of the Royal Commission on Dominion-Provincial Relations (Ottawa : King's Printer, 1940), I, 22.

The Economy of Nova Scotia: A Perspective 1

5

the more lucrative and exciting fishing, forestry, an d tradin g activities ; farming techniqu e was poor and goo d roads were lacking ; foo d coul d be importe d easil y from place s wher e th e lan d wa s more fertile. Most of th e loca l productio n consiste d o f livestoc k an d dair y products , areas in which foreign competitio n was weaker. The wav e o f immigratio n tha t cam e afte r th e Napoleoni c War s reached it s peak i n th e 1840' s an d virtuall y cease d i n Nov a Scotia b y 1850, a t whic h tim e it s populatio n stoo d a t abou t 275,000 . Althoug h the provinc e persiste d i n its effort s t o attrac t settlers , ther e wa s to b e no further substantial immigration . Nova Scotians were greatly concerned a t th e admissio n of American ships t o th e Britis h Wes t Indies ' hithert o protecte d marke t i n 1830 , and the y feare d economi c disaste r whe n thi s wa s accompanie d b y Britain's adoptio n o f complete fre e trad e i n the earl y 1850's , wit h th e consequent eliminatio n o f its preference fo r Maritim e timber. I n spit e of thes e unfavourabl e developments , prosperit y continued , i n par t a s a resul t o f the Reciprocit y Treaty o f 1854-66 with th e Unite d States , which provide d fo r fre e trad e i n natura l product s betwee n Britis h North America and th e Unite d States . Althoug h Nova Scotia cam e t o attach grea t importanc e t o reciprocity , th e treat y wa s negotiate d largely a t th e instigatio n o f th e centra l Canadia n province s ove r th e protests of Nova Scoti a against the concession s which gav e the Unite d States acces s t o th e Maritim e inshor e fisheries . Th e duratio n o f th e treaty coincide d with a period o f considerable growt h i n Nov a Scotia' s exports, especiall y o f fish and coal , an d o f continued strengt h i n ship building and in the carrying trades. It has long been argue d that reciprocity wa s the main factor contri buting t o th e prosperit y o f the perio d an d tha t th e abrogatio n o f th e treaty b y th e Unite d State s i n 186 6 wa s largel y responsibl e fo r th e ensuing declin e i n th e economi c fortune s o f th e Maritimes . S . A . Saunders ha s show n tha t whil e reciprocit y wa s n o doub t partl y responsible fo r the increase d trad e wit h th e Unite d States , "th e Reci procity Treat y contribute d les s t o th e prosperit y o f thi s perio d tha n did th e America n Civil Wa r [whic h generate d increase d demand s for Maritime products] , railwa y constructio n i n Nov a Scoti a an d Ne w Brunswick, and thos e externa l force s tha t greatl y stimulate d th e ship building industry and carrying trade."8 The ver y favourabl e conjunctur e o f condition s durin g th e perio d 8 Saunders, Studies, p. 104 . He supports this statement with extensive argument. He als o argue s convincingl y tha t th e gai n i n export s t o th e Unite d State s fro m reciprocity wa s muc h greate r i n th e Canadia n provinces than i n th e Maritimes . (Pp. 103-55.)

16

Fiscal Adjustment and Economic Development

of th e Reciprocit y Treat y create d a n economi c expansion , base d directly upo n indigenou s resources , tha t ha s neve r bee n repeate d in the province' s history . Th e momentu m of the force s at wor k durin g this er a an d th e gol d rushe s i n th e 1850' s whic h create d a stron g demand fo r fast wooden ships prolonged th e perio d of prosperity unti l the thir d quarte r o f the nineteent h century . Bu t advers e forces , mor e fundamental tha n th e freein g o f Britis h trade , wer e t o brin g goo d times t o a n end . Thes e force s ha d begu n t o operat e eve n befor e prosperity ha d begun. Nova Scotia entere d Confederatio n in 1867 , a year after the abroga tion o f th e Reciprocit y Treaty , wit h it s econom y stil l buoyant . Th e fact tha t it s prosperous , well-integrate d econom y bega n t o declin e rapidly withi n a few years after bot h th e abrogatio n o f the treat y an d Confederation, an d tha t thi s declin e wa s especiall y pronounce d afte r the introductio n o f th e federa l government' s Nationa l Polic y i n 1879 , led man y Nova Scotians to blam e Confederatio n an d federa l policie s (including th e failur e t o negotiat e a ne w reciprocit y treaty ) fo r th e ensuing year s o f chronic depressio n i n th e province . Nov a Scotia fel t it ha d bee n dragoone d int o Confederatio n unde r unfavourabl e term s by an imperial government actin g under pressure fro m th e Provinc e of Canada an d ou t o f concern abou t th e fat e of the wester n territorie s i n North America and abou t th e defenc e of British North America (con cern intensifie d b y th e ba d relation s betwee n th e Unite d State s an d Britain arisin g fro m th e Civi l War) . Thes e circumstance s enhance d the belief o f Nova Scotians that there was a direct connectio n between Confederation and their economic plight.9 The principal reaso n for Nova Scotia's economi c decline was beyond doubt the gradual undermining of its wood-wind-water economy by the ever increasing use of steel and steam, that is, by technological change . Steel steamship s replace d woode n sailin g ships , bringin g drasti c reductions t o Nov a Scotia' s carryin g trad e and , consequently , t o he r shipbuilding industry . The fact tha t the steamships had large r capacit y and greater speed an d were more expensive than sailing ships placed a premium o n volum e o f cargo . Eve n Halifa x wa s remove d fro m th e fl "From th e ver y date o f the union , there had bee n a widespread and burning conviction i n Nov a Scoti a that i t ha d bee n manoeuvre d int o a bargai n prejudicial to it s vital interests. I n th e provincia l elections held lat e i n 186 7 thirty-si x ou t of the thirty-eigh t member s elected t o th e legislatur e wer e anti-Confederates . The new Governmen t trie d desperatel y t o extricat e th e Provinc e fro m th e bond s of the union . Althoug h thes e effort s wer e unavailing , th e sentimen t agains t Con federation remaine d strong in Nova Scoti a an d wa s significant i n Ne w Brunswick." ( Report of the Royal Commission on Dominion-Provincial Relations, I , 54 . )

The Economy of Nova Scotia: A Perspective 1

7

schedule o f Cunar d steamship s i n 186 7 becaus e o f th e smallnes s o f its cargoes—a n ironi c development , fo r th e Cunar d compan y wa s started b y a Halifa x merchant, Samue l Cunard, i n 1840 . A large eco nomic hinterland ha d become a necessity for a thriving port. The attemp t t o develo p suc h a hinterlan d require d th e buildin g of railways focuse d o n a larger port , wit h th e consequen t declin e o f th e many onc e flourishin g smalle r ports , an d o f th e shipbuildin g an d other loca l industrie s clustere d around them . Suc h railways coul d b e built an d th e socia l cost s borne, bu t eve n s o the proble m woul d no t be solved, fo r a more intractable difficult y stoo d i n the way : th e idea l of shor t rai l haul s t o a heavil y populate d hinterlan d wa s lackin g i n Nova Scotia and stood little chance of developing, even with respect t o Halifax, becaus e o f the lac k o f resource s ric h enoug h t o attrac t suffi cient population. Th e long haul to central Canada failed to provide th e hoped fo r markets , eve n afte r th e Intercolonia l Railwa y wa s com pleted b y th e federa l governmen t i n 1876 . Freigh t rate s ove r tha t distance prove d t o be a serious hindrance t o trade . Th e developmen t of low-cost , large-scal e manufacturin g technique s gav e furthe r im portant advantages to firms located near large markets. There were other unfavourable factors. The easily accessible forestry resources becam e depleted , an d i n th e presen t centur y th e fores t industry me t ne w competitio n resultin g fro m th e developmen t o f vast new resource s elsewhere , especiall y o n th e wes t coas t afte r th e Panama Cana l wa s opened i n 1914 . O n the othe r hand , the pul p an d paper industr y provided ne w opportunities for using forestry resources that hav e been exploited successfully. Agriculture, never a stron g part of th e Nov a Scotia n economy , met overwhelmin g competitio n fro m western grain , eve n befor e the tur n o f the century , upon th e comple tion o f transcontinental railway s and th e extensio n of westward settle ment in North America. The introductio n o f canning an d refrigeratio n into the meat trade in the late nineteenth centur y not only encroached upon th e traditiona l fis h market s a s a resul t o f th e ensuin g competi tion o f frozen an d chille d mea t but als o brought competitio n int o th e local an d expor t mea t market s fro m wester n bee f an d othe r meats . Other development s furthe r hur t th e drie d fis h trade . Th e policie s of the Unite d State s an d o f som e Europea n countrie s fo r stimulatin g domestic suga r bee t productio n reduce d th e marke t fo r Wes t Indie s sugar an d henc e th e purchasin g power wit h whic h th e island s coul d buy fish. Mediterranean markets failed t o recover after th e Firs t Worl d War, and , to mak e matters worse, there was increased competitio n i n them fro m Iceland , Britain , an d Norway . O n th e favourabl e side , a

18

Fiscal Adjustment and Economic Development

flourishing apple industr y bega n t o develo p i n th e Annapoli s Valle y in th e lat e nineteent h centur y t o suppl y th e Britis h markets, 10 an d the lobste r an d fres h fis h trad e cam e t o mor e tha n mak e up fo r th e decline in the dried fish trade. As fo r coal , the los s o f th e market s in th e Unite d State s wa s inevi table. The increase in these markets while th e Reciprocit y Treat y wa s in forc e wa s not du e t o reciprocity but t o the dela y i n the openin g of new, lowe r cos t mine s in th e Unite d State s occasione d b y th e Civi l War. Even in the Maritime and central Canadian markets Nova Scotian coal was meeting stiff competitio n from Britis h coa l returning at ballast rates in timber ships. 11 Confederation an d th e Nationa l Policy ar e boun d togethe r i n their impact o n Nov a Scotia n developmen t i n tha t th e Nationa l Policy , which wa s reall y a serie s o f federal policie s t o develo p a transconti nental economy , wa s a logica l consequenc e o f Confederation. 12 I n brief, th e Nationa l Polic y wa s a three-pronge d plan : t o cemen t th e west t o th e eas t b y a transcontinenta l railway; t o settl e th e wes t b y immigration, both to consolidate the Dominion's claim to the west and to provid e freight , especiall y wheat , t o suppor t th e railways ; an d t o erect protectiv e tariff s o n manufacture d goods in orde r t o encourag e the developmen t o f Canadia n secondar y industry an d strengthe n th e east-west flow of trade and in doing so utilize the exces s capacity of th e railroads. Thi s well-integrate d polic y achieve d it s nation-buildin g purpose, no doubt at some economic cost. Nova Scoti a share d i n th e developmen t fostere d b y th e Nationa l Policy mainly through its expanded coal, and iro n and stee l industries. The expectation that central Canada, once the railway link with it was made by the Intercolonial Railway, would provide a large and lucrative market fo r othe r Nov a Scotia n product s wa s roundl y disappointed . Coal productio n wa s stimulate d b y th e Canadia n tarif f impose d i n 1879, whic h mad e i t easie r fo r Nov a Scotia n coa l t o reac h centra l Canadian markets , and b y th e growt h o f the iro n an d stee l industry, which was protected b y duties and further stimulate d over the perio d 1900-11 by subsidies . Since 1928 , freigh t subvention s have been pai d N>It ha s decline d greatly sinc e the en d o f World War II , mainl y becaus e of th e loss of much of the Unite d Kingdom market a s a result of th e dollar-savin g impor t restrictions impose d by tha t country ; bu t eve n earlie r it wa s sufferin g fro m com petition elsewhere , especially from Britis h Columbi a an d Britai n itself . iiSaunders, Studies, pp. 123^1. 12 Strictly speakin g th e ter m "Nationa l Policy" denote s th e protectiv e tarif f fo r Canadian industr y introduce d in 1879 , bu t i t i s commonl y use d i n th e broade r context as described here.

The Economy of Nova Scotia: A Perspective 1

9

to mak e Nov a Scotia n coa l competitiv e wit h America n coa l a t leas t as far a s Montreal. The iro n an d stee l industry wa s originall y buil t u p t o sizabl e pro portions i n respons e t o a deman d fo r stee l rail s an d railwa y car s i n the grea t railway-buildin g perio d i n th e firs t par t o f thi s century . I n its earl y day s i n th e nineteent h centur y th e industr y ha d bee n base d on smal l loca l deposit s o f iro n ore , o n loca l limeston e deposits , and , of course , o n Nov a Scotia n coal . Sinc e th e tur n o f th e century , how ever, practicall y al l o f th e or e ha s com e fro m th e Waban a deposit s on Bel l Island , Newfoundland . Newfoundlan d i s als o th e presen t source o f th e limeston e used . Sinc e 1930 , contro l o f th e bul k o f th e iron, steel , an d coa l industry has bee n integrate d i n th e hand s o f th e Dominion Stee l an d Coa l Compan y whic h ha s it s hea d offic e i n Montreal. Dosco , a s th e compan y is called , i s Canada' s thir d larges t producer o f primary iron and steel , an d i s now controlled by A . V. Roe of Canada , a subsidiar y o f th e Hawke r Siddele y grou p o f England . The primar y iro n an d stee l operation s are a t Sydney , adjacent t o th e province's majo r coa l supplies , whil e ther e i s a railwa y ca r plan t a t Trenton an d a shipyard a t Halifax . With al l of its operations near tid e water, Dosc o would appea r t o b e ver y favourabl y situated bot h wit h regard t o materials and to markets, but thi s advantag e is at least partl y outweighed b y the hig h cost s of extracting both the coa l an d th e iro n ore from submarin e mines, and by metallurgical problems arisin g fro m the hig h phosphorou s an d silic a conten t o f the iro n or e an d th e hig h sulphur conten t o f th e coal . Th e lon g distanc e t o centra l Canadia n markets an d th e freeze-u p of the St . Lawrence i n th e winte r pu t th e company a t a disadvantage , i n relation t o it s competitor s whic h hav e their plant s locate d i n Ontario , i n supplyin g diversifie d product s fo r secondary manufacturing to these major markets. The industr y was largely a product o f the Nationa l Policy but, afte r the railroa d constructio n i t ha d bee n develope d t o servic e wa s completed, i t wa s unable t o fin d anothe r secur e bas e fo r it s activities . Neither th e coa l industry nor the iro n and stee l industr y ha s exhibite d much economi c health sinc e 1913. Onl y i n the tw o worl d wars , whe n costs wer e o f secondar y importance , hav e thes e industrie s don e well . Their failur e t o prospe r i n peacetim e i s o f considerabl e consequenc e to the provincial economy. In 193 9 it was estimated that one-fift h o f the population o f Nova Scotia was dependen t upo n the coa l industr y an d its subsidiaries. 13 Th e numbe r dependen t o n th e coa l industr y alon e ls

Report of the Royal Commission on Dominion-Provincial Relations, I , 188 , n. 2 . The figur e o f one-fift h apparentl y includes the stee l manufacturin g industry .

20

Fiscal Adjustment and Economic Development

is smalle r bu t stil l substantial . A fe w year s ago , on e estimat e wa s 120,000 persons , anothe r 90.000. 14 Th e numbe r woul d b e lowe r toda y with the contraction that has taken place in the industry. It is ironic tha t these industrie s which were th e majo r development s in Nova Scotia resulting from the National Policy should constitute tw o chronic economic problems (th e iron and stee l industries less than th e coal) instea d o f providin g a basi s fo r sustaine d economi c growth . Nevertheless, considerabl e investment has been mad e since the en d of World Wa r I I i n improvin g Dosco' s stee l plan t an d coa l mine s i n Nova Scoti a an d it s iron ore mine at Wabana , Newfoundland , so that it i s likely tha t it s operation s ther e wil l continu e int o th e foreseeabl e future, althoug h perhaps at reduced levels. It i s probable that Nov a Scotia's expor t industrie s were retarded t o some extent b y higher cost s of capital equipmen t an d possibl y highe r labour cost s attributable t o the tariff , an d it is certain that the tarif f ha s made th e cost s of manufactured consumer goods higher. There seems to be general agreement that since secondary manufacturing is concentrated i n centra l Canad a an d sinc e Nov a Scoti a ha s bee n a heavie r per capita importer than the central Canadian provinces, it has, in relation t o population, born e mor e of the burde n an d experience d les s of the benefits of the tariff tha n they have.18 Nevertheless, Nov a Scoti a shoul d no t attac h al l o f th e blam e t o Confederation o r the Nationa l Policy for its loss of secondary industry. The introduction of new large-scale techniques of production requirin g expensive machiner y favoured locations nea r heav y concentration s of population. Wit h th e tariff , centra l Canad a wa s th e culprit . I f ther e had been no protective tariff , Nov a Scotian industries would have bee n put ou t o f business as a resul t o f competitio n fro m th e Unite d State s and other countries . The thin, scattered natur e of the population of the Maritimes wa s unsuite d t o th e developmen t o f large-scal e secondar y manufacturing based upon local markets. In discussion s o f th e economi c problem s o f th e Maritime s th e harmful effect s o f federa l governmen t polic y ar e frequentl y exag gerated an d th e relativ e lac k o f resourc e endowmen t ignored . Th e 14

Urwick, Curri e Limited , The Nova Scotia Coal Industry ( A stud y fo r th e Royal Commissio n o n Canada' s Economic Prospects ; Ottawa : Queen' s Printer , 1957), pp. 20, 32. 15 See, fo r example , Governmen t o f Nov a Scotia , A Submission on DominionProvincial Relations and the Fiscal Disabilities of Nova Scotia within the Canadian Confederation ( A brie f submitte d b y N . McL . Rogers t o th e Roya l Commission : Provincial Economi c Inquiry; [Halifax : King' s Printer], 1934) , pp . 88-104 ; an d "Complementary Repor t o f Dr . Harol d A . Innis, " Report of the Royal Commission: Provincial Economic Inquiry (Halifax : King' s Printer, 1934), pp. 148-56 .

The Economy of Nova Scotia: A Perspective 2

1

western province s gre w up i n the environmen t of the tariff , whil e th e Maritime Province s ha d th e tarif f impose d o n existin g pattern s o f development. Nevertheless , th e wester n province s hav e suffere d fro m the sam e burden s o f tariff s an d lon g freigh t haul s a s th e Maritim e Provinces an d (especiall y Britis h Columbia an d Alberta ) hav e forge d ahead simpl y becaus e the y wer e richl y endowe d wit h economicall y exploitable resources , whil e th e Maritime s hav e languishe d becaus e they were not. An extensiv e seacoas t i s generall y though t t o b e a n asse t t o com merce, an d unde r th e condition s of the "Golde n Age " i t was . But , a s N. H . Mors e ha s pointe d out, 16 i n th e cas e o f th e Maritime s wit h their widel y scattere d populatio n it s grea t irregularit y make s rapi d communication b y lan d difficul t an d s o is conduciv e t o man y small scale enterprise s i n lumbering , fis h processing , an d othe r type s o f primary manufacturing . No t onl y ar e ther e transportatio n problem s in reaching th e centra l Canadia n market; there are problems o f transportation within the Maritime region as well. In spit e o f th e fac t tha t Nov a Scoti a an d th e othe r Maritim e Pro vinces have remained on the periphery o f the transcontinental develop ment—partly, i t mus t b e allowed , becaus e o f th e concentratio n o f political powe r i n centra l Canad a wher e i t was , t o sa y the least , no t going t o b e use d t o th e economi c disadvantage o f tha t region—Nov a Scotia is no doubt better of f in Confederation than ou t o f it. I t obtain s strength, o r at leas t security, by being a part o f a larg e an d generall y thriving economi c unit. 17 A welfare-consciou s countr y lik e Canad a cannot easil y le t an y o f its region s la g ver y fa r behin d th e other s i n level o f living, at leas t i n thos e public service s relatin g t o education , health, an d socia l welfare , which hav e continuall y been increasin g in importance.18 Although a great deal of economic adjustment shoul d still be made in Nova Scotia, there is much more scope for such adjustment in a large countr y like Canada than ther e would b e in a small one the 16

Norman H . Morse , "Furthe r Observation s o n th e Econom y o f Nov a Scotia " (A report fo r the Nov a Scoti a Researc h Foundation; Wolfville , 1956) , p. 47 . 17 Morse ha s a ver y goo d discussio n o f th e probabl e consequence s o r the Mari times remainin g o n thei r ow n an d o f th e politica l an d economi c strengt h the y gained from Confederation , for whic h see ibid. 18 There i s n o doub t tha t Nov a Scoti a ha s benefite d i n thi s respec t fro m ne t transfers fro m th e riche r provinces . I t i s th e genera l economi c strengt h o f th e country tha t ha s mad e possibl e it s scal e o f socia l securit y schemes , lik e famil y allowances, ol d ag e pensions , unemploymen t insurance , an d th e ne w Nationa l Health Plan ; an d th e transfer s i n th e for m o f tax equalizatio n payments , the mor e recent specia l Atlantic Provinces Adjustment Grant, an d the freigh t subvention s o n coal, to name only some of the type s o f payment .

22

Fiscal Adjustment and Economic Development

size o f th e Maritim e Provinces . Labou r an d capita l an d t o som e extent othe r resource s ar e muc h free r t o mov e int o an d ou t o f th e region. Th e fat e o f Newfoundland , whic h languishe d o n it s ow n fo r over fift y year s an d di d no t ente r Confederatio n unti l 1949 , suggests what migh t hav e happene d t o th e Maritim e Province s i f the y ha d followed a simila r course , eve n admittin g thei r greate r economi c strength compare d t o Newfoundland. THE BELATTVE SIZE AND GROWTH OF THE NOVA SCOTIAN ECONOMY

The followin g statistica l descriptio n o f th e leve l an d growt h o f the Nov a Scotian economy in recent years in relation t o the countr y as a whol e i s neede d t o complet e thi s brie f accoun t o f th e province' s economic history . Thi s informatio n i s o f specia l relevanc e t o thi s study because o f the greate r significanc e of improvements i n the us e of resources in a poor province than in a rich province . TAB LE I

F'OPULATION G IIOWTH I N CANAD A\. AND NOV A SCOTIA, 1851-19.56 Census year i 1851 1861 1871 1881 1891 1901° 1911 1921 1931 1941 1951 1956

Pop., N.S. Pop., Canad a (in thousands]1 (i n thousands) 277 339 388 441 450 460 492 524 513 578 643 695

2,436 3,230 3,689 4,325 4,833 5,371 7,207 8,788 10,377 11,507 13,648 15,666

N.S. % inc. over prev. cens. 19.5 17.2 13.6

2.2 2.0 7.1 6.4

-2.1 12.7 11.2

8.1

N.S. as Canada % inc. over % o f Canada prev. cens. 32.6 14.2 17.2 11.8 11.1 34.2 21.9 18.1 10.9 18.6 14.8

8.6»

6.8 6.0 4.9 5.0 4.7 4.4

SOURCE: D.B.S. , Ninth Census of Canada, 1951 (Ottawa: Queen's Printer , 1956), X, 11-12 ; an d D.B.S. , National Accounts, Income and Expenditure, 1955-1957 (Ottawa: Queen's Printer , 1958), p . 10. "From 1901, all of the presen t provinces and territories , except Newfoundland, ar e included in the Canadia n figures; hence the population s of Nova Scotia an d Canad a are strictl y comparabl e only ove r thi s period . Thu s th e rati o o f Nov a Scotia n t o Canadian populatio n is given only for this period.

Table I show s Nov a Scotia' s populatio n growt h sinc e 185 1 compared wit h tha t o f Canada . Fro m 188 1 the rate o f growt h i n Nov a Scotia wa s very small, even becoming negative i n the decad e 1921-31 , in the first half of which Nov a Scotia was particularly depressed . Sinc e 1931 th e growt h ha s bee n substantial , an d eve n exceede d tha t o f

The Economy of Nova Scotia: A Perspective 2

3

Canada in the decad e 1931-41 , during most of which the econom y of the whol e countr y wa s depressed . Nov a Scoti a had , i n larg e part , a rural subsistence economy ; it offere d stabilit y an d security , if a t a low level o f living , whic h th e mor e highl y industrialize d area s o f th e country di d not . Thi s attractio n n o doub t pulle d hom e man y unemployed Nova Scotians who had emigrate d to other parts of the country . Not eve n i n recen t years , however, ha s Nov a Scoti a hel d it s natura l increase in population; it s actual increase ove r the perio d 1941-5 1 was only 6 2 per cen t o f the accumulate d natura l increase, compare d wit h 109 per cent for Canada. The corresponding percentages for the perio d 1951-6 are 83 per cen t for Nova Scotia and 14 1 per cen t fo r Canada. 19 TABLE I I COMPARISON O F PERSONA L INCOM E PE R CAPIT A FOR NOV A SCOTIA AN D CANADA, 1926-59 (CURRENT DOLLARS )

Personal incom e per capita, 192 6 Personal income per capita, 195 9 Percentage increase , 1926-59 Personal income per capita , 1946 Percentage increase , 1946-59

Nova Scotia

N.S. as % Canada o f Canada

$ 25 8 $1,116 333% $ 67 8 65%

$ 42 5 $1,487 250% $ 79 1 88%

61 75 86

SOURCE: Calculate d fro m D.B.S. , National Accounts, Income and Expenditure, 1926-1956 (Ottawa: Queen' s Printer , 1958) , pp . 364-5 ; and ibid., 195 9 (Ottawa : Queen' s Printer, 1960) , p . 38.

Table I I show s that ove r the whol e period 1926-59 , th e rat e o f increase in personal income per capit a wa s greater fo r Nov a Scotia than for Canada , althoug h th e amoun t of persona l incom e pe r capit a fo r Nova Scoti a wa s stil l considerabl y belo w th e amoun t for Canad a i n 1959. I t i s necessary to allow for the fact that i n 1926 Nova Scotia was depressed, whil e othe r part s o f th e countr y wer e booming . A mor e significant compariso n is that o f 1959 with 1946 , in both of which years Nova Scotia was closer to, although still shor t of, the leve l o f employment o f th e res t o f th e country. 20 Ove r thi s perio d persona l income per capit a fo r Canad a increase d b y 8 8 per cent , an d tha t fo r Nov a Scotia b y onl y 6 5 pe r cent . I t appear s tha t i n th e postwa r period , although Nov a Scoti a ha s mad e considerabl e progress , he r positio n relative to the country as a whole has deteriorated. "Calculated fro m D.B.S. , Canada Year Book, 1936 (Ottawa : Queen' s Printer) , pp. 199 , 201 ; an d Canada Year Book, 1957-58, p. 120 . Ne t migratio n fro m Nov a Scotia wa s 49,91 3 ove r th e perio d 1941-56 . (Canada Year Book, 1957-58, p . 120.) 2 °See Table XXIV.

24

Fiscal Adjustment and Economic Development

Another goo d indicato r o f economi c growt h i s capita l expenditur e per capit a o n ne w durabl e physica l asset s and , a s Tabl e II I shows , Nova Scoti a lagge d fa r behin d Canad a i n thi s respect . Onl y i n th e category "Institution s an d Governmen t Departments " doe s i t eve n approach th e Canadian amount. TABLE II I CAPITAL EXPENDITUR E PE R CAPIT A I N NOV A SCOTI A OVER TH E PERIO D 1949-5 6 COMPARE D WIT H THA T I N

CANADA (Canad a = 100 )

Primary and constructio n industrie s 5 Utilities 54. Manufacturing 3 Trade, finance, and commercia l services 6 Housing 46. Institutions and government departments 96. TOTAL 58.

2.8 3 6 .9 4 .9 9 9 8

SOURCE: R. D . Howland , Some Regional Aspects of Canada's Economic Development ( A stud y fo r th e Royal Commission on Canada's Economic Prospects; Ottawa: Queen' s Printer , 1958) , p . 113 .

Comparisons o f pe r capit a measure s o f th e Nov a Scoti a econom y with thos e o f th e natio n a s a whole , o r wit h thos e o f a wealthie r province, lik e Ontario, ar e informative, but must be used with caution . It mus t no t b e inferre d fro m suc h comparison s tha t th e objectiv e should b e t o rais e th e Nov a Scotian econom y to th e pe r capit a leve l of the nation or some other province. While differences i n income levels and othe r indice s ma y in par t b e du e t o relativel y poo r resourc e us e within Nov a Scoti a an d therefor e b e subjec t t o reduction , the y ar e likely i n larg e par t du e t o bette r resourc e endowmen t an d a conse quently highe r proportio n o f high-income occupations in othe r areas . Table I V shows that pe r capit a persona l incom e an d gros s product for Nov a Scoti a a s percentage s o f th e amount s fo r Canad a decline d sharply fro m 194 6 t o 194 8 an d remaine d stead y since 1948 . A s would be expected , sinc e investmen t i s generall y a les s stabl e elemen t tha n personal incom e o r gros s product , ne w capita l investmen t per capit a for Nov a Scotia as a percentage o f the valu e for Canada ha s fluctuate d more tha n th e othe r tw o series , wit h i f anything , a downwar d tren d over th e period . I n al l thre e serie s th e value s fo r Nov a Scoti a ar e much les s tha n fo r Canada . Th e smalle r differenc e betwee n Nov a Scotia and Canada in personal income per capita than in gross produc t per capit a i s a t leas t i n par t a resul t o f the levellin g effec t o f federa l transfer payments , whic h ar e include d i n persona l incom e bu t no t i n gross product.

TABLE I V COMPARISON O F NOV A SCOTI A AN D CANAD A WIT H RESPEC T T O PERSONA L INCOME , GROS S PRODUCT , AND NE W CAPITA L INVESTMEN T PER CAPITA , 1946-5 6 (MILLION S O F DOLLARS )

Personal incom e per capita in current dollars

N.S. 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956

678 685 664 696 726 776 847 891 902 924 999

Gross product pe r capita in current dollars

Canada N.S. as % of Canad a

N.S.

Canada

N.S. a s % of Canad a

791 827 928 940 979 1,130 1,203 1,235 1,205 1,263 1,365

679 722 752 779 835 893 954 1,003 1,018 1,053 1,142

964 1,049 1,179 1,215 1,313 1,511 1,660 1,685 1,627 1,724 1,872

70 69 64 64 64 59 57 60 63 61 61

86 83 72 74 74 69 70 72 75 73 73

New capita l investmen t per capita, i n constant (1949 ) dollar s

N.S.

186 162 154 167 185 184 184 180

Canada N.S. a s % of Canad a

260 266 275 300 309 293 313 357

72 61 56 56 60 63 59 50

1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956

SOURCE: Persona l incom e and gros s national product: D.B.S. , National Accounts, Income and Expenditure, 1926-1956, pp . 33 , 65. Gross provincia l product fo r Nov a Scotia (GPP) : A. C . Parks , The Economy of the Atlantic Provinces, 1940-1958 (Halifax : Atlanti c Provinces Economi c Council , 1960), p . 2. For the metho d of estimating GP P se e ibid., Appendix B. GPP cannot b e measured in th e same wa y as GNP a s the data necessar y for measuring some of the components are no t available on a provincial basis. These estimate s of GP P ca n therefor e be used only to make rough comparisons. Ne w capital investmen t pe r capita: Rowland, Some Regional Aspects of Canada's Economic Development, pp . 95-7.

26

Fiscal Adjustment and Economic Development TABLE V POSTWAR GROWT H O F TH E NOV A SCOTIA N AN D CANADIA N ECONOMIE S AS REFLECTE D I N CONSTAN T (1949 ) DOLLA R ESTIMATE S OF PERSONAL INCOM E PER CAPITA , GROSS PRODUCT PER CAPITA, AND NE W CAPITA L INVESTMEN T PE R CAPITA "

Personal income per capita (1946 = 100)

1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956

N.S.

Canada

100

100 95 94 92 93 97 101 105 101 106 113

92 78 80

81 78 83 88

89 91 97

Gross product per capita

(1946 = 100)

N.S. 100 100 87 86 90

87

89 94 95 96 102

Canada 100 99 99 98 103 107 112 113 106 113 118

New capita l investment per capita (1949 = 100)

N.S.

100 87 83

90

99 99 99 97

Canada

100 102 106 115 119 113 116 137

SOURCE: Personal incom e and gros s nationa l product : D.B.S. , National Accounts, Income and Expenditure, 1926-1956, pp . 35 , 37 , 64, 100 . Constan t dolla r estimate s of gros s national expenditure were used i n calculating per capita gross nationa l product i n constant dollars. The consume r price index for Canada (fro m D.B.S. , Prices and Price Indexes, May , 1958 (Ottawa : Queen's Printer , 1958 ) p. 17 ) was use d fo r deflating pe r capita personal incom e bot h fo r Canada and Nov a Scotia . Gros s provincial product : se e sourc e fo r Tabl e IV . Thi s serie s wa s deflate d b y th e implici t deflators fo r the gross national expenditure (National Accounts, Income and Expenditure, 1926-1966, p . 37) . New capita l investment: Rowland , Some Regional Aspects of Canada's Economic Development, pp . 95-7 . "New capital investment is on a gross basis.

Table V shows inde x number s fo r th e growth , i n real terms , o f pe r capita persona l income , gros s product , an d ne w capita l investment . Nova Scoti a show s practicall y n o growt h wit h respec t t o an y o f th e three serie s ove r th e perio d shown , whil e th e growt h fo r Canad a i s considerable fo r al l thre e o f them . Th e di p an d subsequen t clim b i n personal incom e an d gros s product pe r capit a fo r Nov a Scoti a reflec t a postwar slum p in the region and a gradual recovery from it . Table VI shows that i n 195 6 Nov a Scotia wa s below th e countr y a s a whol e with respect to al l of the component s o f personal income an d considerably below for all but governmen t transfer payments. The very low per capit a figur e fo r Nov a Scotia fo r ne t incom e o f farm operator s from far m productio n i s i n par t simpl y a reflectio n o f th e fac t tha t agriculture i s relatively les s important tha n fo r the countr y as a whole , but i s mainl y a resul t o f th e lo w far m income s i n Nov a Scotia . Th e subtotal o f th e firs t thre e items , sometime s referre d to , althoug h no t quite aptly , a s "earned income, " illustrate s furthe r th e relativel y lo w

27

The Economy of Nova Scotia: A Perspective TABLE VI PERSONAL INCOM E PE R CAPIT A AN D SOM E O F IT S COMPONENTS A COMPARISO N O F NOV A SCOTI A AN D CANADA , ON TH E AVERAG E FOR 1958-6 0

Wages, salaries, and supplementary labour income" Net incom e of farm operator s fro m farm production " Net incom e of non-far m unincorporated businesses"

TOTAL

Interest, dividends , 6and ne t renta l income of persons Government transfer payments excluding interest Personal disposabl e income Personal income

N.S. a s % Canad a

N.S.

Canada

$709

$1,009

19

67

28

115 843

123 1,219

93 69

83

144

58

161 1,069 1,129

163 1,381 1,499

99 77 75

70%

SOURCE: D.B.S. , National Accounts, Income and Expenditure, 1960 (Ottawa : Queen's Printer, 1961) , pp. 40-3, 60. "The comparison between Nova Scotia and Canada must be interpreted with caution in th e cas e o f the firs t thre e items , especially i n the cas e of the second , as each item is obtaine d b y dividin g by tota l populatio n an d no t b y th e par t o f the population receiving the income. 'Includes interest o n the publi c debt pai d t o persons .

average productivit y o f th e Nov a Scotia n economy . Ne t incom e pe r capita of non-farm unincorporated business appears t o be the stronges t component o f personal income in Nova Scotia, apar t fro m governmen t transfer payments . Ye t eve n i t i s significantl y below th e Canadia n level. Th e relativel y lo w per capit a valu e fo r Nov a Scotia o f interest , dividends, an d ne t renta l incom e o f person s show s tha t investmen t income as well a s labour incom e lags behin d th e amoun t for Canada . Per capit a persona l disposabl e incom e i s a large r proportio n o f pe r capita persona l incom e fo r Nov a Scoti a tha n fo r Canada , a s woul d be expecte d sinc e pe r capit a incom e is smalle r for Nov a Scotia . A useful indicator o f level of living is per capit a retail sales. Although their valu e fo r Nov a Scotia was almos t a s large a s that fo r Canad a i n 1941, th e relativel y larg e increas e fo r Canad a ove r th e nex t decad e resulted i n pe r capit a retai l sale s fo r Nov a Scoti a bein g onl y 8 1 pe r cent of the amount for Canada by 1951. 21 Table VI I compare s the siz e o f populatio n an d a numbe r o f othe r aggregates fo r Nov a Scotia with those for Canada . These comparison s 21

D.B.S., Ninth Census of Canada, 1951 (Ottawa: Queen' s Printer , 1956) , X , Part I, p. 519.

28

Fiscal Adjustment and Economic Development TABLE VI I CERTAIN MEASURE S FOR NOV A SCOTI A EXPRESSED AS PERCENTAGES OF TOTALS FOR CANADA , 195 6

Population" Number o f familie s (1951 ) * Labour force (1951 ) 6 Personal income' Gross product*

4.3% 4.4% 4.2% 3.3% 2.9%

Net valu e of production' New capital investment' Retail sales (1951) " Individual income tax collections (federal) " Corporation incom e ta x collections (federal) "

2.2% 2.2% 3.7% 1.7% 1-4%

SOURCES: "D.B.S., National Accounts, Income and Expenditure, 1926-1956, p. 101 . In 195 1 the populatio n of Nova Scotia was 4.6 per cen t of that o f Canada; 6D.B.S., Ninth Census of Canada, 1961, X, Par t I , p. 248; "D.B.S., National Accounts, Income and Expenditure, 1955-1957, Table 29; aGross national product, as in note (c), pp. 6, 44 an d gros s provincia l product , a s fo r Tabl e IV ; "D.B.S. , Survey of Production, 1901-1955 (Ottawa : Queen's Printer, 1958) , p. 9; 'Rowland, Some Regional Aspects of Canada's Economic Development, p . 94 ; "Departmen t of National Revenue, Taxation Statistics, 1957 (Ottawa: Queen's Printer), p. 18.

further illustrat e th e relativel y lo w averag e productivit y o f the Nov a Scotian economy; they require no special comment. Norman H . Mors e made th e estimate s i n Tabl e VII I showin g th e percentage contribution s o f som e important economi c sector s t o th e gross provincia l produc t o f Nov a Scoti a an d t o th e gros s nationa l product i n 1951 . H e has groupe d thos e manufacturing industries tha t are a direct outgrowt h of the primar y industries wit h thes e industries , for example , fis h processin g wit h fisheries . Thi s classification , whic h distinguishes betwee n primar y and secondar y manufacturing, gives a clearer picture o f the relativ e importanc e of the differen t sector s tha n does th e on e used b y th e Dominio n Burea u o f Statistics. 22 Th e mos t striking thing revealed by the table is the much larger part o f the tota l included i n th e servic e industr y groupin g fo r Nov a Scoti a tha n fo r Canada. Thi s groupin g include s suc h categorie s a s transportation , communications, trade , finance , government , education , an d th e pro fessions. While data are not available to explain satisfactorily the hig h percentage fo r servic e industrie s i n Nov a Scotia , i t i s likel y a t leas t partly du e t o relativel y greate r expenditure s fo r defence , an d t o particularly hig h cost s o f transportation an d distributio n arisin g fro m having to supply many scattered smal l pockets of settlement. Th e tabl e also show s that agricultur e an d manufacturin g are muc h less import ant and forestry slightly less important than for Canada , while minin g distinction betwee n primar y an d secondar y manufacturin g is als o made in D . H . Fullerto n an d H . A . Hampson , Canadian Secondary Manufacturing Industry ( A stud y fo r th e Roya l Commissio n o n Canada' s Economi c Prospects ; Ottawa: Queen' s Printer, 1957) , Appendix A.

The Economy of Nova Scotia: A Perspective 2

9

TABLE VII I PERCENTAGE CONTRIBUTIO N O F INDUSTRIA L SECTOR S T O GROSS PROVINCIAL PRODUC T AN D GROSS NATIONAL PRODUC T FO R NOVA SCOTI A AN D CANADA, 1951 , USIN G MORSE'S CLASSIFICATION

Nova Scotia Canad Agriculture 5.4 Forestry 7. Fisheries 5. Mining 7. Manufacturing 12. Electric power 1. Construction 8. "Service" industries 51.

% 13.9 3 8. 6. 7 3. 8 24. 9 1. 4 8. 0 38.

TOTAL GROS S PRODUC T 100.

0 100.

a 7 8 6 3 7 2 8

%

0

SOURCE: N. H . Morse , "Preliminary Results of Research on the Econom y of Nova Scotia" ( A report for the Nov a Scotia Research Foundation ; Wolfville, 1954) . Mors e used hi s own estimates of gross provincial product and D.B.S . estimates of gross nationa l product and ne t valu e of production.

and fisherie s ar e muc h mor e importan t fo r Nov a Scotia , an d electri c power an d constructio n ar e o f about equa l importanc e t o the m both . Using th e Bureau' s classifications , Mors e go t th e percentag e distri bution show n i n Tabl e IX . The change s ar e al l in th e firs t thre e an d the fift h sectors . Th e relativ e pictur e i s substantiall y th e sam e a s i n Table VII I excep t tha t forestr y i s show n t o b e mor e importan t fo r Nova Scoti a tha n fo r Canada , an d manufacturin g fo r Nov a Scoti a is o f greate r importanc e relativ e t o Canad a tha n i n Tabl e VIII , although i t remain s a much smalle r par t o f gross produc t tha n in th e TABLE I X PERCENTAGE CONTRIBUTIO N O F INDUSTRIA L SECTORS TO GROSS PROVINCIAL PRODUC T AN D GROS S NATIONA L PRODUCT FO R NOVA SCOTI A AN D CANADA, 1951 , USIN G D.B.S . CLASSIFICATION

Agriculture Forestry Fisheries Mining Manufacturing Electric power Construction "Service" industries TOTAL GROS S PRODUC T

SOURCE: As fo r Tabl e VIII.

Nova Scotia

Canada

4.7%

12.5%

3.2 3.5 7.7

2.3 .5 3.6

19.6

32.4

51.0

38.8

100.0

100.0

1.9 8.4

1.7 8.2

30

Fiscal Adjustment and Economic Development

case o f Canada. Thi s change wit h respec t t o manufacturin g illustrate s that primar y manufacturin g i s a large r par t o f tota l manufacturin g for Nov a Scoti a tha n fo r Canada , an d secondar y manufacturin g a smaller part. Finally, Tabl e X compares th e percentage deviatio n o f the net valu e of productio n pe r capit a fo r al l provinces excep t Newfoundlan d from the nationa l average . I t show s a strikingly larg e negativ e deviatio n of of 48.4 per cen t for Nova Scotia.23 TABLE X PER CAPIT A NET VALU E OF PRODUCTIO N BY PROVINCES IN 1958 , AND PERCENTAG E VARIATIONS FROM TH E NATIONA L AVERAGE

Per capita net value

Canada Prince Edward Island

NOVA SCOTIA

New Brunswick Quebec Ontario Manitoba Saskatchewan Alberta British Columbia 6

Variations

$1,077» 415 556 530 957 1,320 826 962 1,242 1,111

-61.5%

-48.4 -50.8 -11.1

+22.6

-23.3 -10.7 +15.3 + 3. 2

SOURCE: D.B.S. , Survey of Production, 1954-68, (Ottawa : Queen's Printer, 1958), p . 18. "Excludes Newfoundland . Thi s is a weighte d average . Th e un weighted averag e i s $88 0 an d Nov a Scotia' s deviatio n fro m i t — 36.8 percent. Mncludes Yukon and th e Northwes t Territories .

The table s i n thi s sectio n sho w tha t th e Nov a Scotia n econom y i s far les s productive tha n that of the nation a s a whole an d tha t it give s no indicatio n o f catching up . I f anythin g i t i s gettin g furthe r behind . They als o sho w tha t th e primar y an d servic e industrie s (excep t fo r agriculture) ar e relativel y mor e importan t an d th e manufacturin g industries relativel y les s importan t tha n fo r th e natio n a s a whole . 23 This deviatio n woul d b e somewha t smalle r i f defenc e expenditure s fo r pur poses whic h ar e manufacturin g by nature , a s i n th e cas e o f H.M.C . Dockyar d in Halifax, wer e include d i n ne t valu e o f production , providin g tha t ther e ar e disproportionate expenditure s fo r suc h purpose s a s wel l a s fo r over-al l defenc e expenditures.

Ill

Federal-Provincial Fisca l Relation s

THE HISTORY OF THE FINANCIAL ARRANGEMENTS

THE CANADIA N FINANCIA L STRUCTUB E wa s originall y designe d t o mak e the Dominio n an d th e province s sovereig n withi n thei r respectiv e spheres an d s o to determin e th e exten t o f their functions . Sections 91 and 9 2 o f th e Britis h Nort h Americ a Ac t distribut e th e power s o f jurisdiction between the Dominio n and the provinces. Sectio n 91 gives the Dominio n powe r t o legislat e fo r th e "Peace , Order , an d goo d Government o f Canada," except fo r thos e exclusiv e powers give n th e provinces i n Sectio n 92 , an d list s a serie s o f power s fo r illustrativ e purposes. I t woul d appear , then , tha t residua l powe r rest s wit h th e Dominion; bu t th e court s hav e generall y give n precedenc e t o th e power o f the province s t o mak e laws in relation t o propert y an d civi l rights, on e of the enumerate d powers ( Clause 13 ) i n Sectio n 92; since practically al l matter s touc h upo n propert y an d civi l right s i n th e provinces, thi s claus e ha s bee n th e operativ e one . Except i n time s of dire nationa l emergency, the power s of the Dominio n have been con fined virtuall y t o it s enumerate d powers. 1 Concurren t power s ove r agriculture and immigration are give n in Section 95, federal legislation being superior in cases of conflict. The Dominio n executive has th e power , by Sectio n 56, to disallo w any ac t o f a provincia l legislature , an d th e Dominio n appoint s th e lieutenant-governors o f th e province s an d ca n instruc t a lieutenant !In recent year s there is some evidence of a tendency of the court s to interpre t the Dominion' s "Peace , Order , an d goo d Government ' powe r mor e generously . See R . MacG . Dawson , The Government of Canada (3r d edition , revised ; Toronto: Universit y of Toronto Press, 1957) , chap, v, passim. See pp. 601 , 608-13 , for the section s of the Britis h Nort h America Act referred t o i n this chapter .

32

Fiscal Adjustment and Economic Development

governor t o withhol d hi s assen t fro m bill s an d t o reserv e the m fo r consideration b y th e Dominio n executive , whic h ma y refus e assent . These power s of disallowance an d veto, which ar e unitary rather tha n federal in character, hav e not been used extensively ; federal principles have generally been adhered t o in practice. The divisio n o f function s wa s designe d i n genera l t o giv e th e Dominion contro l ove r matter s o f national interes t an d th e province s control ove r matters o f local interest ; bu t i n th e cours e o f time man y matters, suc h a s education , unemployment , publi c health , an d socia l welfare, hav e com e more an d mor e to b e o f national a s well a s local interest. With regar d t o raisin g revenue , tw o o f th e enumerate d power s o f the Dominio n i n Section 91 entitle it to "The raisin g of Money by any Mode o r Syste m o f Taxation " (Claus e 3 ) an d "Th e borrowin g o f Money o n the Publi c Credit " (Claus e 4) . Thre e o f the power s give n the province s i n Sectio n 9 2 entitle eac h provinc e t o "Direc t Taxatio n within the Province in order to the Raising of a Revenue for Provincia l Purposes" ( Clause 2 ), "The borrowin g of Money on the sol e Credit of the Province " (Claus e 3) , an d t o issu e "Shop , Saloon , Tavern , Auctioneer, an d othe r Licenses in order to the raisin g of a Revenue for Provincial, Local , o r Municipa l Purposes " (Claus e 9) . Th e mos t important featur e o f thi s divisio n o f source s o f revenu e i s tha t th e provinces wer e limited t o direct taxatio n while the Dominio n was not. It wa s recognize d tha t th e independen t revenue s o f th e province s would b e inadequate . Fo r eve n wit h reduce d functions , th e los s of their main source of revenue at that time, the customs, to the Dominion left th e province s wit h insufficien t revenues . Consequently , provisio n was made in th e Britis h Nort h America Act for statutor y subsidie s t o be pai d b y th e Dominio n t o th e provinces. 2 Thes e subsidie s wer e intended t o be unalterable : "i n ful l Settlemen t o f all futur e Demand s on Canada." 3 Thi s curiou s phrasing reflects , in retrospect , th e wistfu l nature o f this provision . It wa s consistent, however , with the expecta tion tha t provincia l function s woul d remai n stati c an d tha t th e 2

These subsidie s were o f tw o types : fixe d annua l grant s i n suppor t o f th e provincial legislatures , totallin g $260,000, an d annua l allowances of 8 0 cent s pe r capita, base d upon the population s of 186 1 i n Ontari o and Quebec , and t o gro w with th e population s i n Ne w Brunswic k an d Nov a Scoti a unti l the y reache d 400,000. I n addition , Ne w Brunswic k wa s give n a n allowanc e of $63,00 0 fo r ten year s because o f her particularl y heavy financial commitments (Britis h Nort h America Act, ss. 118, 119) . 3 British Nort h America Act, s . 118 . Thi s phras e wa s use d agai n a s earl y a s 1869, whe n th e Dominio n accede d t o Nov a Scotia' s demand s for bette r financia l terms, described in the next paragraph.

Federal-Provincial Fiscal Relations 3

3

provinces woul d pla y a mino r rôl e i n th e federation . I t wa s no t expected that the provinces would use their right to levy the then very unpopular direc t taxe s t o an y considerabl e extent , no r a fortiori tha t they woul d o r coul d lev y wha t wer e generall y regarde d a s indirec t taxes. Nor was it expected that the Dominion would not only enter, but come to dominate, the direct tax fields. In fact , numerou s revisions hav e bee n mad e t o th e subsidie s prac tically from th e outset , beginning with Nov a Scotia's successfu l agita tion fo r "bette r terms " i n 1869. 4 Revision s were inevitabl e i n vie w of the assumptio n o f ne w responsibilitie s b y th e provinces , o f thei r disparate rates of growth, of the uneven impact of federal policies, and, most immediately, in view of the miscalculatio n o f provincial financial burdens whic h followed Confederation. If al l th e province s had bee n about equally prosperous and all had expande d their service s at abou t the sam e rate, they would still hav e needed large r revenues , althoug h there woul d hav e bee n n o basi s fo r claimin g differentia l treatment . But difference s i n economi c development betwee n region s ar e inevit able i n an y country, an d the y ar e likel y to b e especiall y marke d in a federation. In fact they are usually largely responsible for its becoming a federatio n rathe r tha n a unitar y country . Certainl y i n Canad a th e geographical and economi c differences o f the politica l regions are very great. Revisions o f federa l subsidie s an d grant s t o poore r province s t o alleviate their fiscal difficulties hav e been criticized, 8 with justification , because they did not attack the causes of these provinces' lower taxable capacity, namel y their inferio r productiveness. Criticisms have, how ever, generally ignored the possibly favourable effects o f these transfers on allocatio n o f resources . Even wit h perfec t allocatio n o f resources, productivity pe r hea d o f population , and therefor e income per head , will b e highe r i n som e provinces tha n i n other s because variation in endowment o f natura l resource s wil l resul t i n differin g provincia l distributions o f high - an d low-incom e activities . Differin g provincia l per capit a income s wil l mea n differin g provincia l fisca l capacities . Without federa l transfers , fiscal pressure woul d the n b e heavie r o n factors i n a low-income province tha n o n otherwis e similarl y situated 4 These gave Nova Scoti a an extra $140,000 per year , $83,000 of it for ten year s only. (Report of the Royal Commission on Dominion-Provincial Relations [Ottawa : King's Printer, 1940], III, 60.) 6 See, fo r example , Governmen t o f Nov a Scotia , A Submission on DominionProvincial Relations and the Fiscal Disabilities of Nova Scotia within the Canadian Confederation ( A brie f submitte d b y N . McL . Rogers t o th e Roya l Commission : Provincial Economic Inquiry; [Halifax : King' s Printer], 1934), p. 30.

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factors i n a high-income province, becaus e o f heavier taxe s o r inferio r services o r a combinatio n o f both, inducing som e factors to move ou t of th e low-incom e province an d inhibitin g other s fro m movin g into it , with resulting distortion in allocation of resources. The publi c deman d for elaborate highways , for a n ever more extensive syste m of public education , fo r greatl y expande d service s i n th e fields o f publi c healt h an d welfare , an d fo r publi c participatio n i n economic development pu t sever e pressure on the provincial revenues . The widenin g o f provincial powers throug h the judicia l interpretatio n of th e Britis h Nort h America Act contributed stil l furthe r t o the nee d for enlarge d provincia l revenues. The Maritim e Province s hav e bee n especiall y vociferou s i n thei r demands fo r bette r term s fro m th e Dominion . Thes e demand s wer e based mainl y on arguments that th e are a ha s bee n adversel y affecte d by Dominio n tarif f an d transportatio n policies , an d tha t i t ha s no t shared full y i n the general prosperity and developmen t o f the country . Moreover, th e financia l difficultie s tha t Nov a Scoti a an d Ne w Brunswick face d fro m th e tim e o f thei r entr y int o Confederatio n wer e probably a s strong a reason as any for their agitatin g fo r help . With th e growt h o f their functions , the province s ha d t o fin d ne w sources o f revenue. The y foun d i t necessar y t o lev y th e traditionall y unpopular direc t taxe s o n personal an d corporat e incom e and dutie s on estates and successions . Som e of them also , like th e America n an d Australian states , a t on e tim e levie d som e propert y taxes , althoug h somewhat waril y sinc e thes e wer e th e traditiona l mainsta y o f loca l government.6 Th e constitutiona l prohibitio n o n provincia l indirec t taxes wa s overcom e by levyin g taxes which, thoug h widel y regarde d as bein g indirect , technicall y fitte d Joh n Stuar t Mill' s definitio n o f a direct ta x adopte d b y th e courts : " A direc t ta x i s on e whic h i s de manded fro m th e ver y persons who, it i s intended o r desired , shoul d pay it. " I t i s thi s interpretatio n whic h has , fo r example , enable d al l ten o f th e province s t o lev y thei r highl y lucrativ e taxe s o n gasolin e sales an d eigh t o f the m thei r genera l taxe s o n retai l sales. 7 Th e en d result ha s bee n accomplishe d i n practic e b y makin g the retaile r th e «Only i n 1957 , b y Statutes of Nova Scotia (S.N.S.), 1957 , c . 4 1 di d Nov a Scotia abolis h the Municipalities ' Highwa y Tax, levied o n it s rura l municipalities at three-fifth s pe r cen t o f th e valu e o f al l ratable property. It continue d t o mak e small levie s directl y o n certai n categorie s o f propert y i n th e rura l areas . Se e "property tax" in Table XI, pp. 46-7, and note á to the same table. 7 British Columbia , Saskatchewan , Ontario , Quebec , Ne w Brunswick , New foundland, Nov a Scotia , and Prince Edward Island. Nov a Scoti a has a 5 per cen t general retai l sale s ta x t o financ e it s par t o f th e cos t o f it s Hospita l Insuranc e Plan.

Federal-Provincial Fiscal Relations 3

5

agent of the Crow n for collecting th e ta x from th e purchase r o n whom it is levied. Other importan t source s o f provincia l revenu e ar e moto r vehicl e licences an d the profit s fro m liquo r sale s monopolies. Incom e from th e public domai n i s relativel y les s importan t i n th e Atlanti c Province s than elsewher e becaus e o f the paucit y o f natural resource s there, bu t it i s o f growin g importanc e i n Newfoundlan d an d Ne w Brunswic k where new development s o f natural resource s ar e takin g place. Since the provinces are in fact abl e to levy even what ar e commonly regarded a s indirect taxes , they are fre e t o levy almost any tax, except one on imports, one which interferes directly wit h interprovincial commerce, or a sales tax at any stage before retail. They are limite d no t so much by a paucity of tax bases as by a general paucit y of resources i n the poo r provinces , an d b y th e Dominion' s dominatio n o f th e no w important field s o f income , succession , an d sale s taxation. 8 Th e mos t important question s i n thi s field , then , centr e aroun d th e degre e t o which and the means by which these major ta x fields should be share d and the degree to which and the means by which the poorer province s should b e assiste d b y th e Dominio n t o enabl e the m t o attai n som e minimum standar d o f services , especiall y i n thos e service s suc h a s education an d public health which, though constitutionally the respon sibility o f the provinces , are o f general concer n t o th e whol e country . And ther e i s th e furthe r importan t questio n o f whethe r th e poore r provinces i n dischargin g thei r responsibilitie s shoul d no t a t leas t b e able t o provid e level s o f service s equa l t o th e nationa l averag e wit h the sam e fiscal pressure o n thei r factor s o f productio n a s i s impose d on simila r factor s i n th e riche r provinces , t o encourag e optimu m allocation of resources. The year s sinc e Confederatio n have see n significan t development s in both the fields of unconditional and conditiona l subsidies. Up to th e Second World War, the expansio n of unconditional subsidies consisted essentially o f ad hoc adjustment s b y th e Dominio n i n respons e t o sectional pressures by the Maritimes and the western provinces, with a general revisio n o f th e arrangement s bein g mad e i n 1907 , bu t wit h further adjustment s being mad e afte r this—i n particular , th e large r subsidies fo r th e Maritim e Province s recommende d b y th e Dunca n Commission i n 192 6 an d th e Whit e Commissio n in 1935. 9 Th e Roya l 8

The Dominio n levie s a genera l sales tax o f 1 1 per cen t a t th e manufacturers ' level, with exemptions for some commodities. 9 The revisio n i n 190 7 brough t th e tota l annua l statutor y payments to Nov a Scotia u p t o $611,000 , compare d wit h $456,000 a t Confederation . Implementation of a recommendation o f the Dunca n Commission (Roya l Commissio n o n Maritime

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Commission o n Dominion-Provincia l Relations , reportin g i n 1940 , recommended som e adjustment in th e distributio n o f responsibilities , and th e assumptio n of provincial deb t b y th e Dominion , th e transfe r of persona l an d corporat e incom e taxe s an d successio n dutie s t o th e Dominion, an d payment s o n the basi s o f fiscal need t o th e province s sufficient t o enabl e the m t o provid e service s a t a minimu m nationa l standard. I t eschewe d th e ide a o f payments base d upo n th e principl e of compensation for advers e effect s o f Dominion policy. Th e Dominio n was unable, in 1941, t o get agreement from th e province s to implemen t the Report, bu t wartim e exigencie s le d t o a developmen t whic h di d set federal-provincial fiscal relations on a new path. In orde r t o prosecut e th e war , th e Dominio n deeme d i t necessar y to gai n ful l contro l o f persona l an d corporat e incom e taxe s fo r th e duration o f the wa r an d on e full yea r thereafter . I n compensatio n fo r vacating thes e tax fields, it agree d t o make payments to th e province s (according t o eithe r o f tw o options ) whic h exceede d th e los s o f revenue fo r som e of them an d equalle d th e los s for th e res t an d too k some rough accoun t o f the fisca l nee d o f the provinces. 10 After th e war , a n unsuccessfu l attempt wa s made by th e Dominio n to ge t agreemen t o n a comprehensiv e se t o f proposal s whic h woul d have required th e provinces to give up their right t o levy personal an d corporate incom e taxes and to co-ordinate thei r economi c policies wit h those o f the federa l governmen t (t o facilitate th e us e o f anti-cyclica l fiscal policy) . Th e proposal s als o include d extensiv e provision s fo r social securit y measures , i n particula r healt h insuranc e an d ol d ag e pensions, t o som e of which th e province s wer e aske d t o contribute. 11 As a muc h les s comprehensiv e alternativ e th e Dominio n wa s abl e to negotiat e separat e agreement s fo r the fiscal years 1947- 8 to 1951- 2 Claims) raise d Nov a Scotia' s annual payment by $875,000 . A furthe r increas e of $425,000 b y implementatio n of a recommendatio n o f th e Whit e Commissio n (Royal Commissio n o n Financia l Arrangements betwee n th e Dominio n an d th e Maritime Provinces ) brough t t o $1,300,00 0 th e tota l increas e sinc e 190 7 i n th e amount o f th e annua l payment . Thi s gran t wa s suspende d i n 194 1 whil e th e Wartime Ta x Agreement s wer e i n force , bu t wa s restore d i n 1947 . (J . Harve y Perry, Taxes, Tariffs, and Subsidies [Toronto : University of Toront o Press, 1955] , 11,517-24.) lOFor description s o f th e formula e o f th e Wartim e Ta x Agreement s an d o f the 194 7 and 195 2 agreements , see A. Milton Moor e an d J . Harve y Perry, Financing Canadian Federation (Ta x Papers , No . 6 ; Toronto : Canadia n Tax Founda tion, 1953), pp. 91-2 . uSee Dominion-Provincial Conference, 1945 (Dominio n an d provincia l sub missions an d plenar y conferenc e discussions ; Ottawa : King' s Printer , 1946) , passim. There i s a goo d summar y o f thes e proposals i n Perry , Taxes, Tariffs, and Subsidies, II, 541-6.

Federal-Provincial Fiscal Relations 3

7

with al l provinces excep t Quebe c an d Ontario , i n whic h th e agreein g provinces gave up the thre e direc t taxes in return fo r rental payments . These payment s coul d b e base d upo n an y o f thre e options , wit h guarantees o f minimu m amounts . Th e renta l payments , thoug h no t based directl y upo n an y criteri a o f fisca l need , favoure d th e poore r provinces. I f the y levie d th e thre e taxes themselves , the y woul d hav e had t o lev y the m a t highe r rate s tha n woul d th e riche r province s t o obtain th e pe r capit a revenue s provide d b y th e agreements . Reactio n of othe r province s t o especiall y favourabl e treatmen t initiall y give n British Columbi a move d the Dominio n t o offe r th e sam e treatment t o the othe r provinces an d t o insert guarantee s o f equal treatmen t i n th e agreements: (1) . . . th e Dominio n shal l no t offe r bette r term s o r mak e an y extr a payment t o a provinc e i f an y tw o othe r province s whic h hav e signe d agreements object. (2) . . . if any of the clause s of the agreement , othe r tha n th e on e which fixes the rate of payment, ar e revised for one province any o r all of the othe r provinces ma y insis t o n thei r agreement s bein g amende d i n a simila r fashion.12 While thes e clause s reduce d th e possibilitie s o f discriminatio n an d of interprovincia l bickering , the y di d no t eliminat e the discriminatio n which arise s fro m th e mos t favourabl e alternativ e fo r on e provinc e putting it in a better relative position than the most favourable alternative for another province. When ne w agreement s wer e negotiate d i n 195 0 fo r a furthe r fiveyear perio d (fisca l year s 1952-3 to 1956-7 ) th e term s wer e simila r t o those o f th e previou s agreements , wit h provisio n fo r large r payment s and wit h th e additio n o f anothe r option , favourabl e t o Ontario. 13 ( Ontario did come into the agreements in 1952, but eve n then no t wit h regard t o succession duties.) Fo r non-agreeing provinces (th e onl y one was Quebec), tax credits of up t o 7 per cen t o f corporate profits, 5 pe r cent o f personal income tax, and 5 0 per cen t o f succession duties wer e allowed t o provincia l taxpayers . I n 1955 , th e Dominio n raise d th e credit for the personal income tax to 10 per cent. When th e tim e agai n cam e i n 195 5 fo r considerin g renewa l o f th e agreements, importan t change s wer e made . Th e Dominio n wa s apparently concerne d about the isolation of Quebec fro m th e tax agreements and wished t o avoi d penalizing a province for not enterin g into the schem e and thereb y giving up som e of its taxing powers. The pla n 12 Canada, 13

House of Commons, Debates, 1947 (Ottawa : King's Printer), p. 48. Perry, Taxes, Tariffs, and Subsidies, II, 558-9.

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eventually adopted , an d implemente d Apri l 1 , 1957 , fo r fiv e years , accomplished thi s whil e preservin g mos t o f th e advantage s o f uni formity which would be gained by having the direct taxes solely in th e hands of the Dominion. This plan allowed tax credits o n the federal taxes to taxpayers in any provinces whic h chos e to lev y any o r al l o f the thre e direc t taxes , o n ¿he basis of three "standard" rates of tax: 9 per cen t of taxable corporat e income earned in the province , 1 0 per cen t o f federal personal incom e tax payabl e i n th e provinc e (raise d t o 1 3 per cent , beginnin g wit h fiscal year 1958-9) , an d 5 0 per cen t o f th e federa l successio n dutie s payable i n th e province . Eac h provinc e wa s fre e (1 ) t o lev y an d administer an y o r al l o f these thre e kind s o f taxes itself a t rate s o f it s own choosing; (2) t o levy any or all of them at the standar d rate s an d have them collecte d b y the Dominio n for a fee; or (3 ) t o rent an y o r all of them to the Dominion , in which cas e the Dominio n paid t o th e province a ta x renta l paymen t equa l t o th e yiel d i n th e provinc e of the standar d taxes ( for th e taxe s which were rented ) an d th e provinc e agreed t o sta y ou t o f th e rente d ta x fields . Th e secon d an d thir d alternatives wer e similar , bu t th e secon d wa s expecte d t o hav e mor e appeal t o Quebec , fo r i t wa s largel y a n administrativ e convenienc e that woul d requir e les s surrende r o f provincia l autonom y tha n th e third. A t th e sam e time i t woul d requir e conformit y t o th e standar d taxes and so prevent interprovincia l variation s in the rate s o f the thre e taxes. In fact, Quebe c chose the first alternative to which it was already constitutionally entitled. In an y case , th e Dominio n paid t o eac h provinc e a n unconditional equalization gran t sufficien t to mak e up the differenc e betwee n wha t the province' s pe r capit a yiel d wa s o r woul d b e fro m th e standar d taxes, an d th e averag e o f th e pe r capit a yield s o f th e tw o province s with th e highes t pe r capit a yield s wit h respec t t o the standar d taxes . Thus th e riches t province , Ontario, received n o equalizatio n grant . The Dominio n als o agree d t o mak e stabilizatio n payment s i f th e total payment s under th e tax-sharin g arrangements failed i n an y year to reach a certain minimum level.14 And it agreed not to consider a tax on insurance premiums a corporation tax under the fiscal arrangements and t o repea l it s ow n ta x o n insuranc e premiums o f domesti c com panies.15 Al l o f th e province s excep t Quebe c an d Ontari o rente d al l 14 For a descriptio n o f th e rathe r complicate d metho d o f determinin g stabiliza tion payments , se e The National Finances, 1958-59 (Toronto : Canadia n Ta x Foundation), p. 115 . 15 Nova Scotia' s ne w ta x o n insuranc e premium s impose d a s a resul t o f thi s change yielde d a n estimate d $810,00 0 i n th e fisca l yea r 1960-1 . Legislatur e o f Nova Scotia, 1961 Session, Estimates (Halifax: Queen's Printer , 1961) , p. 5.

Federal-Provincial Fiscal Relations 3

9

three of the taxes. Quebec rented none and levied all three on its own ; Ontario rente d onl y the persona l incom e ta x and levie d th e othe r tw o on it s own . I n 1957-8 , th e firs t yea r o f the ne w scheme , Nov a Scoti a received $26.40 7 millio n i n tax-sharin g payments , compare d wit h $22.333 million i n th e previou s yea r unde r th e 195 2 ta x agreement. 16 By making it possible for them to levy direct taxes up to the standar d rates withou t doubl e taxation , this pla n lef t th e provinces , especiall y the wealthie r ones , a large measur e of autonomy. At the sam e time, i t put th e poore r province s o n abou t th e sam e footing a s the wealthie r ones with regard t o these sources of revenue by giving all the provinces about th e sam e pe r capit a revenue s fro m th e thre e direc t taxes ; th e only departure s occurre d wit h respect t o thos e provinces which chos e to levy their own taxes at other tha n the standar d rates . Th e onl y such departures, i n Quebec and Ontario, were not very great . The tax-sharin g arrangements di d no t compensat e th e poore r prov inces fo r th e fac t tha t othe r provincia l an d municipa l source s o f revenue wer e les s productiv e fo r the m tha n fo r th e riche r provinces . The specia l Atlanti c Province s Adjustmen t Grant s inaugurate d fo r a four-year perio d i n the fiscal year 1958- 9 did compensat e th e Atlanti c Provinces, although only in part, for their lowe r fiscal capacity i n these other fields. 17 Nov a Scotia , lik e Ne w Brunswic k an d Newfoundland , received $7. 5 millio n annually ; Princ e Edwar d Islan d receive d $2. 5 million annually. The new federal-provincial fiscal arrangements for the perio d 1962- 7 are th e outcom e o f a unilatera l decisio n o f th e federa l governmen t rather than o f mutual agreement betwee n th e federa l government an d the provinces . The y alte r th e equalizatio n an d stabilizatio n element s of th e previou s arrangement s an d the y constitut e a n abrup t chang e with respect t o th e centralizatio n o f control an d uniformit y o f rates of the thre e direc t taxes . They introduce d a marke d departur e fro m th e trend towards greater rationalization of the Canadia n fiscal system that had hithert o characterize d th e wa r an d postwa r agreements . The ne w policy i s obviously intended t o shift bac k to the province s the responsibility fo r levyin g their ow n personal an d corporat e incom e taxe s at a time o f acut e nee d o f th e province s fo r large r revenue s an d o f larg e 1( 5D.B.S., specia l compilatio n (Ottawa : Octobe r 10 , 1958) . I n th e fisca l yea r 1960-1, i t i s estimate d tha t Nov a Scotia' s ta x renta l paymen t wil l b e $11.98 1 million an d it s equalizatio n paymen t $20.30 2 million , makin g it s tota l paymen t under th e tax-sharin g arrangement s $32.28 3 million . The National Finances, 1960-61, p. 114 . 17 For a discussio n of these grant s an d a criticis m o f th e formula e upo n whic h they ar e based , se e John F . Graham , "The Specia l Atlanti c Province s Adjustmen t Grants: A Critique, " Canadian Tax Journal, VII I (January-February , 1960) , pp. 39-43.

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federal deficits . Th e mai n provisions of th e ne w arrangement s ar e a s follows: (1) Th e province s no w lev y thei r ow n persona l an d corporat e income taxes, at rates of their ow n choosing, which the federal government collects at n o charge t o the provinces , providing taxabl e incom e is defined i n the same way as for the federal levies. (2) Th e federa l government reduced it s own corporate incom e tax by 9 percentage points and reduced its personal income tax collections by 16 per cen t for the first year of the agreement , with provision in this latter cas e fo r furthe r reduction s o f on e pe r cen t fo r eac h o f th e following fou r years , compared with a standard rate o f 13 per cen t i n the old formula. (3) Th e federa l governmen t continue s t o pa y eac h provinc e no t imposing a succession duty 50 per cen t o f the yiel d o f the federa l tax in that province. (4) Althoug h equalization payment s continue t o b e paid , th e ne w formula differ s significantl y from th e previou s one in tha t i t i s based upon the average per capita yield for all provinces, rather tha n for th e two richest ones, from th e thre e direct taxe s at the standar d rates, an d upon 50 per cen t of the per capit a three-year average of revenues fro m natural resources collected by all provinces. (5) Th e Atlanti c Province s Adjustment Grants ar e increase d fro m $25 million to $3 5 million, annually , and th e specia l paymen t o f $ 8 million annually to Newfoundland is being continued. (6) Ther e ar e tw o guarantee s o f provincia l revenue s i n th e ne w arrangements: no province entitled to equalization payments under the new formula wil l be in a worse position than it would have been wit h the continuatio n of the previou s formula, wit h respec t t o th e tota l of tax rental payments, equalizatio n payments , and the Atlantic Province s Adjustment Grants ; and n o province will receive revenue less in tota l than i t receive d o n the averag e in th e las t tw o years of the previou s (1957-62) agreement . (7) Th e federa l governmen t agreed t o continu e th e equa l sharin g with the provincial governments of the income tax collected from powe r utilities fo r th e ful l perio d o f th e ne w agreemen t rathe r tha n o n a year-to-year basis as previously. Differences amon g the province s i n th e rate s o f personal an d cor porate income taxes are more likely to occu r under th e ne w polic y of the federal government, although the withdrawal of the federal government from thes e fields by fixed percentage amount s will, for a time a t least, likely produce a tendency towards uniformity. The change in th e

Federal-Provincial Fiscal Relations 4

1

nature o f the ne w agreement s i s indicate d b y th e shif t fro m th e us e of the term s "tax rental" and "tax-sharing" i n the agreemen t o f 1957-62 to th e us e o f "ta x collectio n arrangements " wit h respec t t o th e ne w agreements.18 CONDITIONAL FEDERAL GEANTS: A BESUME

In additio n t o it s unconditional grants , th e federa l governmen t ha s since 191 2 mad e conditiona l grant s o n variou s term s an d fo r variou s purposes. Thes e began with grants for agricultural instruction, 1912-24, totalling abou t $1 1 million; an d include d grant s fo r technica l educa tion, 1919-3 9 (abou t $1 0 million), for highwa y construction , 1919-2 8 (about $2 0 million) , employmen t offices , 1918-4 1 (abou t $150,00 0 per year) , venerea l disease , 1919-3 2 (abou t $1,700,000) , ol d ag e pensions, 1926-51 (over $10 0 million per yea r in the las t years), relief grants-in-aid durin g th e depression , 1930-4 0 (abou t $31 7 million) , various forms o f health grants , 1948-present, and grant s for vocational, apprenticeship, an d yout h training , fo r lan d protection , reclamatio n and development , fo r irrigation , wate r storage , an d floo d control , fo r the Trans-Canad a Highway , an d fo r improvemen t an d protectio n o f forests.19 Some othe r federa l measure s whic h relieve d financia l pressur e o n the province s ar e unemploymen t insurance, inaugurate d i n 194 1 b y a constitutional amendment; th e famil y allowanc e scheme , inaugurate d in 1945 ; universa l ol d ag e pension s fo r al l thos e 7 0 years o f ag e an d over, inaugurate d i n 195 2 (alon g with ol d ag e assistance , which con sists o f shared-cos t contribution s fo r indigen t age d i n th e 65-6 9 ag e group ) ; and agricultural assistance, such as that under the Prairie Far m Assistance Act of 1939 an d the Prairi e Farm Rehabilitation Act of 1935 . The most recent measure s are the Nationa l Health Plan , unde r whic h the federa l governmen t share s certai n o f th e cost s o f provincia l fre e hospitalization plan s (Nov a Scotia' s pla n wen t int o effec t Januar y 1, 18 For description s o f thes e arrangements , se e Canadian Tax Journal, I X (March-April, 1961) , pp . 79-81 ; an d th e lette r fro m Prim e Ministe r Diefenbake r to th e provincia l premiers , o f Jun e 16 , 1961 , i n Hous e o f Commons , Debates (June 19, 1961), Appendix, pp. 6596-8. i»Perry, Taxes, Tariffs, and Subsidies, II , chaps . 31-3 ; an d J . A . Maxwell , Federal Subsidies to the Provincial Governments in Canada (Cambridge : Harvar d University Press , 1937) , chaps , xv-xvn . Som e o f th e grant s whic h wer e contin gent upo n provincia l expenditure s wer e thos e fo r technica l education , highwa y construction (includin g thos e fo r th e Trans-Canad a Highway) , ol d ag e pensions , some o f th e relie f grants , an d hospita l constructio n grant s (include d unde r "health grants").

42

Fiscal Adjustment and Economic Development

1959), an d th e remova l o f th e so-calle d "threshold " o f .4 5 per cen t from th e Unemploymen t Assistanc e Ac t o f 1956 . Under thi s ac t th e federal governmen t ha d agree d t o pa y 5 0 per cen t o f th e cos t o f al l relief, fo r th e numbe r o f persons o n the relie f roll s in th e provinc e i n excess o f .45 per cen t o f its population , t o an y provinc e whic h signe d an agreement. Remova l of the threshol d committed the federa l govern ment to sharing the cost of all relief. Perry note s tha t fro m 186 8 to 1954 , the Dominio n pai d a tota l of nearly thre e billio n dollar s t o th e provinces , includin g grants-in-ai d and shared-cos t contributions , compare d wit h abou t $20 0 millio n i t would hav e pai d ha d ther e bee n n o alteratio n t o th e arrangement s made a t Confederation 20 which , a s already noted , wer e t o b e "i n ful l Settlement o f all future demands on Canada." I n th e brie f subsequen t period, 1954-61 , these federa l payment s amounte d t o abou t fou r an d one-half billion dollars. 21 In 1868, the first year o f Confederation, thes e payments , which the n consisted solel y o f the statutor y subsidies , wer e abou t 5 4 per cen t of provincial revenue s an d abou t 2 0 per cen t o f Dominio n revenues ; i n 1929, th e tota l Dominio n payments to the province s wer e 9 per cen t of provincia l revenues and 4 per cen t o f Dominio n revenues, whil e i n the fisca l yea r 1960- 1 they wer e abou t 3 6 per cen t o f provincia l ne t general revenu e an d 1 4 per cen t o f Dominio n revenue . However , i n Nova Scoti a i n tha t yea r the y wer e abou t 6 8 per cen t o f net genera l revenue.22 THE PRINCIPLE OF FISCAL EQUITY WITH BESPECT TO NOVA SCOTIA

The conditions under which fiscal equity woul d be achieved i n Nova Scotia in relation to the other provinces will now be stated i n a genera l way an d som e indication wil l b e give n o f th e exten t t o whic h thes e conditions are being met. If federa l grant s t o a provinc e were sufficien t t o provid e revenue s which, alon g with it s ow n provincia l an d municipa l revenues , woul d enable i t t o provid e abou t th e sam e leve l o f service s a s i n othe r provinces, an d i f provincia l an d municipa l taxe s i n th e differen t provinces wer e simila r i n natur e an d levie d a t abou t th e sam e rates , 2

°Perry, Taxes, Tariffs, and Subsidies, II, 566. from Departmen t of Finance, Ottawa. Moore an d Perry , Financing Canadian Federation, pp . 78-9 . Percentage s fo r fiscal year 1960- 1 from D.B.S. , Comparative Statistics of Public Finance, 1956 to 1960 (Ottawa : Queen' s Printer , 1960) , Par t I , Table s 1 an d 13 ; an d fro m a special compilation provided by D.B.S. 21 Compilation 22

Federal-Provincial Fiscal Relations 4

3

fiscal equity could be said to be approximated in that a resident o f any province woul d receiv e abou t th e sam e fiscal treatment a s a similarl y situated resident in any other province. On th e revenu e side , th e federa l tax-sharin g arrangement s fo r 1957-62 provided equalization i n the provinces with regard t o personal and corporate incom e taxes and successio n duties u p to the pe r capit a yields a t th e (quit e generous ) standar d rate s o n the averag e fo r th e two riches t province s (Ontari o an d Britis h Columbia) . Th e specia l Atlantic Provinces Adjustmen t Gran t provide d fo r partial equalizatio n with respect t o other provincial (an d municipal) revenues . The magnitude o f the equalizatio n wit h respec t t o Nov a Scoti a i s indicate d b y the fac t tha t i n th e fisca l yea r 1960-1 , abou t 4 5 pe r cen t o f Nov a Scotia's ne t genera l revenu e cam e fro m thes e tw o source s an d fro m the statutor y subsidies, compare d wit h 2 1 per cen t fo r al l provinces. 23 The implie d principl e o f th e tax-sharin g arrangements o f 1957-6 2 was tha t equalizatio n payment s shoul d b e base d upo n th e taxabl e capacity o f the tw o richest provinces . The extensio n o f this procedur e to al l provincia l an d municipa l sources o f revenu e woul d hav e bee n consistent with the principle o f fiscal equity, assumin g that th e over-al l provincial an d municipa l cost s pe r capit a o f providin g service s ar e roughly simila r betwee n provinces . Th e ne w polic y fo r th e perio d 1962-7 o f relatin g equalizatio n payment s t o averag e pe r capit a revenues fo r all provinces is much less in accor d with th e principl e of fiscal equit y for , even i f thi s polic y wer e extende d t o includ e al l provincial an d municipa l sources of revenue, the fiscal pressure would be heavier i n the poorer provinces, because inferio r service s o r heavier tax burdens, or a combination o f both, would then be inevitabl e there. Nevertheless, Nov a Scotia is receiving abou t $2 million more in fiscal year 1962- 3 under th e new formula than i t would have unde r th e ol d one; for it s lowe r equalizatio n gran t wit h respec t t o th e thre e direc t taxes i s mor e tha n offse t b y th e increas e i n th e Atlanti c Province s Adjustment Gran t and by the addition o f the natural resource element, its pe r capit a revenu e fro m it s taxe s o n natura l resource s bein g substantially below the averag e for all provinces, as is shown in Table XII. Even wit h it s relativel y larg e federa l transfers , Nov a Scoti a ha d a combined provincia l an d municipa l ne t genera l revenu e pe r capit a of only abou t 7 9 pe r cen t o f tha t o f al l provinces , fo r th e fisca l yea r 1960-1. Moreover , it wa s onl y 69 per cen t o f the averag e fo r Ontari o and Britis h Columbia , th e tw o riches t provinces . I t woul d requir e 2SD.B.S., Comparative Statistics of Public Finance, 1956 to 1960, calculate d from Par t I, Tables 1 and 13, and from a special compilation by D.B.S.

44

Fiscal Adjustment and Economic Development

about $44 million of additional revenue to brin g th e amoun t for Nova Scotia up to the national average , an d about $5 3 million t o bring i t u p to th e averag e fo r Ontari o an d Britis h Columbia . Althoug h Nov a Scotia's combine d provincia l an d municipa l ne t genera l expenditur e is slightl y close r t o th e nationa l average , i t i s s o onl y b y virtu e o f a considerable defici t on current and capital accoun t combined—a chroni c element i n Nov a Scotia's provincial budget. A much larger par t o f its provincial expenditure s i s take n u p b y deb t servicin g (8. 9 pe r cent ) than fo r al l provinces take n togethe r (2. 5 per cent) . O n a per capit a basis, ne t deb t charge s exclusiv e o f deb t retiremen t wer e abou t $1 3 for Nov a Scotia an d abou t $ 4 for al l provinces take n together. 24 What abou t th e burden s o f taxation in Nov a Scotia compare d wit h those in other provinces? 25 With a gasoline tax o f 19 cents pe r gallon , Nova Scoti a share s with Newfoundlan d the highes t rat e i n al l o f th e provinces. Th e rate s o f th e othe r province s rang e fro m 1 2 cent s i n Alberta t o 1 8 cent s i n Ne w Brunswick . Th e rat e fo r Ontario , th e richest province, is 13 cents.26 The revenue s per moto r vehicle i n Nova Scotia in the fiscal year 1959-60 were $25.46 for all vehicles an d $18.5 0 for passenge r automobiles , bot h slightl y lowe r tha n thos e fo r al l o f Canada, which were $26.48 and $18.68 respectively.27 The larg e pe r capit a revenu e fro m Nov a Scotia n liquo r profit s o f $16.20 i n fisca l yea r 1960-1 , compare d wit h $10.5 5 fo r al l province s taken together , combine d wit h th e fac t tha t th e rati o o f ne t incom e from liquo r profit s t o gros s sale s wa s .3 6 for Nov a Scoti a an d .3 0 for all provinces28 (fo r the fiscal year 1958-9), indicates a heavier burde n 24

See pp . 48-9 . A compariso n o f Nov a Scoti a wit h eac h o f th e othe r pro vinces woul d giv e a fulle r picture , bu t thi s compariso n wit h al l province s take n together an d wit h th e averag e fo r Ontari o an d Britis h Columbi a wil l suffic e for th e purpose at hand. 25 In examinin g th e burden s o f taxation , th e questio n arise s whethe r a ta x levied a t a give n rat e i n a low-incom e provinc e i s mor e burdensom e t o th e tax payers tha n a ta x levie d a t th e sam e rat e i n a high-incom e province , assumin g similar livin g costs . Th e answe r i s "no " i f i t i s otherwis e similarl y situate d tax payers wh o ar e bein g considered ; fo r example , a 1 5 cent pe r gallo n gasolin e ta x would affec t a give n taxpaye r i n th e sam e wa y regardles s o f whethe r h e live d in a high - o r low-incom e province . Ther e i s reall y n o reaso n wh y th e rate o f a given typ e o f ta x shoul d b e lowe r i n a low-incom e tha n i n a high-incom e pro vince. Bot h hav e then - low-incom e groups : thei r unemployed , penniles s widows , and indigen t aged ; an d bot h hav e thei r wealthy , an d th e other s i n between . 2 *Canadian Tax Journal, IX (March-April, 1961), p. 83. 27D.B.S., The Motor Vehicle, 1959 (Ottawa : Queen' s Printer , 1960) , Table s 3 and 6. 28 D.B.S., Comparative Statistics of Public Finance, 1956 to 1960, pe r capit a values calculate d fro m Table s 1 an d 13 ; an d D.B.S. , Financial Statistics of Provincial Governments, 1958 (Ottawa : Queen' s Printer , 1958) , revenu e an d expen diture, actual , ratio s calculate d fro m Tabl e 9 . Onl y Britis h Columbi a ha d a

Federal-Provincial Fiscal Relations

45

in Nova Scotia than in other provinces. This burden is further increase d by the 5 per cen t genera l retail sales tax which i s applied t o alcoholi c beverages. The burde n o f th e genera l retai l sale s ta x i n Nov a Scoti a (raise d from 3 per cen t to 5 per cen t April 1, 1961 ) is heavier than i n most of the othe r provinces . Newfoundlan d and Britis h Columbi a hav e th e same rate. The rate is 3 per cent in New Brunswick, Saskatchewan, and Ontario, and 4 per cen t in Prince Edward Islan d an d Quebec . Albert a and Manitoba levy no tax.29 Because of the diversit y among the province s in the kind s of natural resources, i n th e type s o f ownershi p o f them , an d i n th e method s of taxing them, no satisfactory wa y has yet bee n found o f comparing the relative burden s o f taxation o n them. 30 Althoug h satisfactory over-all interprovincial comparison s canno t b e mad e o f propert y taxes , th e main sourc e of municipal tax revenue , because o f variations in assessments an d i n assessment practices, the Commissio n to Investigat e th e Taxation Syste m in the Cit y of Halifax, reportin g in 1957, did attemp t to mak e comparison s of propert y ta x burden s betwee n Halifa x an d twenty-two cities in other provinces. While i t found th e residentia l tax burden i n Halifax t o be i n line with suc h burdens in othe r cities , th e Commission foun d th e ta x burden o n commercia l property i n Halifax to be over twice the average in these cities.31 higher pe r capit a revenu e ($16.69) ; th e value s fo r th e othe r province s range d from $4.8 1 (Newfoundland ) t o $14.5 3 (Alberta) , Ontario' s bein g $9.55 . Nov a Scotia had th e highes t ratio o f net incom e to gros s sales, the other s rangin g as low as .2 1 (Manitoba) . The rati o fo r Ontari o was .3 1 (ibid.). Provincia l consumption of alcoholi c beverage s pe r capit a shoul d als o b e take n int o accoun t i n assessin g the burde n o f provincia l governmen t liquo r revenues . Pe r capit a sale s i n th e fiscal year 1960- 1 for th e par t o f the populatio n twent y year s o f ag e an d ove r i n Nova Scotia , usin g th e 195 6 census , wit h amount s fo r al l province s excep t Prince Edwar d Islan d show n in parentheses , were , i n gallons : spirit s 1.1 6 (1.34) , wine .6 8 (.71) , bee r 10.7 6 (19.83), al l alcoholi c beverage s 12.5 9 (21.88). Thi s evidence indicate s tha t pe r capit a consumptio n i s les s i n Nov a Scoti a tha n i n the res t o f th e country . Th e burde n o f provincia l governmen t liquo r revenue s is al l th e greate r o n tha t accoun t i n thi s province . (D.B.S. , The Control and Sale of Alcoholic Beverages in Canada, fiscal year ended Marc h 31, 195 9 (Ottawa: Queen's Printer , 1960) , p . 6 ; an d D.B.S. , Census of Canada, 1956 (Ottawa: Queen's Printer, 1958), bulletin 3-3, Table 1. 29 The rate s o f sale s an d othe r provincia l taxe s give n her e ar e thos e a t th e time o f writing . The y ma y wel l b e quit e different b y th e tim e thi s stud y i s published, as provincial ta x rates have recently been changing rapidly. 30 The Canadia n Ta x Foundatio n ha s studie d thi s problem , bu t ha s no t s o fa r found a satisfactor y wa y o f makin g th e compariso n (lette r fro m Mario n H . Bryden, the Foundation statistician , July 2, 1959 ). 31 City of Halifax , Report of the Commission to Investigate the Taxation System in the City of Halifax (Halifax , 1957) , pp. 21-33.

46

Fiscal Adjustment and Economic Development TABLE X I ESTIMATES O F NE T GENERA L REVENUE " FO R NOV A SCOTI A AN D ALL PROVINCES FOR TH E FISCA L YEA R ENDE D NEARES T TO DECEMBER 31, 196 0 (S'OOO)

Nova Al l Scotia province s Nova % % Scotia distributio n distributio n Taxes On corporations, includin g corporate incom e 810 On persona l income ni Succession duties I Property 105 Sales Motor fue l an d fue l oi l 16,29 General 9,78 Other commoditie s and services 70 Other 9 TOTAL TAXE S 27,80

*. leni — a .

9 10. l 2. • 2. 1.

8 4 0 3

5 17. 5 10. 7. 7— 0 30.

7 15. 6 8. 8 2. « 6. 2 48.

7 3 2 7 4

Privileges, licences , and permit s Liquor control and regulation 27 Motor vehicle s 6,43 Natural resource s 1,37 Other 57

2. 0 7. 3 1. 5.

3. 0. 5. 6.

Liquor profit s 11,70

0 12.

7 7.

4

Other revenu e 1,73 SUBTOTAL, EXCLUDIN G FEDERA L TRANSFERS 49,88

9 1.

9 2.

4

9 54.

1 79.

0

1 13. 3 22. l ni 0 8.

0 11. 0 7. l ni 1 1.

6 0 l 0

0. 7 2.

5. 2 1.

3 1

0 100.

0 100.

0

TOTAL PRIVILEGES , ETC . 8,65

From Governmen t o f Canad a Tax rental 11,98 Tax equalization 20,27 Revenue stabilization ni Atlantic Province s Adjustmen t Grants 7,50 Share o f increase i n tax o n public utilities 45 Statutory subsidie s 2,05 TOTAL GOVERNMEN T OF CANADA 42,26

TOTAL NE T GENERAL REVENU E 92,15

0 9.

1 45.

Net genera l revenue per capita fo r Nova Scoti a $12 Net genera l revenue per capit a fo r all provinces $14 Ratio of net genera l revenue per capita fo r Nova Scoti a t o net genera l revenue per capita fo r all provinces .

42

9 21.

/ ./ ./ .'

0.8

0

7 4 89

SOURCE: D.B.S. , Comparative Statistics of Public Finance, 1956 to 1960 (Ottawa, Queen's Printer , 1960) , Par t I , Federal , Provincial , an d Municipa l Governments : Tables 1 and 13 ; and specia l compilation, Departmen t of Finance. The statistic s fo r the fiscal year 1960- 1 are forecast estimates . The y wer e the lates t data a t th e tim e of writing . Although they ar e bound to diffe r fro m th e actua l revenue s and expendi -

Federal-Provincial Fiscal Relations

47

tures, i t wa s thought that the y would likel y giv e a mor e accurate pictur e than th e actual dat a fo r a n earlie r year , especiall y in vie w of th e newnes s of Nov a Scotia' s general retail sales tax . ""Net genera l revenue " exclude s revenue s whic h ca n b e specificall y relate d t o services rendered. Treated i n conjunctio n wit h "ne t genera l expenditure," which i s based upon the same principle, it gives a measure of the "net" cos t to the government of it s services . Accordingly, i t i s arrived at b y deductin g th e followin g fro m "gros s general revenue": (a ) all revenu e o f provincial government institutions, (6) revenue in the for m of interest, premium, discount, and exchange, (c) grants-in-aid and sharedcost contributions , and (a ) al l capital revenue. The surplu s position is the sam e for both gros s and ne t receipts . 'Tax on premiu m incom e of insurance companies. 'Collection of arrears. d About one-quarter provincial Fire Ta x (for fire protection), levied at seventy-five cents pe r on e hundre d acre s o n eac h owner , occupant , o r lesse e o f timberland s or uncultivated lan d of 200 acres o r more ; and abou t three-quarter s Land Ta x levie d on occupants of more than 1,000 acres of land a t on e per cent of its value. "The symbol "—" means too small to be expressed. •'The symbol ".. " means not available.

For thre e o f th e provincia l revenue s examine d (th e gasolin e tax , revenue fro m th e sal e o f alcoholi c beverages , an d th e genera l sale s tax) an d for the loca l property tax , for Halifax at least , i t ca n be sai d that th e burden s o f taxatio n ar e significantl y heavier tha n i n a t leas t some of the othe r provinces. 32 The onl y exception is the burde n o f th e motor vehicl e revenues , whic h appear s t o b e slightl y les s tha n th e average fo r al l provinces. Sinc e th e substantiall y lowe r level s o f pro vincial an d municipa l expenditure s i n Nov a Scoti a probabl y reflec t a lower leve l o f service s ther e tha n i n th e province s o f centra l an d western Canada , it appear s tha t th e principl e o f fiscal equity canno t at present be fully applied i n Nova Scotia in relation to these provinces . It i s still pertinent , nevertheless , t o determin e ho w the principl e ca n be applied b y the Government of Nova Scotia within the province wit h respect t o the Nova Scotian municipalities. CUBBENT PUBLIC FINANCE IN NOVA SCOTIA

The accompanying tables largel y spea k for themselves, bu t i t migh t be helpfu l to point ou t a few things o f particular interes t i n them an d to ad d som e informatio n abou t combine d provincia l an d municipa l revenue, expenditure, and debt. Tables X I and XI I illustrat e Nov a Scotia's heav y dependence , rela tive t o othe r provinces, upo n profits fro m th e governmen t liquo r sale s monopoly, an d payment s from th e Governmen t o f Canada , especiall y the tax-sharin g arrangements ; an d it s relativel y smal l revenu e fro m 32 Those wh o d o no t us e alcohol , driv e cars , o r rid e regularl y o n moto r buse s would no t b e treate d ver y differentl y wit h regar d t o ta x burden s tha n thei r counterparts i n other provinces , excep t in provinces tha t have n o sales tax.

48

Fiscal Adjustment and Economic Development TABLE XI I ESTIMATES O F MAJO R REVENUE S (INCLUDIN G GRANTS-IN-AID AN D SHARED-COS T CONTRIBUTIONS) PE R CAPIT A FO R NOV A SCOTI A AN D ALL PROVINCE S FOR TH E FISCAL YEAR ENDE D NEARES T T O DECEMBER 31 , 196 0 Nova Al Scotia province

Taxes o n corporations, corporate and personal income taxes, and succession duties $ Tax o n motor fuel an d fue l oi l 2 General sales tax 1 Motor vehicle licences 8.8 Liquor profit s 16.1 Natural resources 1.9 TOTAL MAJO R REVENUE S FRO M PROVINCIA L SOURCES 64.1 From Governmen t of Canada 58.4 TOTAL MAJO R REVENUE S 122.6

Other revenues 4.8

TOTAL NE T GENERAL REVENU E $127.4

Grants-in-aid and shared-cost contributions from th e Governmen t of Canada 2

TOTAL NE T GENERA L REVENU E AND GRANTS-IN-AID, ETC . $155.9

Major genera l revenues per capita a s percentage of tota l net genera l revenue per capita 9

1.1 2 $ 2 .54 2 3 .53 1 9 7.85 8 10.5 0 15.63 6 90.4 5 30.1

1 120.5

3 22.9

4 $143.5

8 . 47b 2 1 $165.3

6 . 28

l

s

21.9 1 2 . 50 1 . 96 ° 5 ° 0 3

3

7

0

1 .88 8

4 .0

SOURCE: Calculate d fro m D.B.S. , Comparative Statistics of Public Finance, 19561960, Par t I , Tables 1 and 13. "Not show n separatel y i n source . Estimate d b y usin g sam e proratin g of item s under "privileges , licences, and permits " as for fiscal year ended Marc h 31 , 1958 . 'These tota l $20,583,000 , distribute d as follow s (thousand s omitted) : agriculture 132, healt h 2,327, hospital insurance 8,901, welfar e 3,286 , vocationa l training , etc. 634, highway s an d transportatio n 3,313 , resourc e development 1,110, civi l defenc e 110, an d othe r 770.

natural resources , a seriou s weakness in Nov a Scotia' s fisca l structur e compared t o othe r provinces , whic h reflect s th e relativ e paucit y o f these resources . Thi s disadvantag e i s no w partiall y overcom e b y th e inclusion o f th e natura l resourc e elemen t i n th e ne w equalizatio n formula. Table XIII shows a distribution o f expenditures for Nova Scotia quite similar to that fo r all provinces. Debt charge s ar e a striking exception . On a pe r capit a basi s the y wer e $13.1 4 fo r Nov a Scoti a compare d with onl y $3.92 for al l provinces. As would b e expected , Nov a Scotia has a relatively larg e debt . Its ne t direc t funde d deb t pe r capit a wa s $304, compare d wit h $151 fo r all provinces, as at th e en d o f the fisca l

Federal-Provincial Fiscal Relations 4

9

TABLE XII I ESTIMATES O F NE T GENERA L EXPENDITURES " AN D GRANTS-IN-AID AND SHARED-COST CONTRIBUTIONS * FO R NOV A SCOTI A AND AL L PROVINCES FOR FISCA L YEA R ENDED NEAREST TO DECEMBER 31, 196 0

(in thousands of dollars , except per capita figures)

Nova Scotia Al l Nova % province s Scotia distributio n distributio n General government 4,53 Protection to persons and property 4,18 Transportation an d communications 29,46 Health 19,63 Social welfare 6,52 Education 24,72 Natural resources and primary industries 4,40 Debt charges , net, exclusive of debt retirement 9,50 Contributions to municipal governments 1,05 All other expenditures and adjustments 2,65

0 4. 5 3.9 0 27. 0 18. 0 6. 0 23.

2 4. 5.2 6 25. 4 18. 1 8. 2 24.

7 0 0 2

0 4.

1 6.

7

9 2. 0 2. 5 2. 100.0 100.

5 6 9 0

0 8. 0 1. 5 2.

Nova Scotia Al

2

l provinces

Total net genera l expenditure exclusive of deb t retirement 106,65 Grants-in-aid an d shared-cost contributions from Governmen t of Canada 20,58 TOTAL 127,23

0 2,757,27

0

3 388,98 3 3,146,25

0 0

Net general expenditure per capit a excluding debt retirement $147.5 Grants-in-aid, etc. per capita 28.4

1 $155.0 7 21.8

9 8

TOTAL PE R CAPITA 175.9

8 176.9

7

SOURCE: D.B.S. , Comparative Statistics of Public Finance, 1966-1960, Par t I , Tables 2 and 14 . "For the meanin g of "net general expenditure" se e Table XI , not e (") . The ter m "general" mean s that capital expenditures are included. 'Shown to give a truer picture of the extent of services rendered by th e provinces.

year ende d neares t t o Decembe r 31 , 1960 . The relativel y large r ex penditures b y Nov a Scotia o n transportation an d communication s ar e probably i n par t accounte d fo r b y th e fac t tha t th e Governmen t of Nova Scoti a i s responsible fo r al l publi c road s i n th e provinc e apar t from thos e in town s and cities , while i n som e provinces loca l govern ments are responsible fo r many of the roads in rural areas; but the y ar e likely i n par t du e t o a relativel y highe r priorit y bein g assigne d t o highway building by the provincial government. Per capita revenue, expenditure , an d debt for provincial and munici pal government s combined are o f interes t becaus e th e distributio n of functions an d o f revenue s varie s fro m provinc e t o province . Fo r th e

50

Fiscal Adjustment and Economic Development

fiscal year ended neares t Decembe r 31 , 1960, th e combine d provincia l and municipa l ne t genera l revenu e pe r capit a fo r Nov a Scoti a wa s about $182-abou t 7 9 pe r cen t o f tha t fo r al l provinces , $229 . It s combined ne t genera l expenditur e pe r capit a wa s abou t $214—abou t 81 per cen t o f tha t fo r al l provinces , $264 . A t th e fisca l yea r ende d nearest t o Decembe r 31 , 1958, th e combine d ne t funde d direc t deb t per capit a fo r Nova Scotia was $410—about 11 7 per cen t of that fo r al l provinces, $350.

IV

Municipal Organizatio n an d Financ e in Nov a Scoti a

HISTORY AND NATURE OF LOCAL GOVERNMENT IN NOVA SCOTIA1 NOVA SCOTIA BECAME COMPLETELY ORGANIZED for purposes OÍ local

government b y th e Count y Incorporatio n Ac t o f 1879 , whic h estab lished twenty-fou r rural municipalities. Thes e stil l exist , with th e sam e boundaries a s i n 1879 . Th e boundarie s o f twelv e o f the m coincid e with thos e o f counties . Th e othe r si x counties wer e divide d int o tw o rural municipalitie s each. 2 Prio r t o thi s act , th e Cit y o f Halifax , an d five towns had been incorporated, 3 all by special act s of the legislature , in respons e t o loca l agitation . Th e Count y Incorporatio n Act , then , organized th e res t o f th e provinc e int o unit s o f loca l government . Three additiona l towns 4 were incorporated b y special legislatio n befor e the legislatur e passe d th e Towns ' Incorporatio n Ac t o f 1888 , whic h provided fo r incorporatio n o f towns if a majority of ratepayers votin g iMuch o f the materia l in thi s sectio n ha s bee n obtaine d fro m th e introduction in Governmen t o f Nov a Scotia , Annual Report of Municipal Statistics, 1959 (Halifax: Queen' s Printer) ; Donal d C . Rowat , The Reorganization of ProvincialMunicipal Relations in Nova Scotia ( A repor t prepare d fo r th e Governmen t of Nova Scoti a b y th e Nov a Scoti a Municipa l Bureau , Institut e o f Publi c Affairs , Dalhousie University ; Halifax , 1949) ; J . Murra y Beck , The Government of Nova Scotia (Toronto: University of Toronto Press, 1957); and fro m interviews. 2 The 1 8 counties developed a s electoral districts, a s the provinc e was gradually opened up , rathe r tha n a s unit s o f loca l government . Th e whol e provinc e wa s divided into counties by 1851 . Toda y the counties serve as geographical and census as wel l a s electora l divisions . Th e ter m "county " i s als o frequentl y use d fo r a rural municipalit y which comprise s a whol e county . Se e Beck , Government of Nova Scotia, pp. 54-6, 112-13. SHalifax (1841) , Dartmout h (1873) , Picto u (1874) , Trur o (1875) , Ne w Glasgow (1875) , and Windsor (1878). •«Sydney (1885), North Sydney (1885), and Kentvffle (1886) .

52

Fiscal Adjustment and Economic Development

at a poll favoured it, and if the are a o f the localit y i n questio n wa s a t least 500 acres and its population at least 700.5 Local governmen t wa s slo w t o develo p i n Nov a Scoti a i n it s pre Confederation days , partl y becaus e i t wa s discourage d b y th e Legis lative Counci l in accordance wit h the polic y of the Crow n to maintai n centralized administration , an d partly , especiall y i n th e cas e o f th e rural areas, because of a reluctance of the people t o accept th e respon sibilities an d burdens involved. When rural municipal organization did come it wa s imposed o n the rura l communitie s to forc e the m t o lev y much-despised propert y taxe s fo r th e maintenanc e o f road s an d bridges an d s o t o reliev e th e provinc e o f th e responsibilit y fo r thi s service a t a tim e o f financia l stringency , rathe r tha n bein g grante d in respons e t o popula r demand. 6 I n vie w o f this , i t i s ironica l tha t the province later too k over responsibility for public roads an d bridges in th e rura l municipalities (partl y i n 191 7 an d completel y b y th e lat e nineteen-twenties ). A numbe r o f othe r function s whic h ha d bee n added meanwhile , however , includin g one s relatin g t o education , health, an d welfar e (th e performanc e o f mos t o f whic h wa s als o required b y the province) , a s well a s the regulativ e an d servic e func tions commonl y performe d b y localities , justifie d th e continue d existence of rural municipal government. Today, Nov a Scoti a i s completel y organize d fo r purpose s o f loca l government into 66 municipal units, consisting of three citie s (Halifax , Dartmouth, an d Sydney) , 24 rural municipalities, an d 3 9 towns.7 Th e boundaries o f th e rura l municipalitie s an d th e location s o f th e citie s and towns, along with their populations , are shown on the accompanying map ( Figure 1 ). The populations of the town s in the 196 1 censu s ranged fro m 80 0 (Annapoli s Royal) t o 24,18 0 (Glac e Bay ) wit h a mean o f 4,425, and o f the rura l municipalities from 3,12 3 (St . Mary's ) to 86,24 6 (Halifax ) wit h a mea n o f 16,306 . Th e area s o f th e rura l municipalities rang e fro m abou t 22 0 squar e mile s (Barrington ) t o about 2,19 0 squar e miles (Halifax) , wit h a mean of about 86 0 square miles.8 5 Since amende d (b y Geo . VI, c . 3 ) t o 64 0 acre s an d 150 0 inhabitants . Th e new requirements were not made retroactive. «Beck, Government of Nova Scotia, pp. 302-3 . 7 Sydney becam e a cit y i n 1904 , an d Dartmouth , afte r absorbin g some o f it s fringe areas , i n 1961 . Thre e town s (Por t Hoo d i n 1946 , Wedgepor t i n 1947 , and Joggin s i n 1949 ) surrendere d thei r incorporate d statu s an d becam e par t of th e rura l municipalities which geographically contain them because, according to Bec k (ibid., p . 304) , the y foun d th e burde n o f tow n organizatio n too great . The las t town s t o incorporat e wer e Berwic k an d Mulgrave , bot h i n 1923 . (Annual Report of Municipal Statistics, 1956, p. 3.) 8 Annual Report of Municipal Statistics, 1959, p. 12 . Th e are a give n fo r th e

FIGURE 1 . LOCATIO N AND 1961 POPULATION O F NOVA SCOTIA' s 2 4 RURA L MUNICIPALITIES , 39 TOWNS , AN D 3CITIE S

Broken line s ar e use d t o sho w th e boundarie s o f rura l municipalitie s wher e countie s ar e split int o tw o municipalities . Th e town s (designate d b y numerals ) an d citie s (designate d by letters ) ar e liste d unde r thei r respectiv e rura l municipalitie s i n th e populatio n figures . The populatio n figure s fo r th e rura l municipalitie s do no t include th e town s or citie s within their geographica l boundaries. ANNAPOLIS

1. Annapoli s Royal 2. Bridgetow n 3. Middleto n ANTIGONISH

1. Antigonis h O

18,885 800 1,043 1,921 10,016 4,344

AHGYLE

7,810

HARRINGTON

5,596 945

1. Clark' s Harbou r

CAPE BRETO N

1. Dominion 2. Glac e Ba y 3. Louisbur g 4. Ne w Waterfor d 5. Nort h Sydne y 6. Sydne y Mine s S Sydne y

40,917 2,999 24,186 1,417 10,592 8,657 9,122 33,617

CHESTER

7,926

CLARE

8,539

COLCHESTER

1. Stewiack e 2. Trur o

20,844 1,042 12,421

CUMBERLAND

1. Amherst 2. Parrsbor o 3. Oxfor d 4. Springhil l DIGBY

1. Digb y

GUYSBOHOUGH

1. Cans o 2. Mulgrav e

17,838 10,788 1,834 1,471 5,836 9,369 2,308 7,855 1,151 1,145

D Dartmout h H Halifa x

86,246 46,966 92,511

HANTS, EAS T

10,866

HANTS, WES T

10,374 3,823 1,381

HALIFAX

1. Windso r 2. Hantspor t INVERNESS

15,263 2,109 1,346

KINGS

33,440 1,282 4,612

1. Invernes s 2. Por t Hawkesbur y 1. Berwic k 2. Kentvill e

3. Wolfvill e

2,413

LUNENBURG

18,416 4,497 3,056 1,103

PICTOU

16,966 9,782 4,534 5,327 3,140 4,159

QUEENS

9,443 3,712

1. Bridgewate r 2. Lunenbur g 3. Mahon e Bay

1. Ne w Glasgo w 2. Picto u 3. Stellarto n 4. Trento n 5. Westvill e 1. Liverpoo l

RICHMOND

11,374

SHELBURNE

1. Lockepor t 2. Shelburn e

4,668 1,231 2,408

ST. MABY' S

3,123

VICTORIA

8,266

YARMOUTH

6,940 8,636

1. Yarmouth

54

Fiscal Adjustment and Economic Development

As is the cas e throughout Canad a the municipa l unit s ar e the crea tures o f th e provincia l government . Th e Britis h Nort h Americ a Ac t divided powe r betwee n th e federa l governmen t an d th e provinces , giving th e provinces jurisdictio n over what a t th e tim e wer e regarded as matter s primaril y o f loca l concern . Eac h provinc e wa s fre e t o organize loca l government s an d t o delegat e o r assig n t o the m an y of its functions and revenue sources it wished. The powers of the three cities, Halifax , Dartmouth, and Sydney , ar e contained i n thei r charters , whic h ar e separat e piece s o f provincia l legislation an d ar e amende d fro m tim e t o tim e b y th e legislature , usually at the request o f the cities. The powers of the towns are derive d from th e presen t versio n o f the Towns ' Incorporatio n Act , an d o f th e rural municipalities , fro m th e Municipa l Act , th e presen t versio n of the origina l Count y Incorporatio n Act . Th e Municipa l Affair s Act , which regulate s municipa l borrowin g powers , relate s t o al l o f th e municipal units . Certai n importan t function s require d o f th e munici palities ar e containe d i n specia l acts , suc h a s the Educatio n Ac t an d the Publi c Healt h Act . I n addition , th e Villag e Servic e Ac t permit s a communit y of more than 10 0 people t o incorporat e villag e commissions, usuall y consistin g o f thre e electe d commissioners , t o provid e certain specifi c service s o f a loca l improvement nature, suc h a s stree t lighting an d fir e protection , additiona l t o thos e provide d b y a rura l municipality. These villages , of which ther e ar e 15 , remain part o f th e rural municipality which contains them. They obtain the revenue necessary for the services they provide by extra levies on the property of their residents, usin g th e assessmen t roll s o f th e rura l municipalitie s o f which the y ar e a part . The y ma y collec t thes e taxe s themselve s or , what i s th e commone r practice, hav e th e rura l municipalitie s collec t the taxe s fo r them . About 20 other commission s simila r t o th e villag e commissions have been created by special acts of the legislature . The rura l municipalitie s are divide d int o district s for electora l an d other administrativ e purposes. These district s ar e base d upo n th e ol d townships, which had neve r served effectively a s units of local government an d whic h wer e establishe d mainl y for provincia l electora l pur poses. An y semblanc e the y ha d o f bein g independen t unit s o f loca l government disappeare d whe n th e rura l municipalitie s wer e formed . The rura l municipalitie s ar e als o divide d int o man y smal l schoo l sections, abou t 7 0 on th e average ; the y a t on e tim e ha d considerabl e Municipality o f Halifa x Count y doe s no t tak e accoun t o f th e absorptio n i n 196 1 by th e ne w Cit y o f Dartmout h of som e o f it s fring e area s whic h wer e formerl y part of the county.

Municipal Organization and Finance 5

5

independence wit h regar d t o buildin g an d financing schools, bu t ar e now essentially administrativ e division s under th e school boards o f th e rural municipalities . The Municipa l Ac t an d th e Towns ' Incorporatio n Ac t contai n list s of regulatory functions whic h relate mainly to the maintenanc e o f la w and order and to the protection o f the welfare of the inhabitants. Thes e acts als o giv e the genera l powe r t o preserv e peace , health , an d goo d order. Th e cit y charter s o f th e thre e citie s gran t simila r bu t mor e extensive powers. Other functions , suc h a s the provisio n o f roads an d educational facilitie s an d th e suppor t o f th e poo r an d unemployed , were at on e time principally loca l functions , bu t hav e com e more and more to be of provincial and even national interest a s well. Roads were once entirely a local responsibility i n Nova Scotia. The province is now responsible fo r al l thos e i n th e rura l area s an d eve n bear s som e of the cost of those in towns and cities. The municipalities , then , ar e concerne d i n varyin g degree s wit h providing service s relating t o roads, education, welfare , public health , public utilities, regulation, redevelopment, and recreation. Some of these services hav e see n large r an d large r participatio n b y th e provincia l and federa l government s as time progressed, bu t sinc e th e rang e an d amounts of services which concern the municipalitie s hav e also grown, so have the responsibilities and financial burdens o f the municipalities . All o f th e municipa l unit s ar e governe d b y electe d councils . Th e chairman o f eac h rura l municipa l council , th e warden , i s electe d b y the counci l from thei r ow n number, while that o f each tow n an d cit y council, the mayor, is elected a t large by the voters. Each rural municipality i s divide d int o district s fo r electora l purposes . Som e o f th e towns are divided int o wards for electoral purpose s and som e are not , at eac h town' s discretion . Al l thre e cities , Halifax , Dartmouth , an d Sydney, ar e s o divided. I n al l thre e kind s o f municipa l uni t ther e i s provision fo r staggerin g th e term s o f council member s so that no t al l of them come up for election in any one year. School board s ar e chose n partl y b y th e council s an d partl y b y th e province; the town boards having three members out of five chosen b y the councils ; the municipa l boards, four ou t o f seven; Halifax City , six out of twelve; and Sydney , four ou t o f seven. It i s likely that th e Dart mouth city charter, when ratified b y th e legislature , wil l provide fo r a larger schoo l board tha n th e fiv e member s it stil l ha d a t th e tim e of writing, probabl y fo r nin e members , five chosen b y th e council . The separatio n o f the rural municipalities fro m th e town s an d citie s is a distinctive featur e of local government in Nov a Scotia, i n contras t

56

Fiscal Adjustment and Economic Development

to th e organizatio n i n mos t of the othe r provinces , an d i n practicall y all of the America n states. A consequence of this separation wa s that i t left som e of the unit s too weak financially and to o small in populatio n to provide som e kinds of services economically ( especially institution s such a s cour t houses , jails , poo r houses , an d menta l hospitals , an d functions suc h a s la w enforcement) . Provisio n wa s therefor e mad e for a system of joint expenditure s o that service s an d thei r cost s coul d be share d b y a rura l municipalit y wit h on e o r mor e town s o r a cit y or anothe r rural municipality . Cost s are apportione d accordin g t o th e assessed value of property in the municipal units concerned. The objects of join t expenditure an d th e allocatio n o f the cost s are determine d b y arbitration committee s o f thre e member s electe d fro m th e counci l of each participatin g municipa l unit . I f assessment s wer e mad e o n a uniform basi s i n eac h suc h unit , thi s metho d o f sharin g cost s woul d probably b e satisfactory . I t woul d mea n tha t a uni t wit h a large r per capit a assessmen t woul d pa y mor e i n proportio n t o populatio n than a uni t wit h a smalle r per capit a assessment , relative populatio n being take n a s a measur e o f th e degre e o f benefi t o f eac h uni t fro m the service . Thi s resul t woul d generall y hol d fo r town s an d citie s i n relation to the rural municipalities. In fact, assessments have not been made on a uniform basis, althoug h some progress has been made towards uniformity. The sharing arrangement has therefore not been satisfactory, for it has had th e unfortunat e effect o f encouragin g competitiv e under-assessmen t i n al l thre e kinds of municipal unit to minimize the shar e of the cost s o f the join t expenditures, a t th e expens e o f th e othe r municipa l unit s participating . The recentl y abolishe d Municipalities ' Highwa y Tax, 9 a provincia l tax o n th e rura l municipalitie s base d o n rea l property , wa s initiall y imposed i n 191 7 whe n th e provinc e bega n t o assum e responsibilit y for rural public roads. It had the similar effect o f inducing rural municipalities t o kee p thei r assessment s low t o minimiz e th e burde n o f th e tax. MAJOR RESPONSIBILITIES OF THE MUNICIPALITIES AND PROVINCIAL PARTICIPATION

The service s o f the municipalitie s can be divide d roughl y accordin g to whethe r the y ar e o f a local o r o f a genera l nature ; tha t is , according to whether th e benefit s fro m the m accru e onl y to th e inhabitant s »Abolished i n 1957 , effectiv e afte r 195 6 (S.N.S., 1957 , c . 41). I n th e calenda r year 195 6 thi s tax , which was levie d a t 6 0 cent s pe r $10 0 o f assessmen t o f real property, yielde d $245,924 . (Annual Report of Municipal Statistics, 1956, p. 30. )

Municipal Organization and Finance 5

7

of th e municipalitie s o r whethe r the y ar e sprea d throughou t th e province o r th e nation . Al l of th e service s presentl y provide d b y th e municipalities wer e a t on e time considered , b y th e provinc e a t least , to be most appropriately performe d locally. But it would be stretchin g a point t o say that al l of them were at the tim e they wer e undertake n considered t o be only , or primarily, of local interest. Thi s ma y be sai d perhaps o f thos e function s directl y relate d t o servin g loca l residents , such a s fire and polic e protection , th e constructio n an d maintenanc e of streets , sanitatio n an d wast e removal , suppressio n o f publi c nuisances, an d eve n o f th e provisio n o f welfar e services . Bu t practi cally from the beginning, public educatio n in Nova Scotia, which today accounts fo r b y fa r th e larges t singl e par t o f loca l expenditure s (se e Table XVII ) wa s considered t o confe r a genera l benefit. 10 Th e muni cipalities assume d responsibility fo r it no t because they wante d t o bu t because th e provinc e sai d the y must , i n th e belie f tha t education , although i t conferre d a genera l benefit , coul d b e mos t effectivel y administered an d i n larg e par t financed , withou t undu e hardship , a t the loca l level . Thi s vie w n o doub t stemme d i n par t fro m a feelin g that education wa s only one step fro m th e famil y uni t an d s o assumed such a degree o f intimacy that it should be largely unde r local control . Many o f the sam e views a s the foregoin g about educatio n wer e hel d with regard to services relating to health. In th e fiel d o f social welfare , the benefi t i s confine d mor e narrowly to th e individua l upo n who m th e servic e i s directl y conferre d tha n in the cas e of education an d public health, an d s o in this sens e can b e considered a local one . Provision for th e need y wa s lon g regarde d a s being primarily of local concern. If th e indigen t age d an d othe r desti tute could not be provided for by their familie s i t was a matter o f local pride fo r the communit y to se e that the y were care d for . The provincial governmen t in Nov a Scoti a wa s actin g i n accordanc e wit h th e social attitud e o f the da y i n assignin g the responsibilit y fo r suc h car e to th e municipalities . Bu t th e genera l attitud e o f society has change d to th e poin t wher e no t onl y services whic h confe r a genera l benefit , like education and health, ar e considered to be o f general interes t an d 10

As evidenced , fo r example , in th e followin g statemen t b y Josep h Howe , on e of Nov a Scotia' s mos t famou s statesmen : "Star t wit h th e principl e tha t ever y child shal l have the rudiment s of education, that fro m Cap e Nort h to Cap e Sabl e there shal l no t b e a famil y beyon d th e reac h o f commo n schools—no t a chil d who i s no t acquainte d wit h reading , writin g an d arithmetic . Giv e the m th e means fo r th e highes t progres s i f yo u will , bu t mak e sur e o f th e broa d basi s fo r all." Cite d i n Governmen t o f Nov a Scotia , Report of the Royal Commission on Public School Finance (Halifax : Queen' s Printer, 1954) , p. 84.

58

Fiscal Adjustment and Economic Development

therefore appropriat e object s o f expenditur e fo r th e large r unit s o f government. The assurance of a minimum measure of economic security has come to be considered a s being in the interest o f all and a s a righ t to which all are entitled. Welfar e can therefore now be groupe d wit h the othe r genera l services . Thi s chang e i s in par t attributabl e t o th e development o f democrac y i n tha t thos e i n th e low - an d middle income group s hav e exerte d pressure s t o hav e th e governmen t provide the m wit h a minimu m o f security . I t i s als o attributabl e to the fact that most of the members of a highly specialized an d urban ized industria l societ y ar e les s independen t an d therefor e mor e vul nerable economicall y tha n i n a lowe r income , predominantl y agricul tural society . Peopl e i n the rura l area s als o get th e benefi t o f welfare measures; otherwis e ther e woul d appea r t o b e discriminatio n agains t them, a condition no government can likely ignore for long.11 The distinctio n betwee n loca l an d genera l service s i s o f interes t because i t permit s a divisio n int o thos e function s whic h ar e mor e or less clearl y th e preserv e o f the loca l governmen t an d thos e i n whic h the provinc e migh t appropriatel y assum e a n interest . Th e provinc e can, o f course, ai d th e municipalitie s financiall y wit h respec t t o loca l as well as to general services; bu t i f adjustments ar e to be made in th e kinds of services provided b y local government , it i s in the are a of th e general services that they will likely have to be made. One o f th e outcome s of th e increasin g amount s and qualit y o f th e general services demanded from th e municipalities has been tha t many municipal unit s ar e to o wea k financiall y an d to o smal l fro m th e administrative poin t o f vie w t o provid e the m a t adequat e levels. 12 The financial disparity o f the municipa l units was no t s o serious when much less was expected o f government generally and when the auster e view tha t eac h localit y shoul d provid e onl y wha t i t coul d affor d t o provide was commonly held.18 ^Unemployment insuranc e benefits wer e not, however, initially extended to th e mainly rura l industries, fishing, agriculture, and forestry , largel y because of their seasonal nature . Th e tren d i s no w toward s extendin g benefit s eve n t o thes e industries. 12 See Rowat , Reorganization of Provincial-Municipal Relations, Part 1 , passim. It i s to remedyin g these shortcomings tha t muc h o f Rowat' s stud y i s directed. 13 This attitud e is not dea d in Nov a Scotia . A warden of a rural municipality in Nova Scotia , a well-educate d and thoughtfu l man , sai d i n a n intervie w that i n his opinio n th e guidin g principle of municipal financ e shoul d b e "Wha t w e can' t afford, w e can' t have. ' H e said , for example , h e though t i t wa s ridiculou s t o sa y that ever y chil d shoul d hav e th e sam e educationa l opportunit y regardles s of where he lived in the province. He believes that the level of services provided by a municipality shoul d b e onl y wha t it ca n provid e with its ow n resources and tha t benefits should not be the same everywhere. He added, however, that a municipality

TABLE XI V REVENUES OF NOV A SCOTIA N MUNICIPALITIE S IN 1959 (CALENDA R YEAR)

($'000)

Taxation revenue " General Real propert y Personal propert y Poll Special assessment s an d charges TOTAL TAXATIO N REVENUE

9,069 2,225* 271 92 11,657

Rural muns.

Towns

Cities

($'ooo)

All muns.

(%)

($'000)

(%)

(S'OOO)

(%)

53.6 22.6

65.3 13.4

75.6

2.6 1.0

79.8

8,094 1,663 475 82 10,314

83.2

23,829 6,700 1,075 302 31,906

59.2

1.8 .6

6,666 2,812 329 128 9,935

(%)

58.8 14.4

3.8 .7

16.6

2.7 .8

79.3

Licences and permits ; rents, concessions, and franchise s ; fines and fee s

651

4.2

347

2.8

52

.4

1,050

2.6

Interest, ta x penalties, etc .

200

1.3

108

.9

96

.8

404

1.0

1,545

10.0

379

1.7

2,132 3,531 8 500 616

5.3 8.8 .0 1.2 1.5

Contributions, grants, subsidies Governments Dominion" Province o f Nova Scotia 11 Municipal Government enterprise s Other

TOTAL CONTRIBUTIONS , GRANTS, SUBSIDIES

Miscellaneous (includin g recreation and communit y services) TOTAL CURREN T REVENUE' TOTAL CURREN T REVENUE PER CAPITA

4.4 — 1.9 2.2

1,155

8 193 284

3.0 9.3 .1 1.6 2.3

2,858

18.5

2,019

49

.3

15,415

100.0

683 — 298 332

$123

208

1,693

13.6

16.3

1,910

15.4

6,787

16.8

26

.2

23

.2

98

.2

12,435

100.0

12,395

100.0

40,245

100.0

$65

—9 —

$33

— .1 —

$58

SOURCE: Governmen t of Nova Scotia, Annual Report of Municipal Statistics, 1959, (Halifax: Queen's Printer), pp . 3 , 12, 14, 24, 31. "Includes all taxes levie d for municipal and school purposes. 'The part for Halifa x consists of household tax, business tax, and paymen t by Maritim e Telephone & Telegraph Co . of 3 per cent of gros s subscribe r revenue . "Payments in lie u o f municipal taxes on federa l property . "See Tabl e XV. 'Does not includ e adjustments for deficit or surplus from previou s years or for deficit or surplus of current year and so differs slightly from th e total s in Annual Report of Municipal Statistics, 1959.

60

Fiscal Adjustment and Economic Development TABLE X V ANALYSIS O F CONTRIBUTIONS , GRANTS , AND SUBSIDIE S FRO M TH E PROVINCE O F NOV A SCOTI A TO THE MUNICIPALITIE S I N 1959 °

Cities (S'OOO)

Rural muns.

All

Towns (S'OOO)

(S'OOO)

muns. (S'OOO)

986

General purposes grant Debt charges on school capital term debt Capital expenditures out of revenue —school purposes Discount on debentures issued for school purposes Province's share of maintenance of stree t approaches Assistance under Social Assistance Act —municipal relief Assistance under Local Asylums Act —mentally ill Dues under Lands and Forest s Act Winter6 works programme Other

421

449

116

7

203

841

— 1

261

173

434

4

57

62

—

29

—

29

143

143

395

681

64

12 — 36

82 5 21 2

158 5 74 48

TOTAL

683

— 17 29

17

1,155

1,693

1,052

3,531

SOURCE: Obtained directly from th e Departmen t of Municipal Affairs . "There are sligh t rounding errors in some of the totals . 'Mainly civil defence .

Tables XI V t o XVIII , showin g th e expenditure s an d revenue s o f municipalities i n Nov a Scotia , giv e a genera l ide a o f th e relativ e importance a t present o f differen t type s o f expenditures an d revenue s of th e thre e kind s o f municipal unit . The y sho w how th e variet y an d amount o f service s declin e fro m th e citie s t o th e town s t o th e rura l municipalities, an d how very important propert y taxe s are a s a source of revenue . Grant s fro m th e provincia l governmen t appea r t o b e rela tively unimportan t a s a revenue source, but th e large grant s for educa tion ar e no t shown . I n 195 9 thes e totalle d $13,673,000, " a n amoun t equal t o abou t 3 3 per cen t o f all municipal expenditure s i n the calen dar year 1959.15 Many change s hav e take n plac e i n provincial-municipa l fisca l rela tions in Nova Scotia in the last half century, both by adjustments in th e can usuall y afford t o pa y mor e tha n i t think s i t can . Whe n presse d slightly , eve n he concede d tha t ther e i s some merit i n equalizatio n grant s for a servic e like education whic h bestow s general benefit s beyon d th e boundarie s o f th e municipality . 14 See Table XX. Government o f Nov a Scotia , Annual Report of the Department of Education, for th e yea r ende d Jul y 31 , 196 0 (Halifax : Queen' s Printer , 1961) , p. xxi. 15 Annual Report of Municipal Statistics, 1959, calculated from pp . 2 7 and 34 .

Municipal Organization and Finance 6

1

TABLE XV I PER CAPIT A REVENUE S O F NOV A SCOTIAN MUNICIPALITIES' " IN 195 9 (CALENDA R YEAR )

Rural

Cities

$

Towns

muns.

All muns.

72.28 17.73 2.16

34.76 14.66 1.72

21.44 4.40 1.26

34.30 9.64 1.55

92.90

51.81

27.32

45.92

Licences and permits ; rents, concessions , and franchises ; fines and fee s

5.19

1.81

.14

1.51

Interest, tax penalties, etc.

1.59

.44

.25

.58

12.31 5.44

1.98 6.02

2.38 2.65

Taxation revenue : General Real propert y Personal propert y Poll Special assessments and charge s TOTAL TAXATIO N REVENUE

Contributions, grants , subsidie s Governments Dominion Province o f Nova Scotia Municipal Government enterprises Other

TOTAL CONTRIBUTIONS , GRANTS, SUBSIDIES

Miscellaneous TOTAL CURREN T REVENUE PE R CAPIT A

.73

$

.67

$

.22

$

.43

4.48

1.01 1.48

— .02 —

3.07 5.08

22.78

10.53

5.05

9.77

.39

.14

.06

.14

122.85

64.73

32.82

57.92

—

.04

.55

.01 .72 .89

SOURCE: As for Table XIV. "Based on 1956 population data.

division of responsibilities betwee n th e province and the localities, an d by the payment of grants to the localities. 16 There ha s been practicall y no adjustmen t b y alterin g th e revenu e base s availabl e t o th e munici palities, apar t fro m the los s o f the incom e tax by th e municipalitie s a s a result o f the province's ta x rental agreement s with th e Dominio n for which the y were compensate d b y an annua l unconditional grant fro m the province . Th e remainde r o f thi s chapte r wil l chronicl e thes e changes i n provincial-municipa l fisca l relation s an d describ e th e functions o f th e municipalitie s i n sufficien t detai l an d wit h sufficien t historical perspective t o give an understanding of provincial-municipal fiscal relation s at the present time. As genera l governmen t i s mainl y concerne d wit h administration , 16

See Rowat , Reorganization of Provincial-Municipal Relations, pp . 12-22 , on "The Increased Participation by Senior Governments."

TABLE XVI I EXPENDITURES O F NOV A SCOTIA N MUNICIPALITIES I N 1959 (CALENDA R YEAR )

Cities ($'000)

General governmen t Protection t o persons an d property" Public works Sanitation an d wast e remova l Health» Social welfare ' Education Recreation an 1d communit y services Debt charges' Utilities and other municipal enterprises' Provision fo r reserve s Capital expenditur e provide d ou t of revenue Joint o r special expenditure Miscellaneous expenditure TOTAL EXPENDITURE ' Population (195 6 Census ) TOTAL EXPENDITUR E PE R CAPIT A

Rural muns.

Towns

(%)

(S'OOO)

769

All muns.

($'000)

(%)

($'000)

(%)

6.1 13.0 9.0 2.2 2.1 3.2 29.1 1.5 17.5

932 108 28 — 711 852 5,953 47 2,040

7.3 .8 .2 — 5.6 6.7 46.9 .4 16.1

2,807 4,622 2,253 853 1,720 1,725 14,139 768 7,307

6.8 11.3 5.5 2.1 4.2 4.2 34.5 1.9 17.8

(%)

1,107 2,866 1,088 577 744 467 4,505 529 3,055

7.1 18.4 7.0 3.7 4.8 3.0 28.8 3.4 19.6

13 128

.1 .8

70 295

.6 2.3

— 260

— 2.0

83 683

.2 1.7

45 385 103 15,612

.3 2.5 .6 100.0

974 527 188

7.7 4.2 1.5 100.0

423 1,260 83 12,697

3.3 9.9 .6 100.0

1,442 2,172 374 40,947

3.5 5.3 .9 100.0

1,648 1,137

276 265 406

3,681

192

2,212

12,640

125,463

191,753

377,501

694,717

$124

$66

$34

$59

SOURCE: Annual Report of Municipal Statistics, 1959, pp. 3, 12 , 25-7, 32-4. "Includes fire and polic e protection, la w enforcement an d corrections, street lighting, etc. 'Mainly for general and menta l hospitals and, in Halifax, publi c health. "Mainly for municipa l homes, outdoor relief, an d chil d welfare . ''Including schools. «Deficits o f and levie s for utilities . 'Does not includ e adjustment fo r deficit o f previous years or surplus for current year an d s o differs fro m th e total s in the source .

63

Municipal Organization and Finance TABLE XVII I PER CAPIT A EXPENDITURE S O F NOV A SCOTIAN MUNICIPALITIES " IN 195 9 (CALENDAR YEAR)

General government Protection t o person s and propert y Public works Sanitation an d wast e remova l Health Social welfar e Education Recreation and communit y services Debt charge s Utilities and othe r municipal enterprises Provision fo r reserves Capital expenditure provided out of revenue Joint o r special expenditure Miscellaneous expenditures TOTAL EXPENDITURE S PE R CAPIT A

Cities $

Towns $

8.82 22.84 8.67 4.60 5.93 3.72 35.91 4.22 24.35

4.01 8.59 5.93 1.44 1.38 2.12 19.20 1.00 11.54

Rural muns. $

All muns. $

2.47

4.04 6.65 3.24 1.23 2.48 2.48 20.35 1.10 10.52

.29 .07 —

1.88 2.26 15.77 .12

5.40

—-

1.02

1.54

.69

.12 .98

3.07 .82

.36

5.08 2.74 .98

1.12 3.34 .22

2.08 3.13 .54

124.43

65.91

33.63

58.94

.10

.36

SOURCE: As for Tabl e XV . "Based o n 1956 population data.

its cost will vary with th e othe r responsibilitie s assume d by the locali ties, an d s o i t i s no t reall y a n independen t ite m an d i s no t o f muc h interest t o thi s study . Protectio n t o person s an d property , an d publi c works wil l b e discusse d briefly , bu t mos t attentio n wil l b e give n t o problems o f the localitie s an d fo r mos t of the difficultie s i n provincialeducation, health, an d welfare , for they are responsible for most of th e municipal relations . The last few years have seen fundamental change s with regard t o provincial participation i n al l three o f these fields . Protection to Persons and Property This categor y include s suc h service s a s fir e protection , polic e pro tection, la w enforcement, an d stree t lighting . Ther e i s not muc h her e that concern s thi s study . Thes e ar e mostl y traditiona l loca l function s which have remained loca l in character . Police protection , t o th e exten t i t i s provide d b y localities , i s pro vided mainl y b y th e town s an d cities ; th e rura l municipalitie s ar e policed b y th e Roya l Canadia n Mounte d Police , wh o b y a contrac t with th e provincia l government , ac t a s provincia l a s wel l a s federa l police in Nova Scotia. They also police Inverness, Pictou, and Windsor , by special contract with these towns.

64

Fiscal Adjustment and Economic Development

Some change might be made in the responsibility fo r providing jail s and lock-u p houses . At presen t th e localitie s mus t provid e thes e fo r prisoners awaitin g tria l o r sentenc e an d fo r thos e servin g sentence s of les s tha n tw o years . Prisoners servin g longe r sentence s ar e sen t t o the federa l penitentiar y a t Dorchester , Ne w Brunswick . The syste m of numerou s small local jails is unsatisfactory as it provide s insufficien t segregation o f prisoners of differen t categorie s an d a s it i s not condu cive t o th e bes t reformator y practices. 17 Th e federa l governmen t ha s recently propose d tha t i t tak e ove r responsibilit y fo r prisoner s sen tenced t o more than on e year an d i s expected t o introduc e legislatio n to eliminate sentence s for federal crimes of over six months up t o on e year.18 Th e ne w federa l priso n a t Springhil l wa s establishe d t o pro vide som e of th e expansio n of federal penal facilitie s necessitate d b y these changes . Th e Nov a Scotia n governmen t ha s propose d t o th e federal governmen t tha t th e provinc e b e permitte d t o boar d it s prisoners servin g terms of three months or more in the federa l prison. Such a n arrangemen t woul d mean that th e federa l priso n would tak e the responsibilit y fo r mos t o f th e trainin g an d rehabilitatio n o f prisoners an d tha t th e municipa l jail s woul d b e use d onl y fo r thos e prisoners servin g sentence s o f les s tha n thre e month s an d fo r thos e awaiting tria l o r sentence . Thi s grou p nevertheles s comprise s o n th e average abou t three-quarter s o f thos e servin g sentence s o r bein g held i n loca l jails , abou t one-thir d o f th e tota l bein g hel d fo r drunkenness. Public Works Sewers, sidewalks , an d drainag e ar e loca l responsibilities , a s ar e most of the street s i n towns and cities. As already mentioned, th e pro vince, through its Department o f Highways, assume s responsibility for all public road s in the rura l municipalities . Thi s practic e has relieve d the rural municipalities of a big burden, but on e consequence has been that th e provinc e i s in fac t providin g streets i n built-u p areas , whic h are technicall y classe d alon g wit h othe r roads . T o compensat e th e 17

For a goo d descriptio n o f condition s i n loca l jail s i n Nov a Scoti a an d o f the nee d fo r reform , se e Governmen t o f Nov a Scotia , Fifty-fifth an d Fifty-sixth Annual Reports on Penal Institutions (Halifax : Queen' s Printer, 1956 an d 1957) , passim. A goo d dea l o f progres s ha s bee n mad e toward s improvin g conditions since these reports. 18 The changes in the federal government' s policy are based on recommendations in th e Report of the Committee to Inquire into the Principles and Procedures Followed in the Remission Service of the Department of Justice of Canada (Called th e Fauteu x Committee , afte r th e chairman , Mr . Geral d Fauteux ; Ottawa: Queen's Printer, 1956).

Municipal Organization and Finance 6

5

towns an d cities for the les s favourable treatment accorde d the m wit h respect t o road s an d streets , th e province , i n th e fisca l yea r 1960-1 , began t o make them a n annual grant o f $200 per mil e of street. Thes e grants ar e administere d b y th e Departmen t o f Municipa l Affairs , th e amounts budgete d bein g $190,00 0 fo r 1960- 1 an d $200,00 0 fo r 1961-2.19 Th e provinc e als o shares th e capita l an d maintenanc e cost s of section s o f highway s passin g throug h town s an d cities , u p t o a maximum o f 5 0 per cent. 20 I n th e fisca l yea r 1959-60 , th e province' s share o f ai d t o town s fo r maintenanc e an d capita l expenditure s wa s about $128,00 0 compared wit h tota l maintenanc e and capita l expendi tures o n highway s fro m provincia l fund s o f abou t $27,686,000, 21 an d compared with a total expenditure o f towns and citie s for public works in 1959 (calendar year) of about $2,225,000. 22 It i s in keeping wit h the divisio n between loca l an d genera l service s that those cit y an d tow n streets whic h for m part s o f highways shoul d at leas t i n part b e regarde d a s genera l services , sinc e i t i s of value t o all who use them t o have them wel l looke d after , an d sinc e the town s and citie s shoul d not hav e t o bear th e ful l cos t o f building an d main taining street s whic h ar e largely use d by outsider s passing through . In a n effor t t o introduc e mor e car e i n layin g ou t ne w suburba n developments i n rura l municipalities , th e provinc e mad e provisio n i n 1956 fo r the Ministe r of Highways to ente r int o agreement s with rura l municipalities fo r th e provinc e t o bea r 4 0 pe r cen t o f th e cos t o f putting i n pavemen t an d curb s an d gutter s i n suc h areas , th e rura l municipalities t o pay 20 per cent , an d the owner s of the abuttin g property, 40 per cent. In 1957, the provincial share was increased to 45 per cent and the municipal share reduced t o 15 per cent . The outla y of the province fo r thi s purpos e i n th e yea r endin g Marc h 31 , 1960 , was $200,000, th e whol e su m bein g fo r Halifa x County , th e onl y rura l municipality wit h whic h th e provinc e ha d a n agreemen t in tha t year . The Ministe r als o may, with th e approva l o f the Governor-in-Council , share wit h th e rura l municipalitie s th e cost s o f buildin g sidewalk s along publi c highway s t o th e exten t o f 5 0 pe r cent . Th e province' s 19 Legislature o f Nov a Scotia , 196 1 Session , Estimates (Halifax : Queen' s Printer, 1961) , p. 42. 20R.S.2V.S., 1954 , c. 235 , Public Highway s Act, s . 25 . Thi s mean s i n fact , tha t the provinc e pays the maximu m o f 50 per cent . A n amendment to th e act , s. 25A , permits th e Ministe r t o pa y u p t o 10 0 per cen t fo r majo r trun k highway s passing through towns and for costly bridges. 21 Government o f Nov a Scotia , Annual Report of the Department of Highways, for th e fiscal year ende d Marc h 31, 196 0 (Halifax: Queen' s Printer , I960) , tabl e beginning on p. 110 . ^Annual Report of Municipal Statistics, 1959, p. 25 .

66

Fiscal Adjustment and Economic Development

expenditure fo r thi s purpos e i n th e fisca l yea r 1959-60 , wa s $63,423.92.23 Education2* As early as 1808 there was authority in Nova Scotia for the establish ment b y th e inhabitant s o f schoo l section s o f fre e schools , supporte d by local property taxes, 25 with provisio n for som e financial aid b y th e government of Nova Scotia. But it was not until the serie s of Educatio n Acts of 1864,1865, and 1866 , that the principle o f free public educatio n for al l children i n the province, supporte d mainl y by compulsory levies on rea l an d persona l propert y i n loca l schoo l sections , wa s pu t int o effect. A t th e time , ther e wa s strenuou s oppositio n t o th e legislation , especially b y man y o f thos e wh o ha d n o childre n an d b y thos e wh o wished t o educat e thei r childre n privately . Thes e act s provide d fo r provincial grant s o f a fixe d su m fo r th e constructio n an d suppor t of County Academies 26 and Superio r Schools , for provincial salar y grants to teacher s accordin g t o licence , fo r th e establishmen t o f a Municipal School Fun d i n eac h count y supported b y levie s i n that county 27 an d distributed t o th e schoo l section s i n proportio n t o th e numbe r o f teachers i n each, an d fo r th e loca l schoo l section s t o rais e an y money required i n additio n t o the provincia l an d municipa l grants , by levie s on rea l an d persona l property. 28 Th e allocatio n o f cost s fo r selecte d years is shown in Table XIX. This syste m of financ e prevaile d unti l 1942 . On e significan t feature of it was the designatio n of poor sections, usually in sparsely populate d areas. They received special assistance both from th e Municipa l School Fund an d fro m th e provincia l government . Th e financia l weaknes s of these section s wa s a continua l problem an d on e which becam e espe 23

Obtained directly fro m th e Departmen t o f Highways. Most o f th e materia l i n thi s sectio n i s fro m th e Report of the Royal Commission on Public School Finance. Thi s excellen t repor t wil l hereinafte r b e referred t o a s th e Pottier Report, afte r th e Commissioner , Th e Honourabl e Vincent J . Pottier , Q.C . Als o usefu l i s H . P . Moffatt , Educational Finance in Canada (Th e 195 7 Quanc e Lecture s i n Canadia n Education ; Toronto : W . J . Gage Limited, 1957) . 25 Other source s o f suppor t use d a t variou s time s afte r th e firs t Educatio n Ac t in 176 6 include d religiou s denominations , privat e subscriptions , excis e taxes , allo cation o f lands, and governmen t grants. 26 These wer e hig h schools , som e o f whic h cam e t o hav e a ver y hig h standar d of instruction . 27 At firs t equallin g two-third s o f th e provincia l gran t t o th e count y an d late r being a t a rat e o f s o muc h pe r inhabitant , beginnin g a t 3 0 cent s i n 186 6 an d rising to $1.00 i n 1921 . 28 They wer e a t firs t require d t o d o thi s onl y fo r obtainin g o r erectin g schoo l houses. 24

Municipal Organization and Finance T,\BLE 2 CIX

67

A]LLOCATION ( 3F COST S OF EDUCAT I ON I N N IOVA SCOTI A I 'OR SELE (:TED

11870-19410

Year

School Sect, levy

%of total

Munie, fund

%of total

Prov'l grant

%of total

YEA Iis,

Total

%of total

« 91,76 2 17 .2 $ 174,60 2 32 .8 . $ 532,52 4 100.0 119,923 13 .5 887,852 100.0 248,309 27. 9 224,025 8 .3 500,405 18. 5 2,702,672 100.0 523,876 13 .2 916,856 23. 1 3,970,025 100.0 516,616 10 .9 1,304,521 27. 6 4,721,427 100.0 SOURCE: Base d o n th e table , p . 5 , o f Governmen t o f Nov a Scotia , Report of the Royal Commission on Public School Finance (Halifax : Queen's Printer, 1954) , hereinafter Fattier Report. 1870 1900 1920 1930 1940

$ 266,16 0 519,620 1,978,242 2,529,293 2,900,290

50.0 58.5 73.2 63.7 61.4

dally acut e i n th e depressio n o f th e 1930's , whe n a t on e poin t th e rural an d villag e school section s were almos t hal f a million dollar s in arrears.29 The schoo l sectio n syste m o f financin g ha d neve r worke d wel l i n the rura l areas , becaus e o f the ver y smal l size of the sections. 30 Wha t was clearly calle d for wa s a larger uni t of schoo l finance. In 1938 , th e Commission o n the Large r Uni t declare d itsel f i n favou r o f the large r unit fo r educationa l finance in th e rura l area s becomin g th e provinc e itself. Th e provincia l governmen t wa s t o determin e a minimu m pro gramme, i n term s o f teachers ' salarie s an d maintenanc e o f schools , and lev y a unifor m property ta x throughou t th e province . Th e com mission furthe r suggeste d tha t an y defici t resultin g fro m th e failur e of thi s ta x t o cove r th e minimu m programm e b e mad e u p b y a n equalization fun d draw n fro m othe r provincia l revenues. 31 Thes e radical proposals , whic h woul d hav e ende d th e practic e o f makin g localities assum e considerabl e financia l responsibilit y fo r education , were no t pu t int o effect . Instead , a n alternativ e suggestio n o f th e commission wa s translate d int o enablin g legislatio n i n 1942 . Thi s legislation, whic h provide d fo r th e establishmen t o f a municipa l school unit , wa s adopte d b y al l rura l municipalitie s b y 1946 . The new legislation was designed t o equaliz e the ta x burden withi n each rura l municipalit y an d t o establis h a minimu m programm e throughout th e provinc e for teachers' salaries and, in village an d rura l 29 Pottier 30

Report, p. 7. Rowat, writin g i n 1949 , note d tha t thei r averag e populatio n wa s onl y 185 , and tha t thei r breadth , averagin g onl y 4 miles , wa s mainl y determine d b y th e distance a chil d coul d wal k t o school . (Reorganization of Provincial-Municipal Relations, p. 3 . ) 31 Government o f Nova Scotia , "Report of th e Commissio n o n th e Large r Unit," Journals of the House of Assembly, 1940 , Appendix 8.

68

Fiscal Adjustment and Economic Development

sections, fo r maintenanc e expenditure s o n schools . Th e provincia l government committe d itsel f t o mak e up th e differenc e betwee n th e cost o f th e minimu m programm e an d th e revenu e raise d i n eac h municipality b y a unifor m levy . Th e unifor m ta x rat e i n eac h rura l municipality wa s determine d b y takin g th e media n o f th e rate s fo r the sections in the municipality for the school year 1941-2 and reducin g it by 10 per cent . Capita l cost s were still born e by the schoo l sections. One defect o f this schem e wa s that the ta x rate in relatio n t o marke t values o f property varie d fro m on e municipalit y t o another . Anothe r defect wa s tha t th e schem e wa s base d upo n municipa l assessment s which varie d greatl y fro m on e municipality to another, wit h th e resul t that a more wealthy rural municipality with low assessments in relatio n to market values of property coul d receive more aid than a less wealthy rural municipality with higher assessment s in relation t o market value. The pla n di d wor k in th e genera l directio n o f equalization , however , even though there was nothing in the "formula " itself t o bring it abou t in an y systemati c way ; for mos t o f th e wealthie r municipalitie s wer e closer t o the minimu m programme to begin wit h an d s o received les s money fro m th e provinc e tha n th e poore r ones . I n spit e o f it s short comings, the reform was a step in the right directio n i n bringing abou t the formatio n of a large r uni t fo r financin g schoo l operations ; an d i t did cope with an emergency situation. The minimum programme was adjusted upwards a number o f times over th e nex t te n years , th e salar y increase s bein g pai d b y th e province.32 Sinc e th e municipa l schoo l ta x rate s wer e fixe d a t th e 1942 levels an d sinc e assessment s changed ver y little, practically th e whol e of th e othe r increase s was als o paid b y th e province . When th e rapi d increase i n enrolment after 1948 , as a result of the hig h wartim e birth rate, further increased the deman d fo r classrooms , most of the burde n of th e operatio n o f th e additiona l classroom s fell o n th e province . In 1948, the province informed th e rural municipalities that i t would not furthe r increas e th e schoo l maintenanc e grant s o f th e minimu m programme. I n 1951 , it amende d th e Educatio n Ac t to protec t itsel f further fro m increase d financia l commitments . The amendmen t froz e the equalizatio n fun d use d to pay the provincial share of the minimum programme in the rura l municipalities a t $1,211,040 , th e amoun t paid in 1950-1 . Th e freezin g di d no t appl y t o salar y grants. The provinc e 3Z

". . . th e amoun t pai d b y th e Provinc e fo r teachers ' salarie s an d pensio n benefits increase d fro m approximatel y $975,00 0 i n 194 2 to ove r $5,000,00 0 i n 1953, exclusiv e o f th e Equalizatio n Fun d an d grant s fo r Rura l an d Regiona l High Schools." ( Fattier Report, p. 9. )

Municipal Organization and Finance 6

9

continued t o pay othe r provincia l aid and salar y grants and full grant s for conveyance s in operation i n 1952 , bu t agree d t o pay onl y half th e cost fo r ne w conveyance s afte r tha t year . Th e province' s ne w polic y meant that the rural municipalitie s wer e required t o pay basic salarie s for ne w classrooms , th e ful l cos t o f maintenanc e o f additiona l class rooms, an y additiona l maintenanc e cost s fo r existin g classrooms , an d one-half o f added conveyanc e costs. In 1946 , th e provinc e bega n a n ambitiou s pla n o f developin g rura l and regional high schools for grades 7 to 12, called Rura l High School s if buil t in the rura l municipalities , an d Regiona l High School s if built in towns and serving surrounding rural areas a s well. It pai d al l of th e capital cost s for the Rura l High Schools . And it paid th e capita l cost s for th e Regiona l Hig h School s t o th e exten t the y wer e incurre d t o serve villag e an d rura l pupils , an d par t o f th e balanc e o f th e costs , the amount depending o n the agreement arrived a t with the particula r town. It also paid 7 5 per cent o f the operating costs for the rural pupil s in th e Regiona l Hig h School s an d 3 0 t o 5 0 pe r cen t o f th e cos t fo r town pupil s i n thes e schools , dependin g o n th e proportio n i t ha d paid o f the cost s of operating the ol d high school s in the town s before the Regiona l Hig h School s wer e built . Th e par t o f th e province' s educational programm e relating t o Rura l and Regiona l High Schools , like the othe r parts, took no systematic account of the abilit y t o pay of the rural municipalities and towns. The provinc e late r establishe d a Schoo l Loan Fun d ($2,000,00 0 in 1954) t o assis t the schoo l sections with capita l expansio n and repairs , and i n additio n guarantee d thei r debenture s t o enhanc e th e sections ' borrowing power. The Pottier Commissio n argued: "In many instances . . . the obligation of repaying the principal and interest placed an excessive tax burden on the local school sections, particularly whe n this wa s in additio n t o th e genera l Municipa l tax rate, th e Municipa l tax rat e fo r schools , an d specia l taxe s fo r othe r services , suc h a s regional librarie s an d loca l improvements." 33 I t adde d tha t thes e burdens bor e littl e relatio n t o the taxpayin g ability o f the sections . A greater measur e of aid wa s give n to th e rura l municipalities tha n to th e town s an d cities , wher e grant s fo r teachers ' salarie s wer e th e only importan t sourc e o f hel p toward s operatin g expenses . As thes e salary grants , establishe d i n 1948 , bor e a n invers e relatio n t o th e salaries paid b y th e town s i n 1945-6 , there wa s no necessary connection betwee n th e leve l o f salarie s i n tha t yea r an d a town' s abilit y to pay. **Ibid., p. 13 , italics as in the report.

70

Fiscal Adjustment and Economic Development

The provincia l shar e o f th e cost s o f educatio n varie d a goo d dea l in the twelve years preceding th e Pettier Commission. In 1941-2 it was 36.52 per cent ; in 1950-1, 61.45 per cent ; an d in 1953 (calendar year) , 49.93 per cent. 34 Such wer e th e condition s o f educationa l financ e i n Nov a Scotia a t the time of the appointmen t o f Justice V. J. Pettier as a one-man Royal Commission o n Publi c Schoo l Finance, o n Marc h 2 , 1953, to mak e a thorough investigatio n o f educational finance in th e province , an d t o make appropriat e recommendations . Justic e Pettie r aime d a t a solu tion simila r i n man y respect s t o th e on e o f th e Commissio n o n th e Larger Uni t but, as Beck puts it , ". . . broadened i t to include al l the sixty-six municipalities and clothed its skeletal outlines with the detail s needed to give it practical effect." 35 The principa l proposition s o n whic h hi s recommendation s wer e based are: (1) Tha t al l childre n i n th e provinc e shoul d "hav e a t leas t a n opportunity t o obtai n a n adequat e foundatio n education." 36 Th e pla n to provide this opportunity was defined in terms of what Pottier termed a "Foundation Program." 37 (2) Tha t al l publicl y provide d educationa l service s shoul d b e included i n the Foundatio n Program , tha t i s instruction, maintenanc e of schools , transportation o f pupils, an d eve n capita l cost , th e las t t o include ne w construction , interes t o n presen t an d futur e debt , an d debt repayment. (3) Tha t th e traditio n o f local responsibility fo r school s should b e continued, whil e a t th e sam e tim e th e provinc e shoul d equaliz e th e financial burden s o n th e differen t localitie s i n th e provisio n o f th e Foundation Program. (4) Tha t sinc e by fa r th e mos t important sourc e of revenue o f th e localities wa s the propert y tax , the contributio n mad e b y eac h municipality shoul d b e accordin g to its abilit y t o pay, 38 a s measured by a uniform rate o f tax on the marke t value of real an d persona l property. uibid., p. 10. 3»Beck, Government of Nova Scotia, p. 323. ^Pottier Report, p. 15 . 3T The commission' s reaso n fo r usin g the ter m "foundation" rather than "minimum" i s give n a s follows : "Th e Commission i s strongl y oppose d t o referrin g t o such program s a s a 'minimum ' o r a 'minimu m foundatio n program. ' Th e wor d 'minimum' leave s th e impressio n tha t the plan s ar e t o produc e the lowes t typ e of program. Th e prope r approac h is no t th e lowes t typ e o f progra m o f educatio n which coul d b e adopte d bu t o n th e contrar y th e highes t typ e of progra m which all resource s availabl e ca n financ e an d i n whic h ever y chil d ca n participate. " (Ibid., p. 16.) 38 "Ability t o pay " was use d b y th e commissio n t o mea n th e revenue-raising capacity o f th e municipa l unit itself , no t th e abilit y t o pa y o f th e individua l taxpayer, which is the more common meaning.

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The commissio n define d th e Foundatio n Progra m i n term s o f a minimum salar y scal e fo r teachers , cos t o f maintenanc e o f schools , cost o f transportation o f pupils, an d capita l costs ; tha t is , in term s of the fou r service s i n (2 ) above , an d accordingl y recommende d tha t auditoriums, gymnasiums , and cafeteria s not b e include d i n th e Pro gram, although there was to be nothing to prevent a municipality fro m adding thes e entirel y a t it s ow n expense. It als o made certain recommendations abou t vocationa l school s an d school s fo r th e blin d an d the deaf. In orde r t o obtai n a goo d basi s fo r abilit y t o pay , th e commissio n undertook th e heroi c tas k o f equalizin g assessments . Sinc e i t wa s impractical t o d o thi s b y reassessin g eac h individua l propert y i n th e province, th e commissio n made estimates a t the leve l of the municipa l unit. I n th e cas e o f real property , i t appraise d 6,00 0 propertie s o n a sampling basis , examine d records o f sales , an d solicite d th e opinion s of assessors and other s wh o were well-informed about property values . By these means , a ratio o f market t o assesse d valu e was obtained fo r each o f the 6 6 municipal unit s and applie d t o th e tota l assesse d value to get an estimate of total market value. In th e cas e o f personal property, th e commissio n found th e assess ment practice s generall y s o chaoti c tha t i t coul d no t us e thi s rati o method an d instea d worke d ou t estimate s o f value s based upo n th e assessments o f som e of th e localitie s whic h di d hav e goo d practice s and upon what other relevant information it could obtain. Having obtaine d unifor m assessment s by municipa l unit , th e com mission nex t tackled the jo b o f determining the rat e o f levy to us e t o determine th e localities ' contribution s t o th e Foundatio n Program. I t arrived a t a solutio n b y initiall y examinin g the media n effor t bein g made by the municipal units on an equalized assessmen t basis and th e total amoun t of fund s require d fro m al l o f th e municipa l units. Th e median rat e wa s abou t 6 2 cents pe r $10 0 o f assessmen t in 195 3 an d was estimate d t o b e abou t 6 5 cents i n 1954 . Th e commissio n was of the opinio n that th e sharin g o f the cost s o f the Foundatio n Program by the municipal units and the province should be on a fifty-fifty basis. Since t o brin g th e municipa l units ' shar e u p t o approximatel y hal f would require a rate of 80 cents, this was the rate decided upon. 39 Th e

39 The amoun t require d fro m th e municipa l unit s t o mak e u p 5 0 pe r cen t wa s about $ 9 million . I t i s interestin g t o observe , a s a n indicatio n o f th e rang e o f effort whic h th e municipa l unit s ha d bee n making , that i f th e leas t effor t mad e b y a municipa l uni t wer e use d a s th e over-al l rat e i t woul d hav e yielde d municipa l contributions o f about $ 3 million, and i f the greates t effor t wer e used , $2 2 million . ( Honourable Mr . Justice Pettier , "Backgroun d o f Schoo l Financ e i n Nov a Scotia, " Proceedings of the Golden Anniversary Convention of the Nova Scotia Union of Municipalities [1955] , p. 50.)

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application of the 80-cen t rate to the unifor m assessment s was simpl y the metho d b y whic h eac h municipa l unit' s contributio n t o th e cost s of instruction , maintenance , an d transportatio n i n th e Foundatio n Program was determined. How it was actually to raise its share was its own affair, bu t i n effect i t meant applying th e rate on its own propert y assessments necessary to raise the required amount. The rati o o f each municipa l unit' s shar e t o th e tota l allowe d cost s of instruction , maintenance , an d transportation , i n th e Foundatio n Program was denoted as the "partnership ratio " for that municipal unit. (The provincia l relativ e shar e o f these cost s fo r eac h uni t ha s com e to b e calle d th e "provincia l proportion " an d th e municipa l share , th e "municipal proportion." ) Thi s rati o wa s to b e use d t o determin e th e municipal an d provincia l share s fo r paymen t o f presen t an d futur e capital cost s (includin g bot h interes t an d deb t repayment ) incurre d by th e municipa l unit . Th e partnershi p rati o wa s t o b e use d fo r thi s purpose t o avoi d penalizing municipa l units whic h ha d alread y buil t and pai d fo r school s an d t o avoi d committin g th e provinc e t o un limited outlay s fo r paymen t o f capita l cost s abov e th e fixe d loca l contribution. Otherwis e th e cos t o f th e Foundatio n Progra m woul d be greater , an d a heavie r burde n woul d hav e t o b e impose d o n al l municipalities. The commissio n was ver y critica l o f the province' s programm e fo r Rural an d Regiona l Hig h Schools . It sa w no reason why th e ful l cos t of th e Rura l Hig h School s shoul d b e born e b y th e province , sinc e i t meant preferre d treatmen t o f rura l area s an d los s o f loca l interest . And i t charge d tha t th e shar e o f cost s b y a town , i n th e cas e o f a Regional Hig h School , wa s "a wrangle d figur e . . . usuall y arrive d at b y compromise," 40 wit h n o particula r connectio n wit h th e town' s ability t o pay. To remove this anomaly, the commissio n proposed tha t the capita l cost s for both type s o f school be assume d as a n obligatio n of th e municipa l unit s serve d b y them , repaymen t o f the cost s to b e borne b y th e municipa l unit s an d th e provinc e accordin g t o th e partnership ratio . T o d o otherwise , i t wa s felt , woul d b e unjus t t o those municipa l unit s whic h woul d hav e t o buil d suc h school s i n th e future and share in their cost. 41 Up t o thi s poin t th e commissio n wa s consisten t i n applyin g th e principles i t ha d develope d fo r provincia l an d municipa l sharin g o f ^Pettier Report, p. 51. 41 One membe r o f a municipa l counci l wh o wa s interviewe d argued , o n th e other hand , tha t i t was unjust for the province t o build a school wit h th e assuranc e that i t would b e no charge o n a municipality an d then, at a later date, charge bac k part o f the cos t of it to that municipality .

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costs. If it had gon e no further, however , it woul d have meant tha t a few municipal units would have received no provincial aid at all, since the 80-cent levy would cover all of their costs in providing the Founda tion Program . To encourag e genera l acceptanc e o f it s othe r recom mendations, th e commissio n added a furthe r one : "that n o Municipa l unit i s to receiv e les s than 25% of said Foundatio n Progra m tota l cos t . . . regardless of its ability, it being understood that thi s modification shall no t appl y i n an y wa y t o determinin g partnershi p rati o fo r th e purpose o f repaymen t o f existin g and futur e capita l costs." 42 B y wa y of explanation, it continued: The Commissio n recommend s th e minimu m contributio n b y th e Provinc e of 25% as abov e becaus e experienc e elsewher e ha s show n tha t unles s a minimum i s granted, th e finance program wil l not b e accepte d b y the unit s which hav e th e greates t abilit y an d woul d no t otherwis e benefit . Ther e seems alway s t o b e th e contentio n tha t the y hav e a righ t t o a shar e i n Provincial contribution s regardles s o f thei r abilit y an d t o en d b y makin g any othe r pla n practicall y unworkable . Th e Commissio n believe s tha t Nov a Scotia woul d hav e the sam e experienc e under th e sam e circumstances. 43

This provision is an exampl e of a carefull y considered , i f imperfect, formula bein g compromised for the sak e of political expediency . All of those whom the writer aske d about the provision have agreed that th e compromise wa s necessary , despit e th e fac t tha t th e principl e o f allocation i s no t vagu e an d arbitrary , but , no t withstandin g th e criticisms o f it t o b e take n up later , is far cleare r an d mor e just than that i n th e previou s syste m o f grants . Nevertheless , th e implemen tation of the repor t was an ac t o f considerable political courage , eve n with the compromise. 44 To ease the initia l impact of the programm e on those municipalities for whic h th e increas e i n th e ta x rat e woul d b e considerable , th e commission proposed that the rat e on the equalize d assessmen t should be increased by 1 0 cents each year until it reached 80 cents.45 One effec t o f th e commission' s recommendations was t o transfe r still mor e responsibility from th e rura l an d villag e schoo l section s t o the municipa l schoo l boards, especiall y th e responsibilit y fo r capita l costs. I t lef t th e section s wit h onl y the responsibilitie s o f seein g tha t the schoo l propert y i s wel l care d fo r an d tha t th e school s are bein g operated according to the regulations. The repor t wa s submitte d in 195 4 an d wa s largely implemented i n ^Fattier Report, p. 76. **lbid. 44 Compare Beck, Government of Nova Scotia, p. 325 . «Pettier Report, p. 79.

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a ne w Educatio n Ac t whic h wen t int o effec t Januar y 1 , 1956 . Ther e were som e changes from th e commission' s recommendations. On e wa s the inclusio n of cafeterias or lunchrooms (where enrolment i s in exces s of 50 0 pupils) an d auditorium-gymnasium s in th e capita l cost s par t of th e Foundatio n Program. 46 Anothe r wa s th e provisio n fo r an y school section t o ad d t o the programm e of the rura l municipality , th e cost to be covered b y an additional lev y in the section . But the presen t legislation essentiall y embodie s th e recommendation s mad e b y th e commission. Tabl e XX give s a summar y o f th e expenditure s o f th e localities an d the province in 1959 (calenda r year). TABLE X X MUNICIPAL AN D PROVINCIAL OUTLAY S FOR PUBLI C EDUCATIO N IN 195 9 (CALENDA R YEAR ) % of Total Towns and Cities Amount provided by town or city council $7,977,62 3 Provincial grants , includin g gran t fo r debt service charges 3,791,26 2 TOTAL 11,768,88 5

67.8 32.2 100.0

Rural Municipalities Amount provided by municipal councils, including loca l school are a sectio n levies 5,851,32 Provincial grants , includin g gran t fo r debt service charges 9,882,21 TOTAL 15,733,54

7

37.2

9 6

62.8 100.0

All Municipalities Amount provided by municipalitie s 13,828,95 Provincial grants 13,673,48 TOTAL $27,502,43

0 1 1

50.3 49.7 100.0 SOURCE: Annual Report of Municipal Statistics, 1959, pp. 50, 54 .

Since th e localitie s mak e som e expenditure s i n additio n t o th e Foundation Program , th e provincia l shar e o f the Foundatio n Progra m is slightly more than the 49.7 per cen t shown. The province pays about two-thirds o f the educationa l cost s of the rura l municipalitie s an d les s than one-thir d o f those o f the town s an d cities . This disparit y simpl y reflects th e greate r abilit y o f the urba n area s t o suppor t services . Th e above calculations d o not take int o accoun t th e administrativ e costs of the Department o f Education , o r suc h item s a s th e cos t o f textbook s provided fre e b y th e provinc e t o student s u p t o grad e eight , o r th e costs of vocational education. In th e fiscal year ending Marc h 31, 1960, 46

Government o f Nova Scotia , The Education Act and Related Acts (Education Office Bulleti n No. 1,1956-7; Halifax: 1956), p. 67.

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the tota l expenditure s o f th e department , excludin g th e Nov a Scoti a Technical College , th e Provincia l Library , th e Nov a Scoti a Museum of Science, and grants to universities, were $19,020,230. Withou t allowing fo r th e differenc e i n years , thi s bring s th e tota l outla y fo r th e localities an d the provinc e t o $32,849,480 , an d the provincia l shar e t o about 58 per cent . The corresponding share in the first year of the ne w plan was about 56 per cent. 47 The governmen t ha s since , i n 1957 , agree d t o shar e th e cos t o f teachers' salarie s abov e th e Foundatio n Progra m scal e i n accordanc e with th e provincia l proportions , the amount s to vary with th e qualifi cations of teachers, th e 2 5 per cen t minimum not to appl y i n this case. In December, 1958 , the Minister of Education announced the province's willingness to share, i n accordance wit h th e provincia l proportions , in further salar y increase s u p t o $40 0 fo r teacher s holdin g th e thre e highest certificates , who are teaching i n grades 7-12 mor e than 50 per cent o f the time , th e 2 5 per cen t minimu m again no t t o apply . Th e purposes of the lates t salar y grants are to encourage the best-qualified teachers t o teac h i n th e highe r grade s an d t o mak e the teachin g profession mor e attractiv e t o peopl e wit h universit y training . Th e Nov a Scotia Teachers ' Unio n and som e other organization s concerned wit h education oppos e the metho d of paying these grants . The y argu e tha t teachers shoul d b e pai d accordin g to qualification s regardless o f th e grades the y teach , to encourag e the us e o f each teache r i n th e grad e where h e i s most effective. Beginnin g September 1 , 1960, th e govern ment provided fo r increased remuneration in the Foundatio n Program for superintendents , supervisors, and supervising principals, the 2 5 per cent minimu m applying. Ther e hav e also been increase s in th e allow able capital costs in the Foundatio n Progra m for libraries, scienc e an d household scienc e laboratories , room s fo r industria l arts , an d audi torium-gymnasiums. Thes e increase s ar e effectiv e fro m Januar y 1 , 1961; bu t the y cove r al l building s buil t sinc e Januar y 1 , 1956, o n th e basis of an amortization period of twenty years. Lastly, the government now shares , accordin g t o provincia l proportions , a t foundatio n stan dards, the discounts on municipal debentures for financing construction of schools. 48 47 Annual Report of the Department of Education, fo r th e yea r ende d July 31 , 1960, pp. xxi-xxii. 48 The informatio n i n thi s paragrap h abou t change s i n th e Foundatio n Progra m was obtaine d directl y fro m th e Departmen t o f Education . A s ther e ha s bee n a tendency for the provincia l government's percentage of the cos t o f the Foundatio n Program t o increas e in subsequen t years , th e unifor m rat e used t o calculat e th e municipalities' shar e was increase d to 9 0 cent s pe r $10 0 o f equalize d valuation ,

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The ne w Pettie r programm e ha s bee n operatin g sinc e Januar y 1 , 1956; an d whil e ther e ar e numerou s complaints abou t detail s o f th e scheme, as, for example, over the amounts allowed for the maintenance of school s i n th e Foundatio n Program , ther e seem s t o b e genera l agreement tha t th e ne w schem e is a vas t improvemen t ove r th e ol d one. Som e municipalitie s d o feel , however , that th e operatio n o f th e scheme has seriously aggravated th e financial pressure on them to th e point wher e the y ar e i n seriou s financia l straits . (Som e criticisms o f the formul a b y which the provincia l grants are calculate d ar e offere d in chapter vm. ) Sections 91 and 9 2 of the Educatio n Act provide that the Governor in-Council ma y fro m tim e t o tim e appoin t a commissio n t o mak e reassessments of property i n the municipalitie s an d that th e provincial and municipa l contribution s to th e Foundatio n Progra m shal l b e re vised accordingly . Th e firs t suc h reassessmen t was mad e publi c i n December, 1958 . Th e tota l o f the ne w assessment s was abou t 3 0 pe r cent highe r tha n tha t o f th e Pottie r assessment s made i n 1954 . Th e increase was unevenly distributed, som e municipalities even receivin g reductions fro m th e 1954 assessment. The result has been some shifting in educatio n cost s among the municipalitie s an d a slight reductio n in the over-al l provincial shar e of th e Foundatio n Progra m (fro m 53.6 0 per cen t to 52.8 4 per cen t o n the basi s of the cos t o f the Progra m in 1957).49 Beginnin g i n 1961 , provisio n ha s bee n mad e fo r annual revisions o f th e valuatio n o f property , s o tha t th e basi s fo r sharin g costs may be kept right up to date. Health Three genera l aspect s o f healt h wit h whic h th e provincia l an d municipal government s are concerne d ar e o f interes t here : hospita l care, menta l hospitals , an d publi c health , th e las t bein g a catch-al l for a wide variety o f functions, mos t of them of a protective an d pre ventive nature. Hospital care. There ar e abou t fifty hospitals servin g th e publi c in Nova Scotia , apar t fro m menta l hospitals . Fou r ar e operate d b y th e province, o f whic h on e i s th e larg e Victori a Genera l Hospita l i n Halifax, a referral centre for the whol e province; two of the other s ar e tuberculosis hospitals ; an d th e fourt h i s a genera l hospital . Mos t of the other s ar e loca l genera l hospitals . Seve n of these are operate d b y beginning wit h 1962 . Thi s chang e was no t announce d i n tim e t o b e take n int o account in this study, but i t in no way alters the argument. See also p. 92 , n. 81. «Obtained direcUy from th e Departmen t of Education.

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municipalities, seve n b y th e Roma n Catholic Church , an d th e res t b y private non-religiou s organization s (eleve n o f thes e ar e smal l Re d Cross hospitals) . O f the remainder , tw o ar e maternit y hospital s (on e in Halifa x an d on e i n Sydney ) run b y th e Salvatio n Army , one i s a tuberculosis hospita l run b y th e Cit y o f Halifax, and on e a privately run convalescent hospital in Halif ax.60 The Hospita l Insuranc e Plan, b y whic h Nov a Scoti a participates i n the Nationa l Healt h Plan , cam e int o effec t Januar y 1 , 1959 . Befor e this pla n i s discussed , somethin g wil l b e sai d abou t provincia l par ticipation i n hospital finance before the pla n wa s adopted. In th e yea r endin g Marc h 31 , 1957 , th e provinc e mad e grant s o f about $393,00 0 t o forty-thre e local publi c hospitals 51 unde r th e pro vision i n th e Loca l Hospital s Act 52 fo r grant s o f u p t o 5 0 cent s pe r patient-day. I n orde r t o receiv e thes e grant s a hospita l ha d t o b e established o r maintaine d b y a municipa l uni t (o r declare d b y a municipal counci l t o b e a publi c hospital) , receiv e a gran t fro m th e municipality o f at leas t $500 , and hav e a representative o f the munici pality o n it s governin g board. 53 Th e municipalitie s mad e grant s o f about $67,00 0 t o hospital s i n th e sam e year. 54 Th e provincia l govern ment made additional grants in this period o f about $407,000 , most of which went to seven local hospitals fo r fre e tuberculosi s treatment , a s it assume s practically ful l financial responsibility fo r al l hospita l treat ment of tuberculosis in the province. In recen t years , by th e Loca l Hospital s Act , eac h municipalit y wa s responsible fo r delinquen t bill s o f an y patien t wh o ha d settlemen t within it s boundaries, regardless o f where in the provinc e the patien t was bein g treated. 55 Thi s requirement impose d a heav y and growin g burden on the municipalities, costing the towns and cities $440,60 9 and the rural municipalities $704,766 in 1955 , compare d with $131,40 8 and $174,036, respectively , i n 1949. 68 Th e municipalitie s wer e fa r fro m ««D.B.S., List of Canadian Hospitals, 1959 (Ottawa : Queen' s Printer, 1958) , pp. 8-1 0 and Governmen t of Nova Scotia, Seventy-first Annual Report on Humane Institutions, 1956- 7 (Halifax : Queen' s Printer, 1957), Table XIX, p. 37 . 51 Government of Nov a Scotia , Public Accounts, for th e fiscal year ended March 31, 1957 (Halifax : Queen' s Printer, 1958), pp. 201-2. 62R.S.N.S., 1954 , c . 161 , a s amende d b y S.N.S . 1955 , c . 31 , s . 3 . Thi s ac t ha s been supersede d by th e Publi c Hospitals Ac t (S.N.S., 1958 , c . 11 ) whic h brings the legislatio n into conformit y wit h th e Hospita l Insuranc e Plan , whic h began January 1, 1959 . B3 Local Hospitals Act, s. 5. s*Seventy-first Annual Report on Humane Institutions, 1956-7, Table XX, p. 38 . 55 Local Hospitals Act, ss. 9-16. ^Annual Report of Municipal Statistics, 1949 and 1955 , pp . 1 6 and 21 , an d 1 7 and 22, respectively.

78 Fisco

/ Adjustment and Economic Development

satisfied wit h thi s arrangement . The y maintaine d tha t th e legislatio n gave protectio n t o th e hospital s withou t sufficien t safeguard s fo r th e interests o f the municipalities , tha t th e incentiv e o f hospital adminis trators to collect bills from patients was weakened, and that the scheme was badl y abuse d b y irresponsibl e patients wh o could pa y thei r own bills. I n th e vie w o f loca l officials , th e provinc e i n requirin g thes e payments fro m th e municipalitie s wa s protecting th e hospital s a t th e expense of the municipalities . The whole picture regarding hospitalization was very much changed when th e province' s participatio n i n the Nationa l Healt h Pla n bega n January 1 , 1959 . Th e provinc e no w provide s fre e publi c war d car e and diagnosti c service s t o al l resident s o f Nov a Scotia , unde r th e Hospital Insuranc e Act . Thi s pla n exclude s tuberculosi s an d menta l hospitals, nursin g homes , an d home s fo r th e age d (whic h provid e some car e fo r chroni c invalids) . Th e provinc e ha s entere d int o a n agreement wit h th e federa l government , whereb y th e latte r wil l pa y Nova Scoti a 2 5 pe r cen t o f nationa l pe r capit a cos t o f th e service s covered b y th e pla n plu s 2 5 per cen t o f provincial pe r capit a cos t of these services. The cos t of administering the pla n i s not share d by th e federal government . Because, initially at least , per capit a expenditure s have bee n highe r fo r Canad a a s a whol e tha n fo r Nov a Scotia , th e federal governmen t paid abou t 5 4 per cen t o f th e cos t o f th e share d part of the plan in I960. 57 Although the plan is an extra burden o n the provincial governmen t becaus e mos t hospita l cost s assume d publicl y were previously borne by individuals, it has reduced th e direc t burde n for hospita l cost s o n th e resident s o f th e provinc e becaus e o f th e federal contribution. 58 The federa l and provincia l government s als o contribut e t o hospita l construction costs , th e federa l governmen t payin g $2,00 0 pe r bed , and th e provincia l governmen t paying th e require d matchin g $2,00 0 plus a n additiona l $1,00 0 pe r bed . Thes e payment s a t cost s i n 196 1 together represente d abou t 35-4 0 pe r cen t o f estimate d constructio n costs. In hi s budge t speec h o n Apri l 9 , 1958 , th e Premier , a s Provincia l Treasurer, estimate d tha t th e provinc e would nee d ove r $ 6 million i n "Obtained directly from th e Hospital Insurance Commission. 58 "If w e di d no t hav e th e hospita l plan, Nov a Scotian s woul d hav e to pa y a n estimated fourtee n millio n dollar s i n 195 9 fo r genera l hospitalization. Under th e plan, Nov a Scotian s wil l hav e to provid e onl y abou t half tha t amount. " (Premier Robert L . Stanfield , Speech on Second Reading: Hospital Tax Act [Halifax : 1958].) Th e federa l contributio n is not a ne t gain , since it i s in par t pai d fo r b y Nova Scotians in higher taxes or alternative services foregone.

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1959 fo r its shar e o f the programme , an d i n hi s speec h o n th e secon d reading o f the Hospital Tax Act he implied that another millio n dollar s would b e require d fo r constructio n grants , makin g a tota l o f ove r $ 7 million needed in 1959. The amounts in later years were expected to be even larger . Without the scheme , the province woul d have paid abou t $1,800,000 fo r simila r purposes , s o the extr a cos t wa s expecte d t o b e over $5,200,000 . (I n fact , th e province' s shar e o f operatin g cost s i n fiscal year 1959-60 was about $7,640,000. ) I n considerin g how to rais e the extr a money , th e Premie r dismisse d a unifor m premiu m pla n a s being inequitabl e an d afte r examinin g taxes o n mineral s an d specia l sales taxe s o n liquor , tobacco , luxuries , powe r bills , telephones , an d fuel oil , h e settle d o n a genera l retai l sale s tax , with highe r tha n th e general rat e o n tobacco an d liquor , an d wit h exemption s designe d t o make the tax more equitable. "Heavy taxation of a few item s would b e discriminatory," h e argued , "an d i t woul d no t produc e th e necessar y money."69 The Hospita l Ta x Act was dul y passed, effectiv e Januar y 1, 1959, providing for a tax of one-tenth of a cent per cigarett e purchased , of 5 per cen t on tobacco i n other form s an d o n spirituous liquors, an d 3 per cent on other retail purchases except those specifically exempted. The ta x was raised t o 5 per cen t o n April 1, 1961, t o pay fo r the risin g costs of the plan ; th e rate s o n cigarettes, othe r tobacco , an d spirituou s liquors wer e no t changed . I n fact , i n th e fiscal yea r 1959-60 , it s first full year , th e ne w ta x yielde d $9,906,583 ; i n 1960- 1 i t yielde d a n estimated $9,500,000 ; an d in 1961-2, at the highe r rate , i t is estimate d that it will yield about $15,700,000. 60 The pla n relieve d th e municipalitie s o f thei r considerabl e hospita l costs whic h aros e fro m thei r responsibilit y fo r delinquen t bill s an d from othe r genera l hospita l operatin g costs. 61 However , th e Premie r made i t clea r that , whil e th e provinc e ha s relieve d th e municipalitie s from mos t of their hospital operatin g costs, the buildin g an d operatin g of genera l hospital s continu e t o be a local an d regiona l responsibility , 59

Ibid. I n considerin g th e distributio n o f th e burde n o f th e tax , th e Premie r said: "Thi s ta x shoul d not bea r heavily on th e ordinar y man . Much o f wha t h e buys will be ta x exempt. It ma y be sai d th e ta x make s n o allowanc e fo r abilit y to pay. Bu t i t doe s mak e a ver y considerabl e allowance. Th e ma n wh o spend s $6000 a year will pay ove r twic e the ta x o f th e ma n wh o spend s $3000—becaus e a substantia l proportio n o f th e $300 0 wil l b e o n ta x exemp t commodities. " (íbid.) ^Legislature o f Nov a Scotia , 196 1 Session , Estimates (Halifax : Queen' s Printer, 1961), p. 6. 61 To provid e som e immediat e relief , th e provinc e pai d th e municipalitie s in 1958 5 0 pe r cen t o f thei r hospita l cost s incurre d i n 1957 . Thi s paymen t wa s about one million dollars.

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except o f cours e fo r th e grants-in-ai d o f constructio n mentione d above.82 I n 195 9 th e provincia l governmen t passed a n amendmen t t o the Public Hospitals Act establishing a Hospital Capita l Fun d financed by a n annua l levy o n eac h municipality . Th e lev y i s fift y cent s pe r capita fo r th e firs t on e thousan d o f populatio n an d on e dolla r pe r capita for the remainder. It produces about $660,000 on the basis of the 1956 census . The revenu e receive d fro m eac h municipalit y is divide d among th e publi c hospital s accordin g to th e numbe r o f patient-day s of treatmen t eac h hospita l provides t o patients fro m tha t municipality . The grants to which the provincially owned hospitals would be entitled are distribute d amon g the othe r publi c hospital s in proportio n to th e number o f patient-days o f treatment the y provide . Th e grant s have t o be use d toward s capital cost s of public hospital s incurre d b y hospita l boards an d municipalities . One virtue claimed for this measur e is tha t it compel s municipalitie s tha t hav e inadequat e hospita l facilities , requiring tha t som e o f thei r resident s b e treate d elsewher e i n th e province, t o help pay fo r the capita l cost s of the hospital s wher e the y are treated. Th e chie f objectio n to th e lev y is that i t take s no account of abilit y t o pay , eve n a t th e leve l o f the municipa l unit. Th e execu tive of the Unio n of Nova Scoti a Municipalitie s has oppose d th e lev y on th e groun d that th e Unio n passe d a resolutio n at tw o consecutiv e annual meeting s approvin g i n principl e th e adoptio n o f th e healt h scheme provide d i t impose d n o burde n o n th e municipalities . Argu ments give n i n suppor t o f thi s stan d wer e tha t th e municipalitie s needed th e mone y release d b y th e healt h schem e fo r othe r urgen t purposes, an d tha t th e lev y woul d b e large r tha n th e hospita l cost s currently bein g incurred b y som e towns, even thoug h th e tota l outla y of all municipalities would be reduced. Mental hospitals. Responsibilit y fo r hospital s fo r th e mentall y il l i s divided betwee n th e provinc e an d th e municipalities . Th e provinc e cares for the curabl e an d violent insane at the Nov a Scotia Hospital a t Dartmouth. Th e harmless , incurabl e insan e ar e th e responsibilit y o f the municipalities . The y ar e care d fo r in institution s operate d b y th e municipalities, som e o f the m unde r system s of join t expenditur e de scribed earlier . Unti l recently ther e wer e seventee n municipa l mental hospitals. Onl y fou r wer e exclusivel y menta l hospitals , th e othe r thirteen bein g use d t o house welfare cases (indigen t sane) a s well. In most o f the combine d institution s ther e wa s inadequat e provisio n fo r segregation o f the mentall y ill and th e chronicall y ill an d othe r poor . «2Address a t Provincial-Municipa l Conference, Decembe r 17 , 195 7 (mimeo graphed).

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There wer e als o fiv e municipa l home s exclusivel y fo r th e poor. 63 Mentally defective childre n capabl e of being traine d i n any degree ar e looked afte r a t th e Nov a Scoti a Trainin g Schoo l a t Trur o ru n b y th e province. Onl y seriousl y mentall y retarde d o r defectiv e childre n ar e kept i n th e municipa l menta l hospitals . Nov a Scoti a i s no w th e onl y province which doe s no t assum e ful l responsibilit y fo r th e car e o f th e mentally ill ; but o n the othe r hand , Nov a Scotia bears a large r par t of the cost of the public health programm e than do other provinces. 64 At a provincial-municipa l conferenc e o n Decembe r 19 , 1957 , th e province agreed to pay one-third o f the ne t cos t of operating municipa l mental hospitals , provide d tha t certai n standard s ar e met. 65 Th e pro vincial governmen t clearl y desire s t o rais e th e standard s o f thes e institutions an d i t ha s refuse d t o associat e itsel f wit h th e runnin g of substandard institutions . The provincial contributio n wa s raised t o one half beginnin g Januar y 1 , 1960. Th e grant s fo r operatin g cost s totalle d $315,680 in the fiscal year 1959-60 and rose to $577,600 i n 1960-1.66 The introductio n o f the ne w programme o f grants was almost immediately followe d by a vast improvement i n the operatio n o f the munici pal mental hospitals. By the end of 1958, the first year, nearly al l mental and welfar e case s wer e being cared fo r in separat e institutions. Ther e were eight exclusively menta l hospitals an d onl y on e combined menta l hospital an d poo r home , i n Lunenburg, 67 an d th e menta l hospital s ^Seventieth Annual Report on Humane Institutions, 1955-6 (Halifax : Queen' s Printer, 1956) , Table s V an d VI . Bu t th e criterio n a s t o whethe r th e inmate s of these municipa l institution s wer e mentall y il l o r no t wa s th e technica l on e o f whether the y ha d actuall y bee n committed . Man y no t technicall y classe d a s mentally il l coul d hav e bee n legall y committed . (Se e Seventy-first Annual Report on Humane Institutions, 1956-7, pp. 34r-S. ) ^Seventieth Annual Report on Humane Institutions, 1955-6, pp. 35-6. 65 Speech o f Premie r Rober t L . Stanfiel d a t th e conferenc e (mimeographed) . The propose d standard s hav e t o d o wit h administration ; staff; buildings , furnish ings, an d grounds ; medica l facih'tie s an d services ; occupationa l an d recreationa l facilities; foo d services ; religiou s instruction ; an d genera l car e o f patients . Unti l the adoptio n o f thes e standard s fo r qualifyin g fo r thes e grant s an d o f th e standards fo r qualifyin g fo r th e grant s fo r poo r house s (discusse d i n th e sectio n on socia l welfare) , th e province' s influenc e on th e standard s o f thes e institution s was mainl y throug h it s Inspecto r o f Human e Institutions , wh o inspecte d bot h municipal menta l hospital s an d poo r homes . Hi s power s wer e confine d t o th e making o f recommendations. That thes e recommendation s were frequently ineffec tive a s mean s of contro l i s documente d vividl y i n th e Seventieth Annual Report on Humane Institutions, 1955-6, passim. 66 Obtained directly from th e Departmen t of Public Health. 67 Mental hospital s i n th e countie s o f Annapolis , Cap e Breton , Kings , an d Pictou wer e alread y separate . O f th e formerl y combine d home s an d menta l hospitals, Inverness' s i s no w close d an d Cumberland' s n o longe r care s fo r welfar e patients. Halifa x Count y an d Halifa x Cit y acquire d separat e building s fo r thei r welfare patients .

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of Cap e Breto n an d Halifa x countie s an d th e Cit y o f Halifa x ha d already qualifie d for grants. Th e separatio n wa s brought abou t partl y as a resul t o f th e ne w grant s fo r th e menta l hospital s an d thos e fo r municipal poo r homes , and partl y a s a resul t o f a determine d effor t to achiev e segregatio n o n th e part s o f th e Department s o f Publi c Health an d Public Welfare. Moreover, the federa l government refuse d to shar e th e cos t of welfare case s in combine d institutions , unde r th e Unemployment Assistanc e Act. B y mid-196 1 th e menta l hospita l o f Kings Count y had als o qualifie d for grant s an d i t wa s likely tha t th e one i n Cumberlan d Count y woul d soo n qualif y an d tha t th e smal l mental hospita l i n Annapoli s County woul d encorporat e befor e lon g with on e of the others ; th e menta l hospital i n Picto u Count y and th e one i n Lunenburg , still a combine d institution , gav e n o indicatio n o f attempting t o qualify . Th e fou r tha t ha d qualifie d accounte d fo r about 70 per cen t of all of the patient s in municipal mental hospitals. 68 One effect o f the separation is that localities without mental hospital s or poor homes have to board their ow n people i n hospitals o r homes of localities tha t hav e the m (o r i n loca l privat e nursin g homes). Ther e has alway s been som e such boarding , bu t th e specializatio n o f func tions has made the practice commoner . The specializatio n migh t make it possibl e t o obtai n som e economie s o f administratio n tha t mak e i t easier fo r the menta l hospital s to qualif y fo r grants . But i t als o means that a municipality which previously provided for its mental patients in its own combined institution a t a low cost may, now that i t n o longer has this way of caring for its mental patients, have to pay a higher cos t to boar d it s patient s i n menta l hospital s o f othe r municipalities , i f these ar e meetin g th e provincia l standard s t o qualif y fo r th e grants . Still, a municipalit y may, now tha t th e provinc e wil l pa y hal f o f th e operating costs, increase the net costs of its mental hospital b y as much as 10 0 per cen t i n orde r t o qualif y fo r th e provincia l grant , a t th e expense of the province. For example, if the weekly net cost per patien t was $1 4 before standard s wer e met , th e municipalit y operatin g th e hospital coul d increas e i t t o $2 8 at n o expens e eithe r t o itsel f o r t o other municipalitie s boardin g patient s i n it s hospital , a s the provinc e would the n pa y one-hal f o f $28 , o r $14 . Moreover , grant s fro m th e federal an d provincial governments for construction of mental hospitals are availabl e t o th e municipalitie s o n th e sam e term s a s fo r genera l hospitals. 68 The information i n this paragraph was obtained directly from th e Department of Publi c Health.

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Public health. Responsibilit y i n th e fiel d o f public healt h i s a dua l one. The dutie s o f the provinc e an d o f the localitie s ar e se t ou t i n th e Public Healt h Act . Ever y localit y i s require d t o hav e a boar d o f health. In Halifa x an d Sydney , it i s a separat e cit y healt h board . Thi s may no w also become the practic e in Dartmouth . I n th e town s it i s a committee o f th e counci l (i t ma y b e th e whol e council) , wit h th e mayor a s chairman . Th e medica l healt h office r i s als o a member . I n the rura l municipalities , a committe e i s appointe d fo r eac h pollin g district wit h a councillo r fro m th e distric t a s chairman , th e counci l being empowere d t o unit e mor e tha n on e distric t unde r on e board . There is also provision for the establishmen t o f county boards o f health which hav e jurisdictio n ove r th e loca l boards , an d o f join t board s of health i n those rural municipalities an d the town s and citie s containe d by them , wher e ther e ar e join t expenditur e board s o r committees . The count y an d join t board s hav e supervisio n ove r th e loca l board s and shar e thei r functions . Eac h tow n an d rura l municipa l counci l i s required t o appoint a medical health officer , an d a sanitar y inspector , the latter functionin g unde r the authorit y o f the former . Thes e official s are responsible fo r seeing that sanitar y and othe r condition s conduciv e to good health in the community are maintained. Because o f th e inactivit y o f th e loca l board s o f health , however , the province, ever since it established a separate Department o f Public Health i n 1938 , ha s bee n increasingl y activ e i n th e fiel d o f publi c health. The department derives its powers from th e same Public Health Act a s th e municipalitie s do . Man y o f its powers overlap thos e o f th e local boards . The resul t ha s bee n tha t th e departmen t itsel f perform s many o f th e function s ove r whic h th e municipalitie s als o hav e juris diction. Th e province has been divide d int o eight divisions , each wit h a medica l healt h office r i n charge , an d eac h havin g it s ow n publi c health nurses , nutritionists, an d sanitar y inspectors . The over-al l pro gramme is directed fro m Halifax , where various provincial laboratories which serve the whole province are also located. Halifax Cit y i s a n exception . I t carrie s th e ful l responsibilit y fo r public healt h an d conduct s a n extensiv e programme . O n th e othe r hand, it is relieved of the responsibilit y of operating a genera l hospita l because o f th e operatio n b y th e provinc e i n Halifa x o f th e Victori a General Hospital . The expenditur e o f the provinc e on preventive publi c healt h activi ties i n th e fisca l yea r 1959-6 0 wa s abou t $2,235,000 , o f whic h abou t $1,120,000 wa s pai d b y th e federa l governmen t fo r variou s purposes

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under it s Nationa l Healt h Grant s Program. 89 Th e expenditure s o f al l municipalities o n publi c health , i n th e calenda r yea r 1959 , wer e $280,395, o f which $213,348 was accounte d fo r b y th e Cit y o f Halifax , $8,196 b y Sydney , $40,01 0 b y th e towns , an d $18,84 1 b y th e rura l municipalities.70 Social Welfare Until 1958 , th e Poo r Relie f Ac t o f Nov a Scotia , whic h stemme d directly fro m th e Englis h Elizabetha n poo r la w o f 1601 , stipulate d that th e municipalitie s wer e t o tak e complet e responsibilit y fo r poo r relief fo r their residents . Unde r thi s ac t th e rura l municipalitie s wer e required t o organize themselves into poor districts ( a rural municipality could constitut e itsel f a s one poor district ) an d t o appoin t thre e rate payers a s overseer s o f th e poo r i n eac h distric t an d wh o wer e t o furnish relie f t o person s i n nee d i n thei r district . Th e counci l i n a town, an d th e counci l o r a committe e of th e counci l i n a city , wer e also deemed t o be overseers and were charged with th e sam e responsi bilities. Som e of th e poo r receivin g relie f unde r thi s legislatio n wer e cared fo r in the municipa l homes already referred t o in th e discussio n of municipa l menta l hospitals . Som e o f thes e home s wer e operate d under th e syste m o f join t expenditures . A s alread y mentioned , unti l the reform s effecte d i n 1958 , onl y five out o f eightee n o f thes e homes were exclusivel y for the poor , th e res t housin g mentally il l persons a s well. Wit h th e reforms , ther e were , i n mid-1961 , fiftee n municipa l homes carin g for need y persons, all of them completel y separat e insti tutions. Lunenburg , which, as already mentioned, continue s to operat e a mixe d institution, doe s no t attemp t t o qualif y fo r provincia l ai d b y meeting provincial standards. The municipalitie s mus t als o provid e relie f t o thos e i n nee d no t cared fo r i n municipa l homes. The ter m "outdoo r relief " i s sometimes used t o denote thi s kind of relief, althoug h recentl y the ter m "munici pal assistance " ha s com e t o b e use d i n Nov a Scotia . Th e adven t o f many provincial an d federa l welfare measures, such as unemployment insurance, ol d ag e pensions , famil y allowances , an d mothers ' allow ances, has made the burde n of relief i n the municipalitie s much lighter than it would otherwise have been. In February , 1958 , th e provinc e signe d a n agreemen t wit h th e Dominion bringin g Nov a Scoti a unde r th e federa l Unemploymen t «^Government o f Nov a Scotia , Public Accounts, fo r th e fisca l yea r ende d March 31, 1960 (Halifax : Queen' s Printer, 1960), pp. 221, 230 . ^Annual Report of Municipal Statistics, 1959, pp. 25 , 32.

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Assistance Ac t describe d i n th e previou s chapter . Unde r thi s ac t th e Dominion pays 50 per cen t of the cost s of relief i n the province. Signin g the agreemen t wa s a n importan t ste p fo r Nov a Scotia, fo r i t brough t the provinc e indirectl y int o th e field of municipal assistance . I t coul d have decided simply to pass the federal money on to the municipalitie s with n o strings attache d an d so continue it s old policy regardin g thes e services. I n fact , i t decide d upo n a fundamenta l departur e fro m it s old policy. First o f all, it decide d t o ad d a grant equa l t o 16 % per cen t of th e cost s of local relief t o th e Dominion' s 5 0 per cent , bringin g th e total gran t t o 66 % pe r cent . (Th e provinc e increase d th e tota l t o 83 & per cen t fo r February , March , an d Apri l o f 1959 , a s a n emergenc y measure t o cop e wit h particularl y grea t unemploymen t i n som e localities.) Secondly , it set up standards which th e municipalities mus t meet in order to qualify for both the federal and provincial grants . The province i s i n effec t sayin g t o th e municipalitie s tha t i t wil l no t pas s the municipalities ' claim s along to th e federa l governmen t o r shar e i n the cost s itself unles s thes e standards , applyin g t o both outdoo r relie f and homes, are met. At the outset it seemed likely that nearly all of the municipalities woul d benefi t a t leas t t o som e extent fro m thi s offer , i n that thei r ow n expenditure s fo r relie f woul d b e reduced ; fo r eve n though the y ha d t o mee t highe r standards , the y coul d trebl e thei r expenditures a t n o cos t t o themselves . I n fac t thei r ow n cost s hav e not diminishe d significantly , becaus e o f th e combinatio n o f highe r standards and larger number of people served . In the calendar yea r 1959, the total expenditure for all of the munici palities fo r municipal assistanc e (indoo r and outdoo r relief), includin g provincial grants , wa s $1,142,000 . Socia l assistanc e grants o f $681,00 0 from th e provinc e reduced th e cos t t o th e municipalitie s t o $461,000 , compared wit h a tota l expenditur e o f $464,00 0 for thes e purpose s i n 1956, when the municipalities bore the whole cost.71 To stimulate improved municipal administration of welfare services , so tha t th e municipalitie s wil l b e abl e t o handl e th e ne w municipa l assistance adequately , th e provinc e in fiscal year 1958- 9 began t o pa y 50 per cen t o f the administrativ e expenses of municipal welfar e offices , or of the municipa l payments to social agencies, suc h a s the Children' s Aid Society , administerin g service s o n a municipality's behalf , provid ing certai n requirement s designe d t o centraliz e an d improv e loca l ^Annual Report oí Municipal Statistics, 1956, pp . 22 , 29; an d ibid., 1959, pp. 26, 33 . Th e estimate s of provincia l grant s fo r 195 9 wer e obtaine d directly fro m the Departmen t o f Municipa l Afiairs . Th e estimate s are rounde d t o th e neares t $1,000.

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welfare administratio n ar e met . Th e ne w conditiona l grant s fo r administration ar e provin g effectiv e i n achievin g thei r purpose . Nin e municipalities ha d alread y qualifie d fo r the m b y mid-July , 1961 . The grants totalled $28,00 0 in 1959-60, and $55,00 0 was budgeted fo r them for 1960-1. 72 Legislation regardin g th e car e o f neglected, mentall y retarded, an d delinquent childre n i s embodied in the Chil d Welfar e Act. The policy of th e provinc e is t o encourag e local privat e an d publi c interes t an d support i n carin g fo r neglecte d children , wit h over-al l supervisio n b y the provincia l Divisio n o f Chil d Welfar e throug h it s fiv e regiona l offices, an d wit h som e financial support fro m th e province . Ther e ar e twelve Children' s Ai d Societie s scattere d throughou t th e province , covering al l area s excep t Antigonish , the Cit y o f Dartmouth , Guys borough, Digby, and the Municipalit y of Halifax County . Where there are Children' s Ai d Societies, they do the actua l cas e work, the provin cial departmen t doin g i t elsewhere . Ther e ar e als o a numbe r o f privately sponsore d child-carin g institutions . Placin g childre n i n thes e homes an d i n foste r home s i s mainl y don e b y th e Children' s Ai d Societies an d th e Directo r o f Chil d Welfare . Th e maintenanc e cost s of childre n bein g s o care d fo r ar e pai d partl y b y th e provinc e an d partly by the municipalities, the municipal share being set down in the act.73 Where no place of settlement can be established , thes e cost s ar e paid b y th e province . The child-carin g institution s ar e supporte d b y voluntary subscription, and receive a maintenance allowance of $14 per 72 Legislature o f Nov a Scotia , 196 1 Session, Estimates, p. 57 . Th e informatio n on th e numbe r o f municipalitie s qualifyin g fo r grant s wa s obtaine d directl y from th e Departmen t of Public Welfare. T3 S. 37 , ss . 2 . Ther e i s a complicate d syste m o f provincia l grant s fo r chil d welfare i n Nov a Scotia , wit h n o genera l principl e t o explai n them . Ther e ar e shared grant s fo r th e maintenanc e o f indigen t children . A s i n mid-July , 1961 , if a chil d wa s i n a boardin g home , th e paymen t wa s $8.9 6 pe r week , wit h th e province an d municipalit y sharin g 50-50 ; i f i n a n institution , th e amoun t o f th e payment wa s $1 4 per week , $ 6 being pai d b y th e municipalit y an d th e balanc e by th e province . I n th e Nov a Scoti a Trainin g Schoo l fo r retarde d childre n a t Truro, th e municipalitie s pai d $35 0 pe r year , th e provinc e th e balanc e o f abou t $2,000 pe r year , fo r eac h child . I n th e cas e o f delinquen t childre n boarde d i n private institutions , th e municipalitie s pai d $35 0 per yea r pe r child , th e province , $850. Fo r delinquen t childre n place d i n th e provincia l framin g schoo l a t Shel burne, th e municipalit y pai d $35 0 pe r child , th e provinc e th e balanc e o f abou t $2,000. Excep t fo r th e trainin g school s a t Trur o an d Shelburne , th e sharin g wa s initially o n a 50-5 0 basis , the departure s comin g abou t whe n th e tota l payment s per chil d ha d t o b e raise d becaus e o f risin g costs . Th e municipalities , feelin g they wer e undul y squeeze d b y th e pressur e pu t o n the m b y th e Educatio n Ac t to increas e thei r expenditure s fo r education , hav e persuade d th e provinc e to absor b disproportionat e share s o f th e increases . (Informatio n obtaine d fro m the Departmen t o f Public Welfare. )

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week for th e ward s o f the Children' s Aid Societies , an d fo r th e ward s of th e Directo r o f Child Welfare , $ 8 of which i s paid b y th e provinc e and $ 6 by the municipality o f settlement. The Children' s Ai d Societie s obtai n fund s fo r thei r operatio n fro m voluntary subscriptions , fro m municipa l grants , an d fro m provincia l grants. In the fiscal year 1960-1, apart fro m voluntar y private subscrip tions, th e societie s receive d $41,44 1 i n municipa l grant s an d $129,13 4 in provincia l grants . Th e provincia l grant s ar e o f thre e kinds : (1 ) matching grant s ($58,660 ) equa l t o 5 0 per cen t o f the voluntar y sub scriptions o f the previou s year ; (2 ) matchin g grant s ($20,721 ) equa l to 5 0 per cen t o f the municipa l grant s o f th e previou s year ; an d (3 ) population grant s ($58,250 ) o f $1,00 0 fo r eac h 10,00 0 o f populatio n and fo r fractiona l amount s i n exces s o f 5,000. 74 Th e tota l cos t t o the localitie s fo r chil d welfar e in 195 9 (calenda r year ) wa s $518,893 , of whic h $124,56 8 wa s fo r th e cities , $139,92 7 fo r th e towns , an d $254,398 for the rural municipalities.75 OTHER PROVINCIAL FINANCIAL RELIEF TO THE MUNICIPALITIES IN RECENT YEARS76

A quite recent developmen t i s the paymen t o f unconditional grant s by the province t o the municipalities . Prio r t o 1942 , som e of the muni cipalities levie d persona l income taxes on individuals, an d som e levie d "personal" propert y taxe s o n branche s o f bank s base d upo n th e ne t income fro m busines s done i n th e locality , th e minimu m annual lev y being $15 0 per branch. The wartime tax rental agreemen t between th e provincial an d th e federa l government s i n deprivin g th e provincia l government thereby deprive d th e municipa l government s o f the righ t to levy personal an d corporat e incom e taxes. (Th e provincial govern r4

Obtained directl y fro m th e Departmen t o f Publi c Welfare . Whe n th e basi s for calculatin g population grant s was introduce d i n 1959-60 , th e provinc e made provision tha t n o societ y would receive les s than i t ha d receive d i n th e previou s year. I n previou s years the provinc e paid a populatio n gran t o f 1 0 cents for eac h person i f th e populatio n of th e are a covered b y th e societ y was les s than 15,000 , and 4 cent s pe r perso n i f th e populatio n wa s 15,00 0 o r more ; an d i t pai d a grading gran t whic h depende d o n th e standard s me t b y th e society . There wer e A, B, C, and D grades and grant s of $2,000, $1,500 , $1,000 , an d $50 0 respectively. The weaknes s of th e gradin g grant s wa s tha t th e lowe r grant s wen t t o poore r societies. Thei r strengt h wa s tha t the y stimulate d suppor t fo r societie s in area s which coul d affor d t o giv e it . Th e metho d o f calculatin g th e matchin g grant s has not been changed . ^Annual Report of Municipal Statistics, 1959, pp. 26 , 33. 78 Most o f th e dat a i n thi s sectio n wer e obtaine d directl y fro m th e Departmen t of Municipal Affairs.

88

Fiscal Adjustment and Economic Development

ment ha d neve r itsel f levie d a persona l incom e tax. ) T o compensat e the municipalitie s for the los s of their personal income and ban k taxes, the provinc e i n 194 2 pai d the m $119,231 , th e amoun t the y ha d received fro m thes e taxes in 1940 . Th e provinc e also continued distri buting a gran t o f $30,330 pai d t o th e localitie s i n lie u o f taxes o n th e property o f th e Canadia n Nationa l Railways , making the tota l gran t $149,564. Th e grant s were continue d a t practicall y th e sam e amounts up t o and includin g 1947 , whe n a new Dominion-provincial tax rental agreement wa s negotiated. A new principle wa s then adopte d fo r th e payment o f unconditiona l grant s t o municipalities . Th e grant s wer e now designe d no t a s the previou s one s had been , simpl y to compen sate th e localitie s whic h ha d levie d incom e taxe s an d ban k taxe s for their los s o f revenue , bu t rathe r t o compensat e al l o f th e localitie s for th e los s of these potential ta x bases. The formul a decided upo n b y the provinc e wa s t o tak e th e pe r capit a incom e ta x tha t ha d bee n highest in each of the thre e types of municipality in the las t year the y had levie d thi s tax , increas e i t b y abou t 5 0 per cent , an d pa y eac h municipality i n eac h categor y th e resultin g amount s pe r hea d o f population. Th e resultin g grant s per hea d wer e $1.5 3 fo r cities , $1.0 0 for towns , an d $.1 0 fo r rura l municipalities . A t th e sam e time , i t wa s decided t o make a flat rate payment o f $225.00 for eac h ban k branc h in eac h locality . Th e paymen t i n lie u o f taxe s fo r th e Canadia n National Railways was continued. The total grant in 1948 was $408,235 . In 1949 , th e pe r capit a grant s wer e increase d b y 5 0 pe r cen t t o $2.295, $1.50 , an d $.1 5 fo r cities , towns , an d rura l municipalities , respectively. Th e gran t fo r eac h ban k branc h wa s als o increase d b y 50 pe r cen t t o $337.50 . Th e Canadia n Nationa l Railway s paymen t remained unchanged . Th e basi s fo r th e grant s remaine d th e sam e through 1951 , th e tota l amount in that yea r being $597,038 . No adjust ments wer e mad e for change s i n th e numbe r of bank branches . For 1952 , ther e wa s a n "acros s th e board " increas e i n grant s o f 40 per cen t fo r al l localitie s an d th e thre e item s wer e no t separated , making the grants in that year $835,853. In 1953 , ther e wa s a reversion to th e thre e types o f grant . Th e pe r capita grant s wer e raise d 4 0 per cen t abov e th e 195 1 leve l t o $3.21 3 for cities , $2.1 0 for towns , and $.2 1 for rura l municipalities ; an d wer e based o n the 195 1 census . The gran t fo r ban k branche s wa s reduce d back t o $337.5 0 an d base d upo n the numbe r o f branches currentl y i n operation. Th e Canadia n Nationa l Railway s gran t wa s agai n pai d on th e ol d basis . N o municipalit y wa s t o receiv e les s tha n i t ha d received i n 1952. Total grants in 1953 were $920,807.

Municipal Organization and Finance 8

9

TABLE XX I UNCONDITIONAL PROVINCIA L GRANTS T O NOV A SCOTIA N MUNICIPALITIE S AS RATIO S OF TA X RENTA L AN D TAX-SHARIN G PAYMENTS FROM TH E DOMINION AND , FO R SELECTE D YEARS , O F MUNICIPA L TA X REVENUE S

Unconditional Fiscal grants t o year Calendar municipalities" ending year March 3 1 ($'000) 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959

150 153 151 151 151 151 408 599 597 597 836 921 921 922 922 982 987 987

1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960

N.S. income from ta x rental and tax-sharing agreements6 ($'000)

Provincial grants as ratio o f ta x rentals, etc.

Grants a s ratio of municipal tax revenue '

3,348 2,911 2,911 2,911 4,085* 7,525 10,673 9,836" 13,203" 14,336" 20,484 19,788 20,775 20,212 22,571 26,808 35,359 39,678

.045 .053 .052 .052 .037 .020 .038 .061 .045 .042 .041 .047 .044 .046 .041 .037 .028 .025

.037 .044 .046 .043 .041 .040 .036 .034 .031

SOURCE : "obtained directl y from th e Departmen t o f Municipal Affairs; 'obtaine d directly fro m th e Publi c Financ e Section , Dominio n Burea u o f Statistics . Fro m 1950 on , include s provincia l shar e o f publi c utilitie s tax . From 195 9 on, includes Atlantic Province s Adjustment Grant ; "Ta x revenue s (fo r calendar years) obtained from Annual Report of Municipal Statistics, issue s for 1951-9 . ^Includes $1.61 1 millio n earne d b y th e provinc e under th e 195 1 agreement, bu t withheld unti l th e terminatio n o f the agreement . "Includes 5 per cent tax on provincial corporate income , collected by the Dominio n and pai d t o th e provinces . The provinc e i n 195 3 als o began payin g abou t $55,00 0 t o assis t th e towns an d municipalitie s whic h ha d a mone y los s a s a resul t o f th e abolition of the Municipa l School Fund.77 The sam e basis o f makin g these grant s ha s bee n continued , excep t that th e 195 7 grants wer e base d upo n th e 195 6 census , raisin g the m to $982,201 . I n 195 8 an d 1959 , the y wer e $986,589 , an d i n 1960 , $988,614, th e increase s bein g du e t o additiona l ban k branches . Table XX I shows that th e growt h o f these unconditiona l grant s ha s "The operatio n o f th e Municipa l Schoo l Fun d ha d resulte d i n th e citie s an d some of the town s contributin g mor e to the Fun d tha n the y receive d bac k fro m it . Hence, whe n th e Fun d wa s abolished , som e rura l municipalitie s an d town s los t this revenue , fo r whic h the y wer e partl y compensate d b y specia l grant s b y th e province. Thes e wer e discontinue d i n 195 6 when th e ne w educatio n programm e was introduced.

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been roughl y commensurat e both wit h th e growt h o f ta x renta l an d tax-sharing payments and th e growt h o f municipal ta x revenues , unti l the las t thre e year s shown , whe n the y hav e decline d i n relatio n t o these two series. At the sam e time, on e should bear i n min d th e con siderable expansio n of conditional grants to the municipalities , alread y described. The distributio n o f the par t of these grants i n lieu o f the incom e ta x among th e cities , towns , an d municipalitie s i s still tie d t o th e highes t per capit a yield s of each tax in each kind o f municipality back in 1940 . This wa s not a very good basi s for distributin g th e grant s in th e firs t year i t wa s adopte d i n 1948 ; i t i s even les s appropriat e today . Ther e is some logic in giving the urban localities large r per capit a grant s than the rura l areas , sinc e the y provid e mor e services , bu t th e presen t system follow s eve n thi s tenuou s principle i n onl y a ver y crud e way , as Table XXII shows. TABLE XXI I A COMPARISO N OF UNCONDITIONA L GRANT S PE R CAPIT A AN D EXPENDITURE PE R CAPITA FO R TH E THRE E TYPE S O F MUNICIPALITY "

Cities Towns Rural municipalities

Total expenditure per capita in 1959

Unconditional grants per capita in 195 9

Grants per capita as ratio of total expenditure per capita

$122.85 64.73 32.82

$3.36 2.34 .31

.027 .036 .009

"Calculated from data in A nnual Report of Municipal Statistics, 1959, and fro m data obtained fro m th e Departmen t o f Municipa l Affairs . Grant s for bank branche s an d the gran t fro m th e Canadia n Nationa l Railway s are include d i n th e calculatio n of unconditional grants pe r capita.

It appear s tha t th e rura l municipalitie s ar e bein g discriminate d against, especially i n view o f their mor e limited taxabl e capacity , an d that th e citie s ar e les s favourabl y treate d tha n th e towns . I t i s of interes t t o se e wha t happen s whe n othe r provincia l contribution s are eliminate d b y relatin g th e grant s t o loca l taxatio n per capita , a s has been don e in Table XXIII . This table reveals practically th e sam e pattern as Table XXII. The municipa l sharin g o f particula r provincia l revenue s doe s no t play a n importan t par t i n Nov a Scotia n publi c finance . Th e onl y instance i s that o f licences to cu t timber . Sectio n 4 3 of the Land s an d Forests Act provides that the Minister may pay to the municipalities in which th e lands are situated 5 per cen t o f the licenc e due s payable t o

Municipal Organization and Finance 9

1

TABLE XX I[II A COMPARISO N O F U lMCONDITIONAL PE R CAPITA GRANT S WrCH TOTAL TAX REVENU E PER C APITA FO R TH E TH REE TYPE S O F MUN K;i PALIT Y"

Cities Towns Rural municipalities

Total tax revenue per capit a in 195 9

Unconditional grant per capita in 195 9

Grants per capita as ratio s o f ta x revenue per capit a

$92.90 51.81 27.32

$3.36 2.34 .31

.036 .045 .011

"Calculated fro m dat a i n Annual Report of Municipal Statistics, 1959, and fro m data obtaine d fro m th e Departmen t o f Municipa l Affairs .

the Crown . The total amoun t paid i n the fiscal year endin g Marc h 31, I960, was only $6,496.78 In recent year s the province has given relief t o the municipalitie s in other way s a s wel l a s i n th e one s alread y mentioned . I n 194 7 th e province assumed the ful l cos t of hospital car e for tuberculosis patients , a servic e whic h cos t th e municipalitie s ove r $95,00 0 i n 1946 . I n 194 8 the provinc e relieved th e municipalitie s o f charges fo r patients a t th e Nova Scotia (mental ) Hospital . I n 194 7 these charge s cost the munici palities $131,632 . I n 194 8 th e citie s an d town s wer e relieve d o f th e highway tax , whic h ha d cos t the m $128,06 6 i n 1947 . I n 194 9 th e province relieve d th e rura l municipalitie s o f th e highwa y pol l ta x which ha d cos t them ove r $75,000 annually. 79 Mor e recently, i n 1957 , it relieve d the m o f th e Municipalities ' Highwa y Tax , whic h i n 195 6 cost them about $246,000. 80 THE POSTWAB REVOLUTION IN PROVINCIAL PARTICIPATION IN LOCAL FUNCTIONS

There ha s been n o integrated reorganizatio n i n provincial-municipa l fiscal relations i n Nov a Scoti a i n th e postwa r period ; bu t ther e hav e been fou r majo r departure s fro m long-establishe d policie s significan t enough take n togethe r t o constitut e a revolution. I n th e fiel d o f edu cation, th e provinc e ha s take n muc h o f th e powe r o f determinin g standards ou t o f municipal hands, has compelle d th e municipalitie s t o make a specifie d effor t t o pa y fo r educationa l services , and ha s com 78 Government o f Nov a Scotia , Annual Report of the Department of Lands and Forests, fo r th e fisca l yea r endin g Marc h 31 , 196 0 (Halifax : Queen' s Printer , 1960), p. 24. 79 Obtained from the Departmen t of Municipal Affairs . ^Annual Report of Municipal Statistics, 1956, p. 30 .

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Fiscal Adjustment and Economic Development

mitted itsel f t o underwriting the balanc e o f the allowabl e cost s o f th e Foundation Program. 81 In th e field of health, i t ha s introduced a comprehensive hospita l plan whic h ha s relieved th e municipalitie s o f most of th e operatin g cost s of hospitals and o f some of their capita l costs . In the field of care for the mentally ill, the province has departed fro m it s long-established practic e o f insistin g tha t suppor t o f th e incurable , harmless insan e wa s purel y a loca l responsibility , b y makin g grant s to th e municipalitie s contingen t o n meeting th e provincia l standards . Similarly, i t ha s fo r th e firs t tim e departe d fro m th e principl e o f th e Elizabethan poo r la w that direc t relief i s a purely loca l responsibility , by makin g grant s unde r it s programm e o f socia l assistanc e t o th e municipalities fo r bot h indoo r an d outdoo r relief , agai n subjec t t o provincial standards . I n th e case s o f educatio n an d hospitalizatio n i t has becom e muc h mor e deepl y involve d tha n previousl y i n bot h financing an d controllin g thes e services . I n th e case s o f car e fo r the mentally ill and relief fo r the indigent , i t no w has committed itself both t o exertin g control ove r th e leve l o f services and t o contributin g to thei r cost , wherea s previousl y it di d neither . Provincia l activit y i n the fields of public healt h an d chil d welfare and i n th e sharin g of th e costs o f th e part s o f highway s running through town s an d citie s ha s resulted i n furthe r reduction s in municipa l responsibilit y fo r service s of a genera l nature . Moreover , the recen t practic e o f th e provincia l government of contributing, on a mileage basis, to the cos t of maintaining urban street s i s a significant ste p b y th e provinc e towards helping the municipalities to provide local services. Whatever th e bes t arrangement s ma y b e fo r th e carryin g o n o f those genera l service s fo r whic h th e municipalitie s currentl y hav e some responsibility , o r fo r financin g loca l services , th e questio n o f whether o r no t ther e wil l b e provincia l financia l participatio n i s n o longer an issue. At the practica l level , the ne w provincial participatio n greatly broadens the scope for fiscal adjustment in provincial-municipal relations. 81

In December , 1962 , th e governmen t announced its intentio n t o increas e th e scale o f cost s accordin g t o whic h i t wil l pa y grant s wit h respec t t o teachers ' salaries an d maintenanc e of classrooms , and t o ad d a n allowanc e o f $10 0 pe r classroom fo r teaching equipment and supplies . As these supplements for teachers' salaries ar e payable at th e optio n of the municipalities , they represent a departure from th e basi c principl e o f th e Foundatio n Progra m o f a unifor m minimu m standard throughou t th e province , although , i n fact , man y municipalitie s ar e already paying amounts a t leas t as high as the ne w one s allowabl e and th e other s will likely soon follow suit.

V

Why Nov a Scoti a i s a Low-Incom e Province

NOVA SCOTI A MIGH T B E A LOW-INCOM E PROVINC E eithe r becaus e it s resources d o no t permi t a s hig h productivit y pe r hea d a s i n othe r provinces o r because the y ar e no t being use d t o thei r bes t advantag e relative t o other provinces, or because o f a combination of both factors. Chapter I I gave a general picture o f the growth , size, and productivit y of the Nov a Scotian economy compared to that of Canada. It answere d affirmatively wit h empirica l data the question : "I s Nova Scotia a lowincome province? " Ther e follow s a n examinatio n o f th e province' s resources compared with those of the nation as a whole, and a n investigation o f th e effectivenes s wit h whic h th e province' s resource s ar e being used , with som e suggestions for improvemen t in thei r use . THE NATUBE OF ITS BESOUBCES

Natural Resources: Their Kind, Quality, and Quantity Certainly Nov a Scoti a i s no t generousl y endowe d wit h natura l re sources in which it has strong natural advantages . I f on e examines the natural resources o f the province in themselves, in situ, in compariso n with those in other parts of the country , most of them d o not giv e th e impression o f being eithe r hig h in quality, o r abundant i n quantity i n terms o f offerin g opportunitie s fo r th e us e o f mas s productio n tech niques o f exploitation . If on e examine s the m i n relatio n t o Canadia n and foreig n markets , they appea r eve n les s attractive , becaus e o f th e added cost s of getting the product s to distan t markets and becaus e of the competitiv e advantag e o f better-place d producers—better-place d

94 Ftsca

Z Adjustment and Economic Development

with respec t t o th e larg e centra l Canadia n market s becaus e o f th e superior locatio n o f centra l Canadia n producer s an d better-place d with respec t t o foreig n market s becaus e o f bot h superio r locatio n o f foreign producer s an d th e existenc e of tariffs an d othe r impor t restric tions. There ar e exceptions , a s in th e cases , to som e extent, o f fishing and forestr y resources . And , o f course , on e mus t no t ignor e th e element o f comparativ e cost s i n assessin g Nov a Scotia' s competitiv e strength. It i s tru e tha t whil e freigh t cost s ac t a s a barrie r t o sellin g good s outside o f the region , i n centra l Canada , they als o act t o som e extent as a protective barrier fo r th e developmen t o f regiona l industry . Th e protective barrie r argumen t i s vali d fo r good s whic h ar e loca l i n character, suc h a s beverages an d food , an d fo r industrie s whic h rel y on regional source s of raw materia l and whic h have a n optimu m siz e commensurate with the smal l size of the regiona l market. The regional market, however , is largely confine d t o th e thre e Maritim e Provinces , since shipping costs to Newfoundland are usually lower fro m Montrea l than fro m th e Maritimes . Th e siz e o f thi s marke t i s onl y abou t 1,400,000 person s and th e degre e o f protection i n it diminishe s a s one moves westward throug h i t towards central Canada . Furthermore, th e lack o f any really larg e marketin g centre i n the regio n i s a hindranc e to Maritime industrial development. Where th e optimu m size of a firm is greate r tha n tha t necessar y t o suppl y th e regio n th e protectiv e barrier argumen t break s down . I t als o break s dow n badl y fo r a n industry which must bring in its raw materials from outsid e the region. 1 In th e field of agriculture, the soi l is not generall y of high qualit y t o begin with . Th e legac y o f subsistenc e farm s (fro m a n ag e t o whic h they wer e mor e suited) , to o smal l i n size, 2 ofte n unsuite d topo graphically t o th e us e o f machinery , an d ofte n poorl y locate d i n relation t o markets, still dominates much of the agricultura l pictur e of Nova Scotia . The fac t that i n 195 6 th e rati o o f improved farmland to total occupie d farmlan d was 2 3 per cen t fo r Nov a Scoti a compare d with 58 for Canad a is an indicatio n of the province' s poo r agricultura l resources.3 Th e averag e ne t far m incom e pe r far m ove r th e perio d !Most o f th e materia l in thi s paragrap h i s base d upo n argumen t in a lette r received from a confidential source. 2 The averag e siz e of farms i n Nov a Scoti a in 195 6 wa s 131. 7 acre s compared with 302.5 acres fo r Canada . (D.B.S., Census of Canada, 1956 (Ottawa : Queen's Printer, 1958), Bulletin 2-3, Table 1; Bulletin 2-11, Table 1.) 3 D.B.S., Census of Canada, 1956, Bulletin 2-11 , Tabl e 15 . In 1951 , 92. 2 pe r cent o f farm s ha d no t mor e tha n 6 9 acre s o f improve d land . (Governmen t o f Nova Scotia , Report of the Royal Commission on Rural Credit [Halifax , 1957] , p. 17. ) Improve d lan d consist s o f cultivate d cro p an d pastur e land , barnyards, home gardens, lanes, and roads.

Why Nova Scotia is a Low-Income Province 9

5

1951-5 was only $963 for Nova Scotia compared to $2,772 for Canada. 4 Even more striking is the fac t tha t in 1951, 7 2 per cen t o f Nova Scotian farms sol d product s value d a t les s tha n $1,200 , compare d wit h 3 8 per cent fo r Canada. 5 I t i s clea r tha t Nov a Scotia' s agricultur e i s heavil y weighted wit h unproductiv e farms , eve n allowin g for th e large r per centage o f part-tim e farm s i n Nov a Scoti a (2 3 pe r cent ) compare d with Canada ( 10 per cen t ) .6 In th e field of forestry it is difficult t o be a s specific; bu t ther e seems to be n o doubt tha t th e province's forestr y resource s are less attractiv e than fo r th e natio n a s a whole . Certainl y th e opportunitie s fo r large scale exploitatio n ar e lacking , especiall y compare d wit h thos e i n Quebec, Ontario , and Britis h Columbia. Their limite d exten t is als o a problem wher e scal e i n manufacturin g is a consideration . On e recen t study o f th e Canadia n forestr y industr y observes : "Th e Maritim e Provinces hav e a lon g histor y o f logging, fire, and insec t attack . Th e stands o f timbe r hav e bee n lef t generall y i n a n understocke d con dition."7 Although the fores t are a comprise s 70. 3 per cen t o f the tota l area o f the provinc e ( compared with abou t 22 per cen t fo r Canad a ) ,8 the volum e o f woo d pe r acr e o f fores t lan d i s onl y 68 0 cubi c fee t compared with 1,010 fo r Canada.9 In connection with logging operations, Howland writes: The evidenc e suggest s tha t a relativel y hig h proportio n o f th e cu t i n th e Maritimes . .. is carried ou t by small-scale operators . However , th e bigges t factors contributin g to the relativel y lo w net valu e pe r worke r appea r t o b e related t o th e greate r seasona l amplitud e o f loggin g i n th e regio n an d t o differences i n th e valu e o f particula r specie s o f woo d wher e th e produc t is markete d a s lumber . Th e whit e pine s an d hardwood s o f Ontari o yield , as lumber , abou t twic e th e pric e receive d fo r the spruc e an d balsa m o f th e 4 W. M. Drummond, W . Mackenzie , et al., Progress and Prospects of Canadian Agriculture ( A stud y fo r th e Roya l Commissio n o n Canada' s Economi c Prospects ; Ottawa: Queen' s Printer , 1957) , p . 334 . I f onl y full-scal e farm s ar e include d (28.0 per cen t o f the tota l numbe r i n Nov a Scoti a an d 62. 1 per cen t in Canada) , net far m incom e was $2,688 for Nova Scoti a and $4,16 5 for Canada. (Ibid.) 5 Drummond, Mackenzie, et al., Progress and Prospects, p. 332. 6 Ibid., the percentages are for 1951 . 7 John Davis , et al., The Outlook for the Canadian Forest Industries ( A Stud y for th e Roya l Commissio n o n Canada' s Economi c Prospects ; Ottawa : Queen' s Printer, 1957) , p . 172 . Thi s propositio n i s emphaticall y corroborate d i n Govern ment o f Nov a Scotia , Departmen t o f Land s an d Forests , The Forest Resources of Nova Scotia (1958) , passim. Th e repor t emphasize s (p . 64) : "Fores t practice s have resulte d i n a rapi d an d to o grea t a n accumulatio n o f fores t land s i n youn g age classes . The objectiv e shoul d b e t o develo p balance of age classe s an d acreag e which wil l provid e the allowabl e annua l cut s withou t removin g immatur e stands , and8without accumulating overmature stands."

Davis, et al., OutlooKfor Canadian Forest Industries, p. 165. 9/foid., p. 167.

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Fiscal Adjustment and Economic Development

Atlantic Region ; whil e venee r birc h log s in Ontari o brin g u p t o three times as much.10

The seasona l amplitud e o f loggin g i n Nov a Scoti a i s determine d partly by climate an d partly b y th e part-tim e natur e o f operations b y farmers an d fishermen . No t onl y i s a larg e proportio n o f fores t lan d privately owned in Nova Scotia (abou t 70 per cen t compared to abou t 10 per cen t fo r Canada), 11 but i t i s owned t o a considerable exten t i n small woodlots , som e o f i t b y absente e landowners . Thes e kind s o f ownership combine d wit h a considerabl e amoun t o f part-time opera tions ar e probabl y i n par t responsibl e fo r th e small-scal e operations , and als o fo r th e difficultie s encountere d i n puttin g productio n o n a sustained yiel d basis. 12 However , thes e difficultie s ar e b y n o mean s insuperable and the prospects for the industry , especiall y with regar d to pulpwood production, are quite favourable. Fisheries ar e one resource with which Nova Scotia is well endowed . But the fishing industry in the Atlanti c Provinces i s not a high-income activity.13 T o th e exten t thi s i s attributabl e t o th e resource s them selves, i t i s du e mainl y t o th e fac t tha t landing s ar e mor e heavil y weighted by varieties low in value per pound than is the cas e in British Columbia, a s wel l a s bein g lowe r i n valu e fo r a give n amoun t o f fishing effort. I n th e latte r provinc e in recen t years , two-third s o f th e 10 R. D . Rowland , Some Regional Aspects of Canada's Economic Development (A stud y fo r th e Roya l Commissio n o n Canada' s Economi c Prospects ; Ottawa : Queen's Printer , 1958) , p. 179 . On e person interviewed , wh o is familiar wit h th e forestry industr y i n Nov a Scotia , wa s sceptica l abou t th e importanc e o f eithe r o f the factors Howland emphasizes . "Davis, et al., Outlook for Canadian Forest Industries, p. 166 . 12 See Howland , Some Regional Aspects of Canada's Economic Development, p. 181 . 18 See H . Scot t Gordon , "Th e Economi c Theor y o f a Commo n Propert y Re source: Th e Fishery, " Journal of Political Economy, LXI I (April , 1954) , fo r a n explanation o f why fishing tends t o b e a low-incom e activity . I n brief , h e argue s that since the se a fisheries are a common property resource , n o one is in a positio n to appropriate economi c rent. As a result, all fishermen aim at getting th e maximum average produc t pe r uni t o f "fishin g effort " an d i n s o doin g ten d t o driv e th e average revenu e pe r uni t o f outpu t dow n t o averag e cost . ( He assume s margina l and averag e cos t pe r uni t o f fishin g effor t t o b e constan t an d therefor e equal. ) Since opportunit y income s o f fisherme n ar e include d i n averag e an d margina l costs, an d sinc e revenue s ten d t o jus t cove r costs , fisherme n ten d t o ear n onl y their opportunit y income s and s o do no t become wealthy . (Althoug h Gordo n does not mentio n it , som e fisherme n may , o f course , ear n quasi-economi c rent s b y virtue o f unusual skill in then- calling. ) H e contend s that i n fac t fisherme n ten d t o earn eve n les s tha n thei r opportunit y incom e becaus e o f their "grea t immobility " (due t o thei r relativ e isolatio n an d thei r romanti c attachmen t t o th e sea ) an d because the y ar e characteristicall y gambler s hopin g fo r a luck y catc h an d optimistic abou t gettin g it . A s a result, the y ear n les s tha n thos e i n othe r occupa tions of comparable risk and skill .

Why Nova Scotia is a Low-Income Province 9

7

value o f fis h landing s hav e bee n accounte d fo r b y salmon , a high value fish which i s sufficiently unifor m with respec t t o siz e an d shap e to b e processe d b y highl y mechanize d techniques . I n th e Atlanti c fisheries, lobsters an d severa l othe r high-valu e specie s suc h a s salmon, scallops, oysters , swordfish , and tuna together accoun t for only slightl y over 4 0 per cen t o f th e valu e of landings ; th e lower-valu e cod, had dock, herring, an d mackere l account for most of the balance . I n recen t years th e Atlanti c fisheries have generall y accounte d fo r abou t two thirds o f th e nationa l catc h i n weigh t bu t onl y about one-hal f o f th e landed valu e of fish.14 In 195 1 th e media n earning s o f mal e worker s i n primar y fishing , hunting, an d trappin g wer e $70 1 fo r Nov a Scotia , $83 1 fo r Canada , and $2,26 8 for Britis h Columbia. 15 Th e mos t significant compariso n is with Britis h Columbia , sinc e th e Canadia n figur e i s heavily weighte d by th e othe r thre e Atlanti c Province s whic h hav e fisheries resources similar t o Nov a Scotia's. Th e bi g differenc e i n earning s is not b y an y means onl y due t o th e differenc e i n resources . Th e muc h greater us e of capita l an d th e greate r rationalizatio n o f th e industr y i n Britis h Columbia ar e importan t factors. 16 Bu t certainl y th e differenc e i n th e nature o f resource s i s a facto r i n tha t bot h th e kind s an d th e hig h value o f th e wes t coas t resources mak e it possibl e an d profitabl e t o employ greater amount s of capital tha n o n the Atlanti c coast. It ha s alread y been note d tha t minin g in the provinc e is dominated by a high-cost coa l industry heavil y supported b y freight subventions. In 196 0 coa l accounte d fo r abou t $4 6 million o f th e province' s tota l mineral productio n o f about $6 5 million.17 Ther e ar e n o know n larg e deposits of precious o r base metals, and n o large sources of very cheap power which could be used as a basis for smelting imported minerals. 18 ^Report of the Royal Commission on Canada's Economic Prospects (Ottawa : Queen's Printer , 1958) , pp . 182 , 184 ; an d D.B.S. , Fisheries Statistics of Canada, 195S an d 195 8 (Ottawa : Queen' s Printer , 195 8 an d 1960) , pp. A-10 , A-ll . 1BD.B.S., Ninth Census of Canada, 1951 (Ottawa : Queen' s Printer , 1956) , X , Table 73. Trapping i s of very small relative importance . 16 Department o f Fisherie s o f Canad a an d th e Fisherie s Researc h Board , The Commercial Fisheries of Canada ( A stud y for th e Roya l Commission on Canada' s Economic Prospects; Ottawa : Queen' s Printer , 1958) , pp. 111-17. "D.B.S., Preliminary Report on Mineral Production, 1960 (Ottawa : Queen' s Printer, 1961), pp. 6, 40. 18 Except possibl y tida l powe r i n th e Ba y o f Fundy . Thi s sourc e o f powe r ha s been talke d abou t fo r man y years , bu t harnessin g i t ha s no t ye t bee n show n conclusively t o b e feasibl e fro m th e engineerin g o r economi c poin t o f view . I f transmission cost s could be drasticall y reduced, Gran d Falls o n the Hamilto n River in Labrado r coul d conceivabl y becom e a majo r sourc e o f powe r fo r Nov a Scotia . Both projects are very much in the speculative future .

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There ar e larg e deposit s o f gypsu m an d baryte s whic h ar e bein g exploited; operation s ca n be expanded a s markets develop. The gypsum deposits could , when regiona l markets become sufficient som e time i n the future , becom e th e basi s o f secondar y manufacturin g o f buildin g products an d chemicals . Bu t th e minin g industry , eve n wit h al l th e fundamental weaknes s of the coal-minin g sector, i s not responsibl e fo r Nova Scotia' s bein g a low-incom e province . I n 1959 , th e averag e o f weekly wage s an d salarie s i n th e Nov a Scotia n minin g industr y wa s $68.61. Whil e thi s wa s considerabl y les s tha n th e $90.7 6 fo r minin g for Canad a a s a whole, i t wa s not ver y far belo w th e "industria l com posite" fo r Canad a ($73.47) , an d i t wa s considerabl y abov e th e "industrial composite " for Nova Scotia ($60.17). 19 In 1957 , pe r capit a generatio n o f electrica l energ y i n Nov a Scoti a was 2,20 1 k.w.h . compare d wit h 5,71 7 k.w.h . fo r Canada . Forty-on e per cen t o f the energ y i n Nov a Scoti a wa s generate d b y wate r powe r compared wit h 9 3 per cen t fo r Canada , th e balanc e bein g generate d by therma l power. 20 Practicall y al l o f Nov a Scotia' s hydro-electri c capacity i s now harnessed althoug h som e additions t o installation s ar e still being made. In 195 5 installe d turbin e capacit y was 11 4 per cen t of the availabl e powe r a t ordinar y si x months' flow. The percentag e fo r Canada wa s 4 5 and fo r Ontario , th e provinc e wit h th e nex t highes t percentage, 74.21 In 1958, th e federal government, under the Atlantic Provinces Powe r Development Act , began payin g a subvention o n coal used fo r supply ing industria l user s o f electri c powe r i n th e Atlanti c Provinces . Th e subvention o f abou t $1.8 0 pe r to n o f coa l represent s th e differenc e between th e pric e pai d fo r coa l b y these user s an d th e pric e pai d b y Ontario Hydr o fo r it s generatin g plant s i n Toront o an d Windsor . I n the yea r endin g Novembe r 30 , 1960 , th e subventio n fo r Nov a Scoti a was $955,771, distributed amon g over 630 users.22 Although Nov a Scotia, unless the harnessin g of tidal power i s foun d to b e economicall y feasible , i s no t favoure d wit h th e larg e amoun t of chea p hydro-electri c powe r availabl e i n Quebec , Ontario , an d British Columbia , whic h migh t itsel f stimulat e majo r industria l de 19D.B.S., Review of Employment and Payrolls, 1959 (Ottawa: Queen' s Printer , 1960), pp. 38 , 47, 56 . Fo r coa l minin g th e amount s wer e $68.9 0 fo r Nov a Scoti a and $69.0 7 for Canada. (Ibid.) 20D.B.S., Canada Year Book, 1960 (Ottawa : Queen's Printer), p. 604. 21 Howland, Some Regional Aspects of Canada's Economic Development, p . 135 . 22 Statutes of Canada, 6 Eliz . II , c . 25 ; an d Governmen t o f Nov a Scotia , Fortyfirst Annual Report of the Nova Scotia Power Commission, fo r th e yea r ende d November 30, 1960 (Halifax: Queen' s Printer, 1961), p. ix.

Why Nova Scotia is a Low-Income Province 9

9

velopment o n th e basi s o f importe d ra w materials , a s i n th e cas e o f the aluminiu m smelte r a t Kitima t i n norther n Britis h Columbia , i t would appea r tha t it s resource s ar e sufficien t t o cop e wit h quit e substantial demand s a t fairl y lo w rates. 23 Lac k o f powe r resource s i s not i n itsel f a reaso n fo r Nov a Scotia's bein g a low-incom e province . The attractivenes s o f th e provinc e scenicall y an d climatically , especially i n th e summer , is a natura l resourc e tha t no t onl y provide s the basi s o f a thrivin g touris t industry , bu t i s als o a n inducemen t t o industrial locatio n i n tha t peopl e lik e t o liv e i n th e provinc e an d i n that som e able peopl e are willing to apply thei r entrepreneuria l talen t and capita l ther e fo r a smalle r rewar d tha n the y migh t obtai n elsewhere. A facto r highl y relevan t t o a discussio n o f natura l resources , an d one that i s frequently crucial i n the industria l development of an area , is location . Closely linke d t o locatio n i s transportation. Somethin g ha s already bee n sai d abou t both , th e conclusio n bein g tha t give n it s resources, an d give n th e barrier s o f transportatio n wit h respec t t o domestic market s an d o f impor t restriction s wit h respec t t o foreig n markets, an d wit h stron g competitio n i n both , th e provinc e i s no t favourably located. Since Nov a Scoti a is unfavourably located fo r competin g i n genera l Canadian markets , freigh t rate s ar e a n importan t matte r t o th e province, a s the y ar e als o t o th e othe r Atlanti c Provinces. Policie s i n setting railwa y rate s hav e lon g bee n a bon e o f contentio n i n thi s region. Originall y rate s wer e adjuste d i n th e region' s favou r t o allo w for th e all-Canadia n uneconomi c rout e o f th e Intercolonia l Railwa y (now par t o f th e Canadia n Nationa l Railways), sinc e th e rout e wa s chosen for defence reasons. A departure fro m thi s policy i n th e perio d 1912-26 brought the rates up to those in Ontario. The Maritime Freigh t Rates Act of 192 7 restored th e mor e favourable structure b y reducin g rates o n outboun d an d interna l movement s by 2 0 per cent , an d com pensating th e railway s for th e reductio n wit h federa l subventions . A series of horizontal rate increase s sinc e 1948 , allowe d becaus e o f rising costs incurred b y the railways , and onl y partly ameliorate d b y federa l 23 This vie w wa s expresse d by severa l o f th e peopl e interviewed . See Halifax Chronicle-Herald, Jul y 18 , 1958 , fo r a repor t o f simila r view s expressed by members o f th e powe r committe e of th e Atlanti c Province s Economi c Council . I t i s frequently contended , a s i t i s b y thi s committee , that th e Atlanti c Provinces can provide additiona l therma l powe r fo r considerabl e industria l expansio n a t rate s comparable t o thos e anywher e on th e Nort h Atlanti c seaboard. I t i s important, however, t o bea r i n min d tha t tha t are a i s no t wher e Nov a Scotia' s competition for industr y generally lies.

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subventions introduce d i n 195 7 an d 1959 , have , a s Rowlan d put s it , appeared "t o accentuat e onc e agai n th e pressur e o f geograph y an d economic facts towar d the fragmentatio n of the Canadia n economy." 24 Horizontal increase s har m th e competitiv e positio n o f a Maritim e producer i n th e centra l Canadia n marke t becaus e the y ad d a large r absolute amoun t t o hi s freigh t cost s tha n t o th e freigh t cost s o f a central Canadia n competitor . Probabl y eve n mor e importan t i n ac counting for the widening difference in the freight bills of the Maritime and centra l Canadia n producer s i s th e practic e o f th e railway s o f reducing thei r rate s t o mee t th e competitio n o f truckers . Sinc e thi s competition i s keener for the shorte r haul s in more densel y populate d central Canada, rates tend to be reduced mor e there than for the longer hauls between central Canada and the Maritimes . Rowland suggests that th e practic e o f charging lower rate s o n lowvalue bulk commodities and highe r rate s o n high-value manufacture d commodities discourage s th e developmen t o f manufacturing , since i t favours th e movemen t o f ra w material s ou t o f th e provinc e befor e processing.25 On the other hand, high rate s o n imported manufacture s favour th e developmen t o f manufacturin g fo r th e regiona l marke t (with th e importan t qualification s mad e a t th e beginnin g o f thi s section), especiall y since th e rat e reduction s finance d b y subvention s apply onl y on outbound and, to a lesser extent , o n internal traffic . Opinion i s very much divided o n the importanc e o f the freigh t rat e structure a s a deterren t t o economi c developmen t o f th e Atlanti c Provinces. Th e transportatio n o f good s give s ris e t o cost s whic h ar e bound t o wor k against producer s i n outlyin g regions tryin g t o sel l i n central Canadia n markets . Centra l Canadia n producer s sellin g i n th e outlying region s hav e th e advantag e o f bein g abl e t o develo p thei r production o n th e basi s o f a larg e easil y accessibl e loca l market , which i s lacking i n th e Atlanti c region . Locatio n i s n o doub t a n im portant facto r i n th e lowe r averag e productivity o f the Nov a Scotia n economy. Although its unfavourable effects coul d b e mitigate d some what by removing discriminatory elements fro m th e freigh t rat e struc ture, th e locationa l disadvantage s ar e a fac t o f th e Nov a Scotia n economy tha t coul d b e tempere d onl y by som e form o f subsidy . Th e opinion o f som e well-informed people i n th e provinc e i s that , whil e there are undoubtedly some aspects o f the freigh t rate structur e whic h 2 *Howland, Some Regional Aspects of Canada's Economic Development, p . 185 . "Horizontal increases " ar e unifor m percentag e increase s applie d ove r th e whol e freight rat e structure , or ove r section s of it, pertainin g to th e whol e country .

Why Nova Scotia is a Low-Income Province 10

1

impose a n undu e burde n o n th e provincia l economy , to o muc h o f a bogey ha s bee n mad e ou t o f it. Partl y i n thi s connection , on e highl y placed perso n state d i n a confidentia l interview: "Th e forc e o f con ventional arguments is still terrific in Nova Scotia." One o f th e principa l task s give n th e Roya l Commissio n on Trans portation, appointe d Ma y 13, 1959, was to "conside r an d repor t upo n inequities i n the freight rate structure, their incidence upon the various regions of Canada an d the legislativ e an d othe r change s tha t ca n an d should be made, in furtherance of national economic policy, t o remove or alleviat e suc h inequities." 26 Contrar y t o expectations , th e com mission di d no t mak e proposals t o reduc e th e freigh t rat e differentia l in centra l Canadia n market s betwee n good s o f Maritim e producer s and thos e o f their centra l Canadia n competitors , o n th e groun d tha t to d o s o woul d hav e bee n outsid e thei r term s o f reference . I t did , however, admi t th e feasibilit y o f usin g transportatio n polic y t o accelerate the economic growth of the Atlantic Provinces and suggested "should i t .. . b e deeme d desirabl e t o giv e specia l transportatio n assistance t o th e Atlanti c Province s t o overcom e economi c lag , suc h special assistanc e migh t wel l b e designe d t o assis t th e movemen t of the product s o f secondar y industr y wher e i t ma y hav e th e greates t employment generating impact." 27 In it s examinatio n o f th e Maritim e Freigh t Rate s Ac t o f 1927 , th e commission recommende d th e eliminatio n o f the 2 0 per cen t subven tion withi n th e region , excep t wit h respec t t o Newfoundland , on th e ground tha t ther e wa s n o goo d justificatio n fo r it , a s th e purpos e of the ac t wa s t o mak e centra l Canadia n market s mor e accessibl e t o Maritime products , an d o n the groun d tha t it s eliminatio n woul d b e a stimulu s t o competitio n amon g carrier s an d therefor e t o greate r efficiency. I t als o recommende d th e extensio n t o non-rai l carrier s o f the 2 0 per cen t subventio n o n westboun d traffi c fro m th e region , o n the groun d that a policy designe d to help a region o r industry should not distor t th e transportatio n industry itsel f b y favourin g rai l ove r non-rail carriers. It was also envisaged by the commission that regional discrimination hithert o ensuin g fro m horizonta l rat e increase s woul d no longe r b e a n issu e if rates wer e se t accordin g t o competitiv e prin ciples a s it recommended . It i s now clea r tha t if transportation polic y is to become a major instrumen t fo r the economi c development o f th e Atlantic Provinces, it will have to be devised by the federal government itself. 26

Report of the Royal Commission on Transportation (Ottawa : Queen's Printer , 1961 ), I, Appendix A. 27 ibid., II, 218 .

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In hi s study , Rowlan d expresse s ne t value s o f productio n pe r worker fo r Nov a Scoti a a s percentage s o f th e value s fo r Ontari o fo r 1953 i n thos e sector s fo r whic h dat a ar e available . Th e percentage s are: agricultur e 53.3 , forestr y 28.3 , fishin g 82.0 ; agriculture, forestry , and fishin g combine d 57.8 ; minin g 68.6 ; an d primar y manufacturing 43.1.28 Whil e thes e figure s ar e no t precis e measure s o f th e relativ e values o f resources in th e tw o provinces , the y d o suppor t th e genera l contention mad e i n thi s section : tha t Nov a Scoti a i s relatively poorl y endowed with exploitable natural resources compared with the country as a whole . I t i s clea r tha t t o a considerabl e exten t Nov a Scoti a i s a low-income province because o f it s paucit y o f natura l resources. One ca n say , "Bu t loo k a t Switzerland , wher e highl y advance d manufacturing industries , suc h a s watchmaking , wer e establishe d o n the basi s of acquired skill s and importe d ra w materials . Wh y ca n thi s sort o f thing no t b e don e i n Nov a Scotia?" Conceivabl y i t could , a s i t could almos t anywhere , althoug h th e provinc e lack s th e strategi c marketing locatio n o f Switzerland . Suc h a n industr y require s a ver y adaptable labou r force , capabl e o f becomin g highl y skilled , an d th e willingness o f entrepreneur s intereste d i n som e ne w industr y o f thi s type t o locate i n Nov a Scotia . It i s questionable tha t th e provinc e has this kin d o f labou r forc e a t present ; bu t labou r i n genera l i s a ver y versatile resource and such a labour forc e migh t be develope d i n time . Nova Scoti a i s face d wit h th e situation , a s a compac t nationa l uni t like Switzerlan d i s not , o f th e pull s o n skille d labou r an d entre preneurial abilit y being stronge r elsewhere i n the countr y where suc h factors ar e frequentl y mor e productiv e an d bette r paid , wit h n o national barriers to their moving there. Difference s i n rewards ar e less easily maintaine d betwee n province s withi n a natio n tha n betwee n nations. Even if ventures of the typ e envisage d here coul d b e success ful, th e fac t remain s that ther e i s no evidence a t presen t tha t the y ar e likely t o b e launched , althoug h a concerte d programm e o f regiona l development accompanie d b y stron g federa l an d provincia l induce ments to industry to locate in Nova Scotia might alter the outlook.

Labour29 Size of Labour Force. In 1951 , Nov a Scotia wit h 4. 6 per cen t o f th e Canadian populatio n ha d 4. 2 per cen t o f th e Canadia n labou r force . 28 Howland, Some Regional Aspects of Canada's Economic Development, p . 171 . As th e sal t wate r fisherie s o f Nov a Scoti a diffe r considerabl y i n natur e fro m th e fresh wate r fisherie s o f Ontario , th e percentag e fo r fisherie s i s probabl y no t o f much significance . 29 As th e lates t detaile d dat a o n th e labou r forc e a t th e tim e o f writin g ar e

Why Nova Scotia is a Low-Income Province 10

3

TABLE XXI V MEMBERS OF THE LABOUR FORCE WITHOUT JOBS SEEKING WORK AS A PERCENTAGE OF THE TOTAL LABOUR FORCE, FOR NOVA SCOTIA AND CANADA," FOR SELECTED YEARS

Nova Scoti a

1947 195111 1954 1956 1957 1958 1959 1960

5.4% 3.3 5.7 4.6 6.2 9.1 7.0 7.9

Canada

2.0% 2.0 4.3 3.1 4.3 6.6 5.6 6.8

Nova Scoti a as a ratio of Canad a

2.70 1.65 1.33 1.48 1.44 1.38 1.26 1.16

SOURCE: Ninth Census of Canada, 1951, V, Table s 1 and 2 ; D.B.S. , The Labour Force, November 194o-July 1958 (Referenc e Pape r No . 58 , 195 8 revision; Ottawa : Queen' s Printer , 1958) , Tabl e 12 ; lis t o f numbe r o f registrations fo r wor k wit h th e Nationa l Employmen t Service , fo r thre e Maritime Provinces , 1947-57 , supplie d directl y b y th e Researc h an d Development Divisio n o f th e Dominio n Burea u o f Statistics . Dat a fo r 1958-60 obtained fro m Labour Gazette, various issues . "The percentages fo r Canad a wer e calculate d usin g averages o f th e siz e of th e labou r forc e an d th e numbe r withou t job s seekin g work , fo r eac h year (fro m quarterl y dat a fo r 194 7 an d 1951 , monthl y data fo r 195 4 an d 1956-9, an d dat a fo r th e firs t eigh t month s o f 1960) . Sinc e labou r forc e data ar e no t give n separatel y fo r Nov a Scoti a (excep t fo r 1951) , bu t fo r all thre e Maritim e Province s groupe d together , th e percentage s fo r Nov a Scotia ha d t o be estimated. These estimate s wer e based upo n tw o assumptions: (1 ) tha t th e rati o o f th e labou r forc e t o tota l populatio n wa s th e same i n each o f the thre e province s throughou t the perio d a s i t wa s at th e time o f th e 195 1 census , makin g allowanc e fo r relativ e change s i n thei r populations; and (2 ) that thos e withou t job s seeking work were distributed among th e thre e province s fo r th e year s covere d i n th e sam e proportion s as th e numbe r o f registration s fo r wor k with th e Nationa l Employmen t Service (whic h ar e availabl e fo r eac h province) . Th e registratio n figure s used wer e average s o f fou r quarterl y reading s fo r 194 7 an d 1951 , an d o f twelve monthl y reading s fo r th e othe r years . Th e write r i s indebte d t o Mr. D . H . Jone s o f th e Dominio n Bureau o f Statistic s fo r hi s suggestio n of a somewha t simila r metho d o f obtainin g th e Nov a Scotia n estimate s and fo r supplying th e dat a o n registrations fo r work. 'The percentage s calculate d fro m th e 195 1 censu s dat a (fo r th e wee k ending Jun e 2 , 1951 ) wer e 3. 2 pe r cen t fo r Nov a Scoti a an d 1. 7 pe r cen t for Canada , whic h ar e quit e clos e t o th e estimate s show n here , especially allowing fo r th e fac t tha t thes e estimate s ar e base d o n th e averag e o f fou r quarterly readings.

Nova Scotia's labour participation rate 30 in that year was 49.7 per cent , the sam e as for the Maritim e Provinces as a whole, while Canada's was 53.1 per cent. 31 In 195 5 the labour participation rat e was 48.6 per cen t those o f th e 195 1 census , i t wil l b e necessar y i n som e instance s t o us e figure s fo r that year. Where possible, figures for later years will be used. 30 The "labou r participation rate" i s th e siz e o f th e labou r forc e expresse d a s a percentage of population 1 4 years of age an d over. 3!Calculated fro m th e Ninth Census of Canada, 1951, X, 248.

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Fiscal Adjustment and Economic Development

for the Maritime Provinces and 53.6 per cent for Canada.82 The median number o f week s employe d durin g th e 1 2 months prio r t o th e 195 1 census date , fo r th e wag e earner s i n th e labou r force , wa s 50. 6 fo r males an d 50. 7 fo r female s in Nov a Scotia an d 50. 9 an d 50.8 , respectively i n Canada, 33 th e differenc e betwee n Nov a Scoti a an d Canad a being very small in each case. Not onl y is the labou r forc e of Nova Scotia smaller relativ e to tota l population an d relativ e t o the par t o f population o f working ag e tha n for Canada , bu t th e rat e o f unemployment i s highe r fo r th e postwa r period, a s Table XXI V shows, even fo r year s o f generally hig h level s of employment . Both factors contribute t o th e lo w averag e incom e of the province. Occupational Distribution. Table XXV shows the occupationa l dis tribution o f male wage and salar y earners for Nova Scotia an d Canad a in 1951 . Th e weighte d media n fo r Nov a Scotia , usin g the percentag e distribution fo r Nov a Scoti a fo r weighting , wa s $1,855 . Usin g th e median earning s fo r Nov a Scoti a bu t th e percentag e distributio n fo r Canada, th e weighte d media n would hav e been $1,961 . Thi s suggest s that the difference i n occupational distributio n t o some extent accounts for th e lowe r averag e income in Nova Scotia, although, sinc e th e self employed are excluded, the picture is not complete.34 Age Distribution of the Population. The siz e o f th e labou r forc e i s in par t determine d b y th e ag e distributio n o f th e population . Tabl e XXVI, containin g th e ag e distributio n fo r Nov a Scoti a an d Canad a for 195 1 an d 1956 , shows that Nova Scotia's population is weighted les s heavily than Canada' s wit h the productive ag e group 15-64, and more heavily wit h th e youn g an d ol d ag e group s 0-1 4 an d 6 5 an d over . This weightin g i n par t account s for th e siz e o f Nov a Scotia' s labou r force being smaller relative t o the total population tha n Canada's . Th e difference i n distributio n i s n o doub t largel y accounte d fo r b y th e emigration o f members of the populatio n in the productiv e ag e grou p 32 Howland, Some Regional Aspects of Canada's Economic Development, p . 78 . Rowland observes : "Th e regiona l labou r forc e represent s . . . th e numbe r of people o f th e regio n wh o conside r themselves to b e par t o f th e workin g force , and th e rat e of growth of the labou r force ma y reflec t a chang e in th e participa tion rate , o r th e percentag e o f th e populatio n who choos e to identif y themselves with th e labou r forc e b y workin g o r b y seekin g work. Th e participatio n rate i s usually higher where economic activit y is at a high level an d wher e the econom y is sufficientl y wel l diversifie d t o offe r attractiv e employmen t opportunitie s fo r females." (Ibid.) MNinth Census of Canada, 1951, X, 279 . 34 The calculation s cannot be mad e for female s sinc e fo r a numbe r of occupational groupings there are no entries for Nova Scotia.

105

Why Nova Scotia is a Low-Income Province TABLE XX V DISTRIBUTION O F MAL E WAGE AND SALAR Y EARNER S B Y OCCUPATIONA L GROUPS, AN D MEDIAN EARNINGS FOR EAC H GROUP , FOR NOV A SCOTI A AND CANADA, 195 1

Nova Scoti a Occupational group wag

% dist'n . o f Media n % dist'n . o f Media n e earners earning s ($) wage earners earning s ($)

All occupations 100.0 Primary (excep t mining ) 8.4 Agricultural 3.9 Fishing, hunting, trapping 1.7 Logging 2.8 Mining & quarrying 8.7 Manufacturing & mechanical 15.6 Construction 8.8 Transportation 11.4 Communication 1.6 Commercial 4.5 Managerial 4.3 Professional 3.9 Clerical 5.8 Financial .4 Service 12.4 Personal 3.0 Protective 9.3 Other .1 Labourers 12.2 Not stated 1.9 TOTAL NUMBE R O F MALE WAGE EARNERS

Canada

1,773 703 690 701 720 2,273 1,924 1,645 1,701 2,030 1,710 3,042 2,531 1,947 2,967 1,892 1,379 1,995 1,486 1,033 1,427 136,494

100.0 7.6 4.4 .3 2.9 2.2 23.0 8.3 10.3 1.3 6.1 5.3 5.9 8.1 .7 8.5 4.1 4.1 .2 10.9 1.6

2,121 904 772 831 1,172 2,398 2,315 2,104 2,101 2,390 2,203 3,596 2,927 2,164 3,073 1,822 1,619 2,061 2,030 1,552 1,546

3,011 ,322

SOURCE: Calculate d fro m Ninth Census of Canada, 1951, X , Par t II , Tabl e 7 3

from Nov a Scoti a t o othe r part s o f th e countr y (particularl y th e younger member s o f the group). 35 Bu t i t i s in par t accounte d fo r b y the fac t tha t th e mor e prosperou s part s o f th e countr y receiv e mor e immigrants fro m abroa d relativ e t o population tha n Nov a Scotia ; an d most immigrants are i n th e productiv e ag e groups. 36 A likely explana tion for the large r percentag e o f old people i n Nova Scotia i s also tha t it is common for Nov a Scotians who spend thei r workin g years outside of the province to return when they retire . Sex Distribution of the Population. I n th e productiv e ag e grou p 15-64, 50. 5 per cen t o f th e populatio n i n Nov a Scoti a wa s mal e i n 35

For a goo d analysi s o f this an d othe r aspect s o f the distributio n o f populatio n in th e Atlanti c Provinces , se e Kar i Levitt , Population Movements in the Atlantic Provinces (Halifa x an d Fredericton : Atlanti c Province s Economi c Council , 1960) , passim. seQver th e perio d 1946-55 , Nov a Scotia , wit h abou t 4. 5 per cen t o f the Cana dian populatio n receive d onl y 1. 9 per cen t o f immigrant s t o Canada . (Howland , Some Regional Aspects of Canada's Economic Development, p . 120 . )

106

Fiscal Adjustment and Economic Development TABLE XXV I POPULATION DISTRIBUTIO N BY AG E FO R NOV A SCOTI A AND CANADA , 195 1 AN D 195 6

Nova Scotia

Canada

Age group

1951

1956

1951

1956

0-4 5-9 10-14 15-19 20-24 25-34 35-44 45-54 55-64 65-69 70+

12.8 10.7 9.1 8.0 7.2 14.5 12.9 9.0 7.2 3.0 5.5

12.4 11.8 9.7 8.1 7.1 13.0 12.9 9.5 7.0 2.9 5.6

12.3 10.0 8.1 7.6 7.8 15.5 13.3 10.0 7.7 3.1 4.7

12.3 11.2 8.9 7.2 7.0 15.0 13.3 10.0 7.2 2.9 4.8

TOTAL 100.

0 100.

0 100.

0 100.

0

0-14 32. 15-64 58. 65+ 8.

6 33. 8 57. 5 8.

9 30. 6 61. 5 7.

4 32. 9 59. 8 7.

4 7 7

TOTAL 100.

0 100.

0 100.

0 100.

0

SOURCE: D.B.S. , Census of Canada, 1956, Bulletin 3-3 , Table 2.

1951, an d 51. 0 i n 1956 , compare d wit h 50. 4 an d 50. 6 fo r Canada. 37 These discrepancie s ar e too smal l to have muc h effec t o n the relativ e size o f th e labou r forc e i n Nov a Scoti a an d Canada . Tabl e XXVI I shows tha t th e labou r participatio n rate s fo r bot h male s an d females are lower fo r Nova Scotia tha n for Canada, th e differenc e bein g some what greate r fo r females . Th e lowe r participatio n rat e fo r wome n i n the Atlanti c Provinces i s a reflectio n o f fewe r type s o f employmen t suitable fo r wome n there , compare d t o Ontario , fo r example , wher e light secondar y manufacturin g industrie s ar e commoner. 38 Th e especially low female participation rat e contributes, though not greatly, to the explanatio n of why Nov a Scotia is a low-incom e province. Productivity of the labour force. Ther e i s littl e doub t tha t th e Nova Scotia n labou r forc e i s les s productiv e tha n tha t o f Canad a a s a whole . Tabl e XX V shows tha t onl y i n th e "protective " part o f th e category "service" ( which includes members of the arme d forces ) were STCalculated from Census of Canada, 1956, Bulletin 3-3, Table 1. ssHowland, Some Regional Aspects of Canada's Economic Development, pp . 160-1.

107

Why Nova Scotia is a Low-Income Province TABLE XXVI I PERCENTAGE O F MAL E AN D FEMALE POPULATION I N TH E LABOUR FORC E I N NOV A SCOTI A AN D CANAD A I N 1951

Nova Scotia Percentage o f populatio n 1 4 years of age and ove r i n the labou r forc e Percentage o f mal e populatio n 1 4 year s of age and ove r in the labou r forc e Percentage of female populatio n 1 4 years of ag e and ove r in the labou r forc e Females a s percentag e of male s i n the labour forc e

Canada

49 .7%

53..1%

79 .5

82 .2

19 .4

23 .6

24 .0

28 .3

SOURCE: Ninth Census of Canada, 1951, X , 248.

median earning s o f male wag e earner s highe r i n Nov a Scotia tha n i n Canada. Table XXVIII, compiled by Rowland, shows that ne t value of production pe r worke r i n 195 3 wa s considerabl y less i n Nov a Scoti a than i n Ontario fo r every industr y included, excep t fo r electri c power . The percentage for all industries shown is only 56.1 . The lowe r productivit y i n Nov a Scoti a i s du e t o inferio r resources , to les s applicatio n o f capital , t o th e smal l scal e o f organizatio n an d prevalence o f part-time activity in the primar y industries, and perhap s in som e area s t o intrinsicall y inferio r labou r resources . I t i s highl y probable tha t i n a regio n whic h ha s experience d almos t continua l migration ove r a lon g perio d ther e ha s bee n a sever e drai n o n some of th e province' s mos t vigorou s an d productiv e stock . Rowlan d sug gests tha t th e greate r seasona l amplitud e i n employmen t i n th e TABLE XXVII I NET VALU E O F PRODUCTIO N PE R WORKE R B Y INDUSTRY I N NOV A SCOTI A A S A PERCENTAG E O F NET VALU E O F PRODUCTIO N I N ONTARIO , 195 3

Agriculture, forestry, an d fishing Agriculture Forestry Fishing Mining Manufacturing Primary manufacturin g Secondary manufacturin g Electric power Construction TOTAL

57.8% 53.3 28.3 82.0 68.6 61.3 43.1 71.8 123.3 73.4 56.1

SOURCE: Rowland , Some Regional Aspects of Canada's Economic Development, p . 171 .

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Fiscal Adjustment and Economic Development

Atlantic Province s i s als o a n importan t facto r contributin g t o lo w incomes.39 Table XXIX shows that th e advance d educational level o f the Nov a Scotian labou r forc e i n 195 1 was les s fo r Nov a Scoti a tha n fo r th e country a s a whol e and tha t Nov a Scoti a had a large r percentag e of its labour force in the 0-4 years category. TABLE XXIX EDUCATIONAL LEVE L OF TH E LABOU R FORCE FOR NOV A SCOTI A AN D CANADA, 195 1

Years of schooling

Nova Scotia

Canada

0- 4 8.1% 7-1% 5- 8 40.6 43.2 9-12 39.4 43.8 13 and over 10.3 7.5 SOURCE: Rowland , Some Regional Aspects of Canada's Economic Development, p . 79 .

On th e othe r han d i t als o ha d a large r percentag e i n th e 9-1 2 category. I t i s likely that it s smalle r percentage i n th e highe r educa tion groupin g i s th e resul t o f man y o f it s college-traine d graduate s taking jobs outside of the province . I n 1951 , 49.0 per cen t of the Nov a Scotian populatio n i n th e ag e grou p 15-2 4 wa s i n schoo l compare d to 45.2 per cen t for Canada , and 49. 2 pe r cen t fo r Ontario . However , it is those who stay in the province who are o f interest here. If highe r education i s weighte d mor e heavil y tha n secondar y education , i t appears tha t o n balance th e educationa l leve l o f Nova Scotia' s labou r force is at least slightly inferior to the averag e for the nation , althoug h the evidence is not very conclusive. Reliable empirica l evidenc e abou t th e qualit y o f Nov a Scotia n labour i n term s of its willingnes s to wor k hard an d efficientl y an d i n terms of its adaptability i s lacking. But the consensu s seems to be tha t in the constructio n industry, at least , Nov a Scotian labou r i s less productive tha n i n centra l Canada . This seem s particularl y tru e o f th e Halifax area , an d appear s t o b e i n par t owin g t o poo r organizatio n and supervisio n o f th e me n o n constructio n project s an d i n par t t o their poo r trainin g an d a n inadequat e apprenticeshi p programme . One man prominen t in th e constructio n industr y sai d tha t Montrea l firms add about 5 per cent to their estimates for projects in the Halifa x

39 The averag e seasonal amplitud e of employment over the perio d 1947-5 1 for non-agricultural industrie s was 16. 6 per cen t fo r Nov a Scoti a compare d wit h 4.4 pe r cen t fo r Ontario , seasona l amplitud e bein g define d a s th e differenc e between th e hig h an d lo w level s o f employmen t whe n the y ar e expresse d a s percentages of the average level. (Ibid., pp . 162-5.)

Why Nova Scotia is a Low-Income Province 10

9

area compare d wit h estimate s fo r simila r project s i n Ontari o an d Quebec, i n part, at least, to allow for lower labour productivity aroun d Halifax. I t i s als o no t uncommo n to hea r informe d peopl e sa y tha t labour productivit y i s in general lowe r i n Nov a Scotia than i n centra l and wester n Canada . Attempts to interes t fishermen in learnin g skills which the y coul d appl y durin g thei r off-season i n som e secondar y manufacturing industrie s o f a "putting out " sor t (suc h a s the makin g of jewelr y and cutlery ) hav e not met with favourable reactions. Ther e has eve n bee n som e difficult y i n gettin g fisherme n t o harves t Iris h moss, a seaweed use d i n th e foo d processin g industry , althoug h i t i s ready in thei r off-season , pullin g it i n i s quite easy , and i t i s a profit able sidelin e linke d closel y t o thei r mai n occupation . O n th e othe r hand, some employers maintain that their workin g forces ar e unusually skilful, adaptable, an d reliable. Howland estimate d th e importanc e of the differen t factor s account ing fo r th e differenc e i n pe r capit a earne d incom e i n th e Atlanti c Provinces and in Ontario in 1951. Hi s results are shown in Table XXX. TABLE XX X ESTIMATED IMPORTANC E OF VARIOU S FACTORS ACCOUNTING FO R THE DISPARIT Y I N PE R CAPIT A EARNED INCOM E BETWEE N ONTARIO AN D THE ATLANTI C REGION, 195 1

TOTAL DISPARIT Y $54

Proportion ascribed to differences in : (1) Relative siz e of the labou r force 15 A. Du e t o differen t ag e distributio n of th e population 10 B. Du e t o th e lowe r participatio n o f th e working-age populatio n i n th e Atlanti c Provinces 5 (2) Week s worked per annu m b y pai d workers 5 (3) Occupational or industrial pattern 6 (4) Rate s of earnings 26

5 100

%

82

9

31

9

51 51 51 74

0 0 2 9

SOURCE: Rowland , Some Regional Aspects of Canada's Economic Development, p. 158 .

It i s likely that th e percentage s woul d no t b e ver y muc h differen t for Nov a Scotia. The tabl e put s i n a more concrete and succinc t for m much o f wha t ha s bee n sai d above . Th e larg e par t o f th e differenc e (49 pe r cent ) attribute d t o th e differenc e i n th e rat e o f wage s i s of course i n turn attributabl e to more fundamental factors, especially t o differences i n th e abundanc e o f resource s an d i n th e way s the y ar e used. Poor resources ar e less attractive t o capita l tha n goo d resources , so naturall y th e productivit y o f labou r workin g wit h th e resource s will be less and so also will its remuneration.

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Fiscal Adjustment and Economic Development

Capital—Adequacy of Supply There ar e insufficien t dat a o n the stoc k o f capital i n Nov a Scotia t o compare th e amount s o f capita l i n us e i n th e differen t industria l sectors o r to make comparisons with th e res t o f the country . However , if recen t level s o f investmen t expenditur e ar e an y indication , th e us e of capita l i n Nov a Scoti a i s les s extensiv e tha n i n th e res t o f th e country. Tabl e II I (p . 24 ) show s tha t capita l investmen t expenditur e per capit a i n Nov a Scoti a ove r th e perio d 1949-5 6 wa s onl y 58. 8 pe r cent o f th e amoun t for th e countr y a s a whole . Th e figur e fo r al l of the Atlanti c Provinces wa s 58. 3 pe r cent. 40 Thes e figure s ar e fo r bot h business an d institutiona l investment . Busines s investment pe r capit a for th e Atlanti c Province s i n 195 6 wa s 47. 7 pe r cen t o f th e nationa l average, an d busines s investmen t pe r worke r 55. 2 pe r cen t o f th e national average. 41 T o som e exten t thes e grea t departure s o f invest ment in Nova Scotia and the other Atlantic Provinces fro m th e nationa l average ar e a reflectio n o f th e relativel y greate r expansio n i n othe r parts o f the countr y ( especially Ontario , Alberta , an d Britis h Colum bia) which ha s require d large r amount s of both industria l an d socia l capital. Bu t th e difference s ar e als o partl y du e t o th e inferio r natur e of Nov a Scotia' s natura l resource s compare d wit h thos e availabl e fo r exploitation elsewhere . Th e relativel y smal l size of business firms both in secondar y manufacturin g an d primar y industries 42 probabl y als o restricts th e profitable application o f capital. No doub t increase d applicatio n o f capita l woul d increas e th e pe r capita productio n o f the are a bu t thi s doe s no t necessaril y mea n tha t the increase d applicatio n woul d b e profitable , o r tha t a n increas e i n average incom e woul d result . Fro m th e financia l poin t o f view , i t is practicall y certai n tha t Nov a Scoti a i s an d ha s lon g bee n a ne t exporter o f privat e capita l throug h th e partia l transfe r o f curren t savings of Nova Scotians by banks, insurance companies, and trus t an d loan companies for use outside of the province , and through the invest ment o f Nov a Scotian s i n bond s an d stock s o f companie s operatin g outside o f Nova Scotia. To th e exten t tha t Nov a Scotians' saving s ar e invested mor e profitabl y elsewhere , thei r income s ar e highe r tha n i f they were invested in Nova Scotia. Even so , ther e i s n o evidenc e o f a n over-al l shortag e o f capita l *oibid., p. 113. «Jfoia., p. 115. 42

For example , i n 1958 , the averag e numbe r o f employee s i n al l manufacturin g establishments was 22 for Nov a Scotia , 37 for Canada, and 4 6 for Ontario . ( D.B.S., General Review of the Manufacturing Industries of Canada, 1958 (Ottawa : Queen's Printer, 1961), pp. 118-19.

Why Nova Scotia is a Low-Income Province 11

1

funds i n Nov a Scotia 43 fo r firm s whic h ca n mak e goo d us e o f them , although ther e ma y b e importan t shortage s o f particula r kind s o f capital. Larg e establishe d firm s ca n generall y rel y upo n internally generated capita l fund s o r upo n well-establishe d line s o f credi t fro m banks an d othe r financia l institutions . The y als o hav e th e organize d security markets available to them. Banks suppl y mainl y workin g capita l t o firm s o f al l size s bu t als o some medium-ter m capital . Ne w firms , o f course , hav e greate r diffi culty getting capita l than well-establishe d firms, because o f the greate r risk; an d smal l and medium-siz e firms have mor e difficult y tha n larg e firms, because fund s fro m insuranc e and loa n companie s an d fro m th e organized securitie s markets are generally not availabl e to them. Some equity capita l i s availabl e t o bot h smal l and larg e firms fro m privat e individuals; bu t th e proble m o f obtainin g equit y capita l i s a seriou s impediment t o th e developmen t o f som e o f th e smal l firm s tha t characterize much of Nova Scotian industry. Failure t o obtain sufficien t equity capita l ma y inhibi t th e establishmen t o r growt h o f a firm , o r force i t t o rely to o heavily upon borrowed fund s an d s o commit itself to cripplin g fixe d interes t charges . Professo r Cairncros s suggest s a s a partial solutio n tha t publi c lendin g agencie s suc h a s th e Industria l Development Ban k provid e equit y capita l mor e freel y tha n the y ar e presently inclined to do.44 It appear s tha t th e principa l gap s fo r smal l and medium-siz e firms are fo r equit y capital , medium-ter m credi t secure d b y chatte l mort gages, an d long-ter m credi t fo r purchas e o f plant . Thes e gap s ar e i n part fille d b y th e federa l government' s Industria l Developmen t Ban k (an agenc y o f th e Ban k of Canada ) an d th e provincia l government' s Industrial Estate s Limite d an d Industria l Loa n Board , an d th e pro vincial government' s powe r t o len d directl y t o busines s unde r th e Industrial Developmen t Act . Th e Industria l Developmen t Ban k an d the Industrial Loa n Board will supply medium- and longer-term credi t to enterprises considere d to o risky by privat e supplier s o f credit. Bot h institutions supply mainly loan capital ( usually secured b y mortgage s ) and require that th e applican t hav e a minimu m amount of the capita l required fo r th e enterpris e (5 0 pe r cen t i n th e cas e of the Industria l Loan Board) , althoug h th e Industria l Developmen t Ban k sometimes takes a n equit y positio n a s well . Industria l Estate s Limite d ha s wid e 43

Much o f th e materia l on th e availabilit y of capita l i n thi s sectio n is base d o n information obtaine d fro m a stud y mad e fo r th e Governmen t o f Nov a Scotia , Department of Trade and Industry. 44 A. K. Cairncross, Economic Development and the Atlantic Provinces ( Fredericton: Atlantic Provinces Research Board, 1961), pp. 143-4 .

112

Fiscal Adjustment and Economic Development

power, bu t basicall y i t provide s complet e financin g o f building s b y designing an d constructin g the m fo r suitabl e applicants . I t ca n als o lend mone y o n equipment . I t offer s financia l inducement s i n it s rental term s o n building s an d ca n mak e special ta x deal s wit h loca l authorities, th e patter n apparentl y being a ta x o f one pe r cen t o f th e cost o f constructio n o f the building , whic h i s considerabl y belo w th e ordinary rate s o f al l Nov a Scotia n municipalities . Thi s specia l ta x treatment is limited to a period of ten years. In th e fiel d o f agriculture , Nov a Scotia' s Roya l Commissio n o n Rural Credi t reporte d i n 195 7 tha t th e suppl y o f short-ter m credi t from privat e source s an d o f medium-ter m credi t provide d b y th e chartered bank s unde r th e Federa l Far m Improvemen t Loan s Ac t was adequate . However , i t fel t tha t th e suppl y o f long-ter m credit , which i s mainl y provide d b y federa l an d provincia l governmenta l agencies, shoul d b e improved , principall y b y som e consolidatio n o f federal an d provincia l lendin g agencies , b y th e increas e o f the maxi mum amount s o f loans , an d b y increasin g th e maximu m ag e o f borrowers b y which loans must be repaid, fro m 6 1 to 66 years.45 Since the commissio n made its report, bot h the federal government, throug h its Far m Credi t Corporatio n whic h replace d th e Far m Loa n Boar d in 1959, an d the provincial government, through it s Farm Loa n Settle ment Board , hav e substantiall y increase d th e siz e o f loan s the y wil l make to farmers. Loans have increased notabl y i n response to the new policies whic h shoul d enabl e farmer s t o expan d th e siz e o f thei r enterprises and to make them more profitable.46 Special capita l ai d fo r th e fishin g industr y i n th e for m o f subsidie s and loan s i s available , unde r a variet y o f federa l an d provincia l measures, for the acquisitio n of boats and other fishing equipment an d for th e constructio n and modernizatio n o f cold storag e and processin g plants.47 Hand i n hand wit h th e questio n o f the amoun t an d kinds of capita l 4B Government of Nova Scotia, Report of the Royal Commission on Rural Credit, chap. v. 46 Government of Nova Scotia, Department of Agriculture and Marketing. 47 A fisherman buying a longliner (a versatil e boat abou t 50-60 fee t i n length , which can be use d for offshor e fishing ) costin g $35,000 , ca n ge t a federal subsidy of abou t $9,00 0 (a t $16 5 pe r ton) , a provincia l loan o f $19,700 , an d suppl y a down paymen t o f onl y $6,30 0 fo r th e balance . Th e federa l governmen t ha s announced a ne w polic y o f payin g subsidie s o n larg e boats of $16 5 t o $25 0 pe r gross to n o n boat s 45 fee t an d over . This will probabl y have considerabl e effec t in stimulatin g the constructio n of trawlers. (Governmen t o f Nov a Scotia , Depart ment of Trade and Industry, Fisheries Division. ) Th e longline r is so-called because of th e lon g fishing lines it draw s behind it. Thes e line s hav e baited hook s space d along them and are drawn in by a powered winch.

Why Nova Scotia is a Low-Income Province 11

3

available goe s th e questio n o f the cos t o f capital. Ther e i s no indica tion known to the write r tha t th e cos t of capital i s any higher i n Nova Scotia tha n elsewher e i n Canad a fo r investment s o f comparabl e risk . In Canada' s nation-wid e branc h bankin g system , policie s regardin g interest rate s ar e generall y uniforml y applied throughou t th e countr y and are limited by the Bank Act. The other privat e lendin g institution s in Canad a ar e sufficientl y attune d t o rat e differential s t o eliminat e them quickly by competition. Rates on loans made by federal agencies , such a s th e Industria l Developmen t Ban k an d unde r th e Canadia n Farm Loa n Ac t an d th e Far m Improvement s Loan s Act, ar e applie d uniformly throughou t th e country . Loan s b y provincia l lendin g agen cies ar e mad e a t lowe r rate s tha n coul d b e obtaine d fro m privat e lenders. It appear s tha t althoug h ther e ar e som e types o f loan s whic h ar e not a s readily availabl e a s circumstances warran t (a s i s probably th e case i n mos t provinces ) ther e i s n o genera l shortag e i n th e suppl y of capita l suc h a s migh t accoun t fo r it s muc h smalle r applicatio n i n Nova Scoti a than i n the countr y as a whole. It s smalle r applicatio n i s mainly du e to the more limited opportunitie s t o use it profitably , that is, to the province's inferio r resources.48 THE US E OF ITS RESOURCES

The subjec t o f this sectio n is large enough fo r several majo r studies ; all that ca n b e attempte d her e i s som e generalizations , base d partl y on informed opinion, which will suggest the type s o f economic adjustment desirabl e i n Nov a Scotia. Th e metho d followe d is, in th e main , in the nature of partial equilibriu m analysi s in that a n attempt i s made to determine wha t economic adjustments should tak e place withi n th e province, o n th e assumptio n tha t th e provincia l econom y i s a t leas t tending toward s adjustmen t with th e outsid e world , particularl y wit h the rest of the country. Agriculture Agricultural resource s i n Nov a Scotia ar e use d les s effectivel y tha n they coul d b e principall y becaus e o f the smal l size o f the farms , an d the lo w rati o o f improved lan d t o tota l far m area . I n 195 6 th e tota l 48

These conclusion s b y an d larg e correspon d with thos e reached b y Professo r Cairncross i n hi s repor t (Economic Development and the Atlantic Provinces) t o the Atlantic Provinces Research Board, passim, and with those in F. E . Lounsbury , Financing Industrial Development in the Atlantic Provinces ( Halifax an d Frederic ton: Atlanti c Provinces Research Board, 1960), passim. The discussio n is far more thorough in these two studies than here.

114

Fiscal Adjustment and Economic Development

area o f far m lan d i n Nov a Scoti a wa s 2,775,64 2 acre s o f whic h onl y 629,874 acre s (22. 7 pe r cent ) wer e improved . Woodlan d accounte d for 1,566,07 1 acre s (56. 4 pe r cent ) an d othe r lan d th e remainin g 579,697 acre s (20. 9 per cent). 49 Th e averag e are a o f the 21,07 5 occupied farms i n that tha t year was 131.7 acre s an d th e averag e improve d area 29. 9 acres . Ninet y per cen t o f th e farm s ha d les s tha n 7 0 acre s of improve d lan d an d onl y .7 per cen t o f them ha d 18 0 or more acres of improved land.50 As previously noted, in 1951 , 7 2 per cen t o f the farm s i n Nov a Scotia sold products o f a gros s value of less than $1,200. 51 Even allowin g fo r the fac t tha t 22. 8 per cen t o f occupied farm s wer e part-tim e farm s i n that yea r (no t all of which would be amon g the 7 2 per cent) , the lo w returns ar e stil l ver y striking . Th e uneconomica l aspect s o f Nov a Scotian farm s ste m fro m th e day s o f th e self-sufficin g rura l econom y which prevaile d whe n th e farm s wer e settle d (man y o f the m befor e 1815). Nearnes s t o market s wa s no t the n a factor . Nor , o f course , was th e suitabilit y o f th e lan d fo r th e us e o f agricultura l machiner y important a t tha t time . As the nee d fo r cas h incom e increased an d a s the competitio n o f better-place d producer s i n centra l an d wester n Canada becam e keen , farm s wer e abandoned . Th e tota l far m are a in Nov a Scotia i s now less than half wha t i t wa s at it s pea k i n 1891. 52 Even ove r th e fairl y shor t period , 1941-56 , th e numbe r o f occupie d farms i n Nov a Scotia fell abou t 24 per cent. 53 Clearly , ther e has bee n considerable adjustmen t by mean s of migration fro m farms . An d ove r the pas t 3 5 years there ha s bee n som e increase i n th e averag e siz e of farms (99. 6 acres in 1921 to 131.7 i n 1956) an d i n the are a of improved land pe r far m (20. 9 acres i n 192 1 t o 29. 9 in 1956). 54 Th e Roya l Commission on Rural Credit observes: The statistics clearly sho w . . . that th e upward trend [i n improved land per farm ] ha s not bee n great in Nov a Scoti a and tha t th e are a o f improved farm lan d is the smalles t of any o f the province s except Newfoundland. Th e 49 Census of Canada, 1956, Bulleti n 2-11, calculated from Tabl e 15. so/foid., calculated from Tabl e 8. 51 Drummond and Mackenzie, Progress and Prospects, p. 154. 52 Report of the Royal Commission on Rural Credit, p. 8 . S3 Ibid. Calculate d fro m pp . 11-12 , usin g th e commission' s adjustmen t i n th e figure fo r th e numbe r o f farm s i n 194 1 for th e change d definitio n o f "farm " firs t used in the 195 1 census. ^These increase s ar e somewha t exaggerate d becaus e o f th e chang e i n th e definition o f a "farm " introduce d i n th e 195 1 census . Ther e wa s a decreas e i n the averag e far m siz e fro m 195 1 t o 195 6 fro m 135. 0 t o 131. 7 acre s an d a n increase i n are a o f improve d lan d pe r far m fro m 28. 0 per cen t t o 29. 9 per cent . (Ibid., pp . 13-14 . Th e averag e far m siz e wa s take n fro m th e Census of Canada, 1956, Bulletin 2-3, Table 1.)

Why Nova Scotia is a Low-Income Province 11

5

Nova Scoti a figur e i s onl y one-thir d tha t o f Ontari o an d slightl y less than one-sixth tha t o f Canada . Th e relativ e smallnes s o f th e are a o f improve d land pe r far m i n Nov a Scoti a present s problem s i n connectio n wit h th e development o f certai n lines , such a s th e productio n o f bee f whic h tend s to requir e relativel y larg e acreages , an d als o contribute s t o th e greate r reliance o f man y farmer s o n th e utilizatio n o f thei r woodlot s a s a mean s of augmentin g farm income. 55 Although muc h o f th e farmlan d abandone d i s mor e suitabl e fo r forestry tha n fo r agricultura l use, some o f it i s quit e goo d lan d whic h should b e consolidate d int o larger , mor e economica l units . Unfortunately, consolidatio n i s mad e difficul t becaus e abandone d farm s ar e scattered, becaus e o f absente e owner s wh o ar e unwillin g t o sell , an d by th e obscurit y an d multipl e ownershi p o f man y titles. Th e ol d ag e pension, whic h enable s ol d peopl e t o liv e o n thei r farm s afte r the y have cease d t o work them actively, also leads t o a lower averag e far m income an d impede s consolidation . (I t i s no t suggeste d tha t thes e consequences constitut e a n argumen t agains t payment o f th e ol d ag e pensions. ) Table XXXI shows the relative importance of different far m product s in contributin g t o cash income. Dair y products, animals , poultry , eggs , and forest products are the big earners. Th e woodlots brin g i n a much smaller proportio n o f cas h incom e tha n the y bea r t o tota l far m are a (see "fores t products") , bu t the y ar e a sourc e o f extr a incom e an d provide off-seaso n wor k fo r th e farmer s o n thei r ow n land . I t i s generally agree d tha t improvement s i n woodlo t managemen t woul d increase farmers ' incomes a s wel l a s permi t expansio n o f th e forestr y industry. Much of the part-tim e farming is carried o n by fishermen. If the fishing industr y wa s mor e highl y rationalize d an d i f th e fishin g popula tion wa s forme d int o a smalle r numbe r o f large r communities , ther e would b e large r markets fo r far m produc e whic h coul d b e mor e economically supplied . Subsistenc e operation s i n fishing , farming , an d logging, an d frequentl y i n a combinatio n o f al l three , ar e n o doub t responsible i n larg e part fo r th e lo w averag e income s i n Nov a Scoti a and th e othe r Atlanti c Provinces . Th e Roya l Commission on Canada' s Economic Prospects in its report observed: In 1955 , th e averag e incom e fo r th e Atlanti c Provinces , includin g Newfoundland, wa s 3 7 pe r cen t belo w th e averag e fo r th e othe r si x provinces. . . . In 195 5 income pe r famil y fo r the Atlanti c Province s wa s 31 per cen t below th e averag e o f th e othe r si x provinces, compare d wit h a disparit y of 37 per cen t o n a per capit a basis . . .. I n 1955 , averag e famil y income s of 55

Report of the Royal Commission on Rural Credit, p. 14 .

116 Fisco

î Adjustment and Economic Development TABLE XXX I

CASH INCOME FROM THE SAL E O F FAR M PRODUCTS AND NET INCOME OF FARM OPERATORS FROM FARMING OPERATIONS FOR NOV A SCOTIA, 1959

% distribution (S'OOO) o f cash incom e Oats 5 Potatoes 90 Vegetables 1,50 Fruits 1,99 TOTAL CROP S 4,45

1. 9 2. 4 3. 1 4. 51

Cattle an d calves 7,50 Hogs 2,60 Sheep and lambs 41

1 17. 0 6. 61

5 0 .0

Dairy product s 12,68 Poultry 3,34 Eggs 7,56 Miscellaneous farm product s 1,09

3 30. 0 7. 7 17. 8 2.

0 8 6 6

TOTAL LIVESTOCK 10,51

TOTAL LIVESTOCK AND PRODUCTS 35,38

Forest products 3,10

TOTAL CAS H INCOM E FRO M SAL E O F FARM PRODUCT S 42,94

7 24.

58

5

2 .5

1 7.

2

1 100.

0

Income in kind (includin g house rent)0 10,85 Value of inventory change —46 GROSS INCOM E 53,33

6 0 7

Operating and depreciation charges 38,70

6

TOTAL NE T INCOME 14,63

1 1 5 6 0 .3

1

SOURCE: Governmen t of Nov a Scotia , Annual Report of the Department of Agriculture and Marketing, for th e yea r ende d Marc h 31 , 196 0 (Halifax: Queen' s Printer , 1960) , Table s 1 , 2, an d 4 . "Composition o f incom e in kin d (S'OOO) : dair y product s ($1,721) , poultry an d egg s ($923) , mea t ($603) , frui t an d vegetable s ($2,191) , honey and maple products ($9), forest products ($1,357), othe r product s ($11), hous e rent ($4,041) . people livin g i n metropolita n centre s i n th e thre e Maritim e Province s wer e only abou t 1 5 per cen t belo w thos e o f th e averag e famil y income s o f cit y dwellers in the rest of Canada. (Th e corresponding figure for Newfoundlan d was 2 5 per cent.) . . . The greates t difference s i n averag e income s occu r among rura l families . Peopl e wit h lo w incomes wh o ar e engage d i n subsis tence farmin g combine d wit h par t tim e fishin g an d loggin g exis t i n ever y province but the y ar e foun d mor e commonl y i n the Atlanti c region. This i s one o f th e mai n reason s fo r th e continue d la g i n averag e income s pe r capita in that area as compared with other parts of Canada.56 86 Report of the Royal Commission on Canada's Economic Prospects, pp. 403-4 . In 195 6 th e tw o metropolita n area s o f Nov a Scoti a wer e Halifa x an a Sydney , which togethe r accounte d fo r 3 9 pe r cen t o f th e Province' s tota l population . (Census of Canada, 1956, Bulletin 3-2, Table 1; Bulletin 1-1 , Table 5.)

Why Nova Scotia is a Low-Income Province 11

7

Probably abou t th e mos t Nov a Scoti a coul d hop e fo r woul d b e t o supply its own needs for agricultural products o n a net basis . I t i s not likely that the Maritim e Provinces will become a major exportin g are a in agricultural commodities although the y are presently a surplus are a for potatoes , apples , an d blueberries . The y provid e thei r ow n requirements of eggs and o f some minor products suc h a s strawberries. The y import some milk and butter, an d production i s far short of the region' s requirements o f animal and usuall y of poultry meat. Nov a Scotia pro duces onl y abou t 35-4 0 pe r cen t o f it s re d meat. 67 I t ha s a n annua l deficiency o f abou t 175,00 0 hogs , 40,00 0 cattle , an d 30,00 0 calves. 58 There has been considerabl e expansio n in poultry productio n i n Nova Scotia i n recent years , based upo n federa l feed grai n subsidie s whic h are pai d o n freight charge s t o farmer s i n easter n Canad a an d Britis h Columbia. Since 1941, th e federal government has paid all but amount s varying fro m 5 0 cents t o 6 dollar s pe r to n o f th e freigh t charge s fo r feed grain s shippe d t o Nov a Scoti a fro m th e Pariri e Provinces . Th e average subsid y pe r to n ove r th e perio d October , 1941 , t o Februar y 28, 1957 , wa s $10.22 . Sinc e Marc h 1 , 1957 , i t ha s i n th e thre e fisca l years endin g i n 1959-6 0 average d ove r $15 . Nov a Scotia n producer s had bee n subsidize d t o th e exten t o f ove r $2 8 millio n o n ove r 2. 5 million tons of grain up t o the en d o f fiscal year 1959-60. 59 The resul t is that the y receiv e thei r fee d grai n fro m th e Prairi e Province s a t th e same cost as other producers in eastern Canad a receiving feed b y rail. One advantag e o f poultr y an d eg g productio n unde r Nov a Scotia n conditions (o f smal l farms) i s that ver y larg e operations ca n b e con ducted o n a few acre s o f land. Th e sam e can be sai d fo r hog produc tion i f i t i s base d upo n purchase d feed . A t presen t ther e ar e severa l very large , heavil y capitalized , poultr y operation s i n th e province . Grasslands an d forag e crop s grow n i n th e provinc e ar e suitabl e for bee f cattl e production , an d reclaime d marshland s are particularl y suitable fo r growing fodder crop s for livestock . Bu t her e th e proble m "E. P . Rei d an d J . M . Fitzpatrick , Atlantic Provinces Agriculture (Ottawa : Department of Agriculture, 1957), p. 31. 68 These estimate s wer e obtaine d directl y fro m Governmen t o f Nov a Scotia , Department of Agriculture and Marketing. 69 Department o f Agriculture , Fee d Grain s Administration , Sfaftsfica Z Information Relating to the Freight Assistance Policy for Eastern Canada and British Columbia, compile d o n basi s o f figure s availabl e u p t o Novembe r 30 , 195 8 (Ottawa, 1958) . Mor e recen t dat a wer e supplie d b y th e Departmen t o f Agri culture an d Marketing , of Nova Scotia . The subsidie s began largel y a s a wartim e measure to boost food production, but, a s is common wit h subsidies , they continue to b e pai d eve n thoug h th e condition s whic h prompte d the m ar e n o longe r present. A s a goo d dea l o f agricultura l production , especiall y o f eggs , poultry , and hogs , i s now dependent upo n them , the y ar e probabl y her e t o stay .

118

Fiscal Adjustment and Economic Development

of siz e of farm i s especially important . Fo r specializatio n i n the produc tion o f beef cattl e t o be profitable , a herd o f about 30-5 0 cattle woul d be required . Suc h a n operatio n woul d requir e abou t 25 0 acre s o f improved land. 60 I n 1956 , ther e wer e onl y 6 1 farm s wit h 24 0 acre s or mor e o f improved lan d i n Nov a Scotia, an d onl y 1 6 with 40 0 acre s or more.61 The large amount o f capital required fo r an operation of this size is also an obstacle . A t present mos t of the cattl e ar e produce d o n a smal l scale i n conjunctio n with a variet y o f othe r small-scal e opera tions. Sheep production i n most cases is an alternative t o cattle production. Th e provincia l governmen t i s presentl y developin g communit y pastures a s a mean s o f encouraging cattl e an d shee p production . Th e construction o f a ne w abattoi r i n Halifax , which cam e int o operatio n in 1960 , is encouraging livestock production t o a n eve n greate r exten t than wa s anticipated , bu t th e limitation s o n productio n discusse d above ca n b e onl y slowl y overcome , an d eve n the n th e competitio n of ver y efficientl y produce d an d hig h qualit y wester n mea t ha s t o be met. Apple productio n decline d considerabl y sinc e th e loss , afte r Worl d War II , o f most of the Unite d Kingdo m markets on which th e industr y once depende d ver y heavily , although i t ha s recentl y bee n increasin g slowly. The annua l output of just over 2 million bushels i s sufficien t t o supply th e domesti c deman d fo r fres h apples , th e deman d fo r apple s for processing , an d th e sli m foreig n deman d whic h remains. 62 Ther e has bee n som e improvemen t i n recen t year s i n th e growin g o f vege tables an d smal l fruits an d i n packagin g an d processing . Whil e ther e is furthe r scop e fo r expansio n an d specialization , th e tota l amoun t of agricultura l resource s require d t o suppl y th e availabl e market s i s quite small. The dair y industr y i s th e larges t singl e contributo r t o far m cas h income. Mos t dair y farm s ar e locate d nea r t o thei r market s i n town s and cities . Their productio n wil l likel y gro w with regiona l population . They too could benefit from a n increase in the siz e of farm. Experiments, beginnin g i n th e summe r o f 1958 , with th e growin g and curin g o f tobacco i n th e Annapoli s Valley have show n that goo d ^See Arthu r C . Parks , Beef and Beef Possibilities in the Atlantic Provinces (Halifax: Atlanti c Province s Economi c Council , 1957) , p . 4 ; an d Rei d an d Fitzpatrick, Atlantic Provinces Agriculture, p. 17 . On e exper t interviewed set th e minimum muc h higher . H e though t th e far m woul d hav e t o produc e 7 5 t o 8 0 head per yea r to be profitable i f beef cattle were the onl y major product. «Census of Canada, 1956, Bulletin 2-11, Tabl e 8. 62 Government o f Nov a Scotia , Departmen t o f Agricultur e an d Marketing . About two-thirds of Nov a Scotia' s apples are processe d and mor e than hal f o f th e processed apples are sold in central Canada. ( ibid. )

Why Nova Scotia is a Low-Income Province 11

9

grades of tobacco ca n be produce d o n some farmland in the province . As a resul t ther e migh t wel l b e som e movemen t int o producin g tha t quite profitable crop . The prescriptio n fo r improvemen t i n Nov a Scotia' s agricultura l industry i s th e abandonmen t o f unproductiv e farms , som e o f whic h are suite d onl y t o forestry ; th e consolidatio n o f farmlan d suitabl e fo r dairy farmin g and cattl e an d shee p raising ; increase d specializatio n i n the productio n o f vegetable s an d smal l fruits ; a n extensio n o f th e already favourabl e trend s i n poultry an d eg g production unti l market s are satisfied ; th e improvemen t an d extensio n o f th e us e o f woodlot s as a complementar y far m operation ; an d a n extensio n i n th e us e o f capital.63 The results woul d b e a rise i n farm income s an d a reductio n in far m population . Th e displace d populatio n woul d hav e t o mov e t o other occupation s i n Nov a Scoti a o r elsewhere . Th e foo d processin g industry which it is assumed would expan d with the anticipate d expan sion o f agricultura l productio n coul d b e a sourc e o f employmen t for a smal l par t o f th e displace d population . Th e development s sug gested wil l no t com e abou t easily , bu t the y shoul d nevertheles s b e encouraged a s a matter of public policy . Forestry Of th e foreste d lan d i n Nov a Scotia , th e Crow n own s abou t 2 2 pe r cent; approximatel y 20 0 privat e companie s an d individual s wit h holdings o f 1,000 acre s o r more own abou t 3 3 per cent ; nationa l park s and India n reserve s accoun t fo r about 3 per cent ; an d smal l woodlots , mostly owne d b y farmers , accoun t fo r th e balanc e o f abou t 4 2 pe r cent. Th e smal l portio n owne d b y th e Crown , compare d t o abou t 9 0 per cen t fo r al l o f Canada, 64 i s n o doub t largel y responsibl e fo r th e small scale of the loggin g and saw-millin g operations in the province. 65 It als o makes it mor e difficul t fo r th e provincia l governmen t t o foste r good conservatio n practices . Th e polic y o f th e provincia l governmen t 63 These suggestion s ar e i n genera l simila r t o thos e mad e i n Drummon d an d Mackenzie, Progress and Prospects, esp . pp . 157-60 . Possibl y a n expansio n i n hog raisin g base d o n th e fee d grai n subsid y woul d b e appropriat e t o Nov a Scotian conditions , sinc e th e siz e o f th e far m nee d no t b e large . Fanner s ar e being encouraged t o expand hog production to suppl y the ne w abattoi r a t Halifax . An increas e in th e siz e o f th e enterpris e is generall y desirabl e in othe r respects as wel l a s with respect to th e are a o f farms . Se e p. 142 , n . 11 0 fo r a referenc e t o the new Agricultural Rehabilitation and Development Act. ^Canada Year Book, 1957-8, p. 473 ; Canada Year Book, 1960, p. 517 . Thes e are very rough estimates. 65 The output of saw n lumbe r i n Nov a Scoti a pe r mil l reportin g was onl y about one-third tha t o f Canada in 1959 . Calculate d from D.B.S. , The Lumber Industry, 1959 (Ottawa : Queen's Printer, 1961), Tables 3, 7.

120

Fiscal Adjustment and Economic Development

of acquirin g forest land as favourable opportunities aris e is a wise one , although the speed of acquisition is bound to be slow. 66 In 1959 , lumbe r an d pulpwoo d accounte d fo r abou t 9 1 pe r cen t of Nov a Scotia's timbe r production. 67 Although in recent year s lumber has fa r exceede d pulpwoo d i n term s o f volume , a t th e processin g stages paper product s (includin g pulp) an d wood products hav e bee n of abou t equa l importanc e i n term s o f value adde d b y manufacture . In 1958 , thi s valu e wa s abou t $13. 4 millio n fo r pape r product s an d $12.7 millio n for wood products. 68 The developmen t o f the larg e ne w pulp mil l a t Poin t Tupper , i n th e easter n par t o f th e province , wil l greatly increase the absolute and relative importance of the productio n of pulpwood and o f the value of paper products. A recen t fores t inventor y o f Nov a Scotia , The Forest Resources of Nova Scotia, indicates tha t ther e ha s bee n a n overcuttin g o f sawlog s for man y years an d tha t a substantia l reductio n i n cuttin g o f sawlogs will b e necessar y i f the province' s fores t resource s ar e t o b e restore d to th e stat e wher e the y wil l permi t maximu m annual yields . O n th e other hand , the cuttin g of pulpwood an d pit prop s coul d b e sustaine d at a somewha t highe r leve l tha n a t presen t withou t reducin g stocks . What will likely happen wil l be a gradual decline in the sawmill industry and an expansion of the pulpwood industry. The new mill at Point Tupper will accelerate th e shift t o the produc tion o f pulpwood. On e advantag e o f concentratin g o n pulpwoo d pro duction i s that i t i s not necessar y to wait s o long to utiliz e ne w forest growth a s i n th e cas e o f sawlo g production, sinc e smal l tree s ca n b e used. Othe r advantage s ar e tha t th e marke t fo r pulpwoo d i s mor e stable tha n th e expor t marke t fo r saw n lumber , an d tha t moder n methods o f chemica l treatmen t o f pulpwoo d permi t almos t complet e utilization o f th e felle d tree s i n obtainin g woodpulp . A moder n chemical pul p mil l ca n us e hardwoo d an d eve n sick , decadent , an d insect-ridden wood . On e exper t o n th e province' s forestr y resources believes tha t i n th e nea r futur e th e valu e o f fores t product s wil l increase about 1 0 per cent , partly because of improved use of resources and partl y becaus e o f increase d yiel d o f pulpwood . H e als o believe s 66 Most o f thi s i s burnt-ove r o r cut-ove r land . Abou t 587,00 0 acre s wer e re conveyed t o th e Crow n t o Marc h 31 , 1960 . I n th e yea r endin g March 31 , 1960 , 26 parcel s o f lan d totallin g 6,34 7 acre s were reconveyed . (Governmen t o f Nov a Scotia, Annual Report of the Department of Lands and Forests, fo r th e fisca l year endin g Marc h 31 , 196 0 [Halifax : Queen' s Printer , 1960] , p . 22. ) «Tibia., p. 16. 68 D.B.S., The Manufacturing Industries of Canada, 1958. Section B . Atlantic Provinces (Ottawa : Queen's Printer, 1960), pp. 38-9.

Why Nova Scotia is a Low-Income Province 12

1

that th e yiel d ca n be double d ove r th e nex t 25-5 0 years. 69 Th e in creased yiel d depend s i n larg e par t o n the improvemen t of practices on farm woodlot s which, as already noted, accoun t for a large part of forest land . In the past thes e practices hav e been notoriousl y wasteful. The wast e ha s bee n du e t o ignoranc e abou t goo d woodlo t manage ment, and shortsightedness abetted b y property taxation policies whic h have encourage d strippin g o f woodlots. 70 Exper t opinio n ha s bee n given tha t prope r fores t managemen t o n a sustaine d yiel d basi s ca n be profitable even to the small woodlot owner.71 It appear s fro m thi s brie f discussio n tha t Nov a Scotia' s forestr y resources ar e not being use d t o best advantage : tha t they coul d yiel d larger return s wit h th e sam e amount of o r les s employmen t an d tha t some additiona l capital , especiall y i n th e for m o f a ne w pul p mill , could be profitably applied. If the consolidatio n of farms is accelerate d then s o also will be th e consolidatio n of woodlots, with th e likelihoo d that tota l incom e fro m woodlot s wil l b e considerabl y increased . I n general th e long-ru n potential o f the forestr y industry is quite favour able. Moreover, as the grea t tracts o f virgin forest in other part s of th e country becom e les s accessible , Nov a Scotia' s relativ e positio n a s a supplier o f pulpwoo d wil l improv e o n tha t account . Fisheries72

There i s considerable room for improvement in the wa y the fisheries resources are used both in primary fishing operations and in processing. With regard t o the slowness in the adoptio n o f improved techniques i n the fish-catchin g industry , the author s of one of the specia l studie s fo r the Roya l Commissio n o n Canada' s Economi c Prospect s (Gordo n Commission), The Commercial Fisheries of Canada, cite th e exampl e of th e long-standin g governmen t restrictio n o n th e us e o f dragger s on the Atlanti c coas t i n response to th e pressur e o f inshore fisherme n 69 Information obtaine d i n a confidentia l intervie w an d letter . Th e deput y minister o f Land s and Forest s has state d that th e valu e o f outpu t of th e industr y could eve n b e treble d withi n a fe w years , wit h prope r care , conservation , an d education. (Halifax Chronicle-Herald, Februar y 27, 1959.) 70 For a goo d discussio n o f th e harmfu l effect s o f propert y taxation policie s o n the managemen t o f th e Province' s forest s an d o n municipa l finances , se e A . Milton Moore , Forestry Tenures and Taxes in Canada (Ta x Papers , No . 11 ; Toronto: Canadia n Tax Foundation, 1957), pp. 82-3 ; an d th e appendi x to chap , xvi b y R . S . Johnson, "Th e Fores t Ta x Situatio n in Nov a Scoti a an d a Proposed Remedy." "Confidential letter to the writer. 72 This sectio n i s base d partl y upon confidentia l interview s with peopl e i n th e province who are well acquainted with the fishing industry.

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who wer e concerne d abou t th e los s o f thei r livelihood . Th e author s observe further: As a highl y efficien t instrumen t o f production , beyon d thei r mean s t o acquire, the dragge r seemed to undermine the stabilit y of their [th e inshor e fishermen's] sale s outlets . I n respons e t o thi s opposition , draggin g opera tions wer e place d unde r restriction s that , wit h greate r o r les s severity , persisted fo r man y years . Th e purpos e appears to hav e been t o retai n th e largest possibl e labour forc e i n th e fishin g industry . The effect , however , was t o retar d th e growt h o f productivit y and, consequently, of individual incomes i n thi s industry . Th e ultimat e result , therefore , woul d b e th e reverse o f tha t intended . Misguide d polic y o f thi s natur e i s a commo n affliction o f the fishin g industry. 73 Recent year s hav e see n a pronounce d swin g t o th e us e o f mor e efficient an d large r boats , especiall y dragger s an d th e increasingl y popular longliners . The y hav e considerabl e advantage s ove r th e smal l boats o f the inshor e fishermen in that they ca n go to wher e th e fishing is bes t a t an y particular time , the y ca n b e equippe d wit h rada r an d electronic fish-finding apparatus, the y can fish in rougher weathe r an d therefore fo r more day s i n the year , an d the y ar e mor e efficien t i n th e actual catching of fish. The resul t i s a larger retur n t o both labour an d capital. Sinc e the y hav e a greate r rang e an d sinc e the y ca n operat e during most o f the year , the y ca n assur e a more regular suppl y o f fish to the fish plants. More regular employment result s i n both the primar y catching and the processing industries . Anothe r resul t is that processin g operations ca n b e concentrate d i n a fe w large r an d mor e efficien t plants.74 ^Commercial Fisheries of Canada, pp . 4-5 . A dragge r i s a motor-powere d boat, abou t 50-7 0 fee t i n length , whic h catche s fis h i n net s dragge d alon g th e ocean floo r (a s contraste d wit h th e ol d schooner s whic h carrie d smal l dorie s from whic h the fishermen fished with baited lines) . A dragger carrie s abou t 6 men. Trawlers ar e abou t 85-10 0 fee t i n length . The y als o use nets , an d carr y abou t 1 8 men. Ulbid., esp . chap. v . Se e John Proskie , "Operation s o f Moder n Longliner s an d Draggers Atlanti c Seaboar d 1952-1957, " Primary Industry Studies, no . 1 , vol. 7, part 1 (Economic s Service , Departmen t o f Fisherie s o f Canada ; Ottawa : Queen' s Printer, 1959) , passim, for a n excellen t analysi s o f th e experienc e wit h dragger s and longliners . Wher e th e siz e an d typ e o f th e vesse l ar e well-adapte d t o th e types o f fishin g operation s an d wher e th e vesse l i s use d skilfull y an d wit h a n awareness o f cost-revenu e relationships , return s t o capita l hav e bee n sufficien t to justify th e investment and the return s t o labour hav e compare d favourabl y with those in alternativ e occupations. Ther e hav e been a numbe r of instances , however, where th e abov e condition s hav e no t bee n met , and wher e th e operatio n o f th e vessels ha s therefor e no t bee n profitable . Se e also , b y th e sam e author , "A n Appraisal o f th e Atlanti c Fishin g Craf t Modernizatio n Programm e an d th e Otte r Trawling Fleet " (Economic s Service , Departmen t o f Fisheries ; Ottawa : 1960) , passim.

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Experience i n Britis h Columbia , wher e th e industr y i s muc h mor e heavily capitalize d tha n i n th e Atlanti c Provinces , an d i n th e mor e heavily capitalize d part s o f th e industr y i n Nov a Scoti a show s tha t good returns ca n be ha d fro m efficien t operations . In Britis h Columbi a the averag e annua l incom e o f salmo n fisherme n fro m al l source s i n 1954 wa s $3,056 , onl y on e dolla r les s than th e averag e earning s of al l paid worker s in the Canadia n labou r force . The skippe r o f an Atlantic Coast dragge r migh t mak e $5,00 0 whil e a n inshor e fisherma n wit h a small boat might make only a few hundred dollars. 75 In 1956, of 14,379 fishermen in Nov a Scotia, only 944 (6. 6 per cent ) worked on draggers and trawlers; 2,762 (19.3 per cent ) o n other vessels of 10-4 0 tons; an d 9,94 7 (69. 4 per cent ) o n smal l inshore boats . Th e balance o f 72 6 (5. 1 pe r cent ) worke d o n carrying smacks , o r fishe d without boats . Thes e figure s indicat e tha t ther e i s stil l roo m fo r a great dea l o f adjustment in the fishin g operations . I n 1955 , fo r al l five provinces wit h fishin g operation s o n th e Atlanti c coast , ove r 5 0 pe r cent o f th e tota l catc h b y weigh t wa s lande d b y trawlers , draggers , schooners, an d longliners , which carrie d onl y about 2 0 per cen t o f th e fishermen.76 Th e compariso n woul d likel y b e eve n mor e strikin g fo r Nova Scotia alone , since its fishing operations ar e mor e heavily capita lized and more progressive than those of the othe r Atlantic Provinces. 77 Although th e us e o f large r boat s ha s produce d som e tendenc y fo r the catchin g an d processin g industrie s t o concentrat e a t a fe w large centres, ther e ar e stil l numerou s fishing villages scattere d aroun d th e province. Many of these villages are quite isolated, wit h few alternative occupations to fishing and few social amenities. There would appea r t o be muc h meri t i n th e concentratio n o f fishin g familie s i n a smalle r number o f large r communities . Suc h amalgamatio n woul d facilitat e the us e o f larger boat s an d o f larger, mor e efficient , processin g plants ; and th e wide r rang e o f employmen t opportunitie s o f a large r centr e would alleviat e th e underemploymen t o f labou r whic h prevail s i n many villages. Amalgamation would als o reduce th e wastefu l erectio n and maintenanc e of wharves i n th e man y small villages, t o whic h th e federal governmen t i s presentl y committed . Th e release d fund s isCommercial Fisheries of Canada, pp. 112 , 124 . ^Calculated fro m D.B.S. , Fisheries Statistics of Canada, 1956, Nova Scotia (Ottawa: Queen' s Printer , 1958) , Tabl e 5 ; an d D.B.S. , Fisheries Statistics of Canada, 1955 (Ottawa : Queen' s Printer , 1958) , Table s 5 an d 7 . Quebe c i s th e fifth province . Dat a fo r numbe r o f me n workin g o n differen t type s o f vesse l are not given in later editions . 77 The amoun t of fish landed i n term s o f ton s pe r ma n pe r yea r i n Nov a Scoti a has increase d fro m 9 ton s i n 194 1 t o abou t 1 8 ton s i n 1958 . (Governmen t of Nova Scotia, Department o f Trade and Industry . )

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could b e use d t o muc h bette r effec t t o suppl y som e o f th e larg e amounts o f capita l require d t o increas e th e productivit y o f th e industry, an d socia l capita l suc h a s roads an d school s coul d b e mor e economically provided.78 Cogent thoug h thes e argument s are , th e stron g attachmen t o f fishermen to thei r village s i s an inhibitin g forc e t o b e reckone d with . The experience s a t Louisbur g an d Peti t d e Grat , wher e larg e ne w processing plant s hav e been established sinc e th e Secon d World War , underline th e difficultie s o f inducin g people t o move . The Louisbur g plant faile d t o attrac t th e fishermen and goo d labou r forc e i t hope d for. As a result som e retrenchment an d consolidatio n have bee n neces sary. At Petit d e Gra t the plan t employee s are commutin g fro m som e distance rather than moving into the village. In time they might move; but thei r reluctance t o do so is illustrated b y the plaintiv e word s of an old Newfoundlande r who wanted t o retur n t o th e villag e hi s govern ment had induce d th e inhabitant s t o abandon: "Wh o will take car e of the cemetery?" Furthermore, th e flexibility of the longliner does enable a fisherman to live i n a smal l village an d ye t marke t his catc h a t fish plants i n larger centres . H e ca n radio t o a number o f plants an d pic k the on e offerin g th e bes t pric e eve n thoug h i t ma y b e fa r fro m hi s "home port. " Where smal l boats whic h canno t fis h i n th e winte r ar e stall used, unemployment insurance and famil y allowance s carr y many of th e fisherme n ove r the winte r an d wil l prolong the lif e o f the smal l communities. Thirty dollar s pe r month , say , i n on e o f thes e villages , where the fisherman owns his own home, will go further tha n one hundred dollar s in Halifax. Small-scal e subsistence farming i n conjunctio n with fishin g i s ver y commo n where th e qualit y o f th e soi l permits i t and help s th e peopl e t o ge t along. 79 Moreover , eve n i f fisherme n ar e unwilling t o mov e t o large r centres , muc h ca n stil l b e an d i s bein g done, a s a secon d bes t alternative , b y improvin g equipmen t an d organization, t o rais e income s i n th e smal l villages , a s successfu l attempts in a few of them have demonstrated. One of the problem s in introducing larger boats is the unwillingnes s 78 One perso n well-acquainte d wit h th e industr y sai d tha t man y o f th e smal l places ar e doome d becaus e facilitie s suc h a s freezin g plants , col d storag e plants , electricity, a goo d wate r supply , an d goo d roads , al l o f whic h are essentia l t o th e modern fishin g industry , canno t b e economicall y provided i n a smal l community . He adde d a s an illustratio n tha t eas t o f Port Bickerto n a dozen communities , wit h about 30-4 0 fishermen each, ar e tryin g to ek e ou t a living , whereas ther e i s room for onl y abou t tw o centre s wit h goo d harbou r facilities , whic h coul d sustai n communities of about 1,20 0 t o 1,50 0 peopl e wit h goo d roads and wit h col d storag e and othe r facilities . ( Interview. ) 79 The last three sentences are based upon a personal interview .

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of th e fisherme n i n man y section s o f th e provinc e t o sta y awa y fro m port fo r man y days . A s a result , man y o f th e fisherme n o n trawler s and draggers are Newfoundlanders. The longliner, or some similar craft, may turn ou t to be the main instrument for revolutionizing th e catch ing industry . Also , this sor t o f boat appeal s mor e to th e independen t character o f th e Nov a Scotia n fisherman . A competen t skippe r wit h the financia l ai d mentione d earlie r ca n acquir e hi s ow n vessel ; an d the better working conditions on a longliner tha n o n a small boat, and the greater net earnings it makes possible, mak e fishermen's sons aspire to become skipper-owners. 80 It i s not argue d her e tha t inshor e fishing should b e abandoned . Fa r from it . Th e valuabl e lobste r fishery , fo r example , is dependen t upo n inshore operations . I t i s wher e fishin g fro m th e large r vessel s i s a more profitable substitute fo r fishing from smal l boats that the chang e should be encouraged. The Gordo n Commission study conclude s tha t increased capita l pe r man i n th e primar y fishin g industr y shoul d b e accompanie d b y a reduction i n th e numbe r o f fisherme n employed . I t envisage s "a n increase i n investmen t pe r fisherma n rathe r tha n a n increas e i n over all capital."81 In suppor t o f these view s i t point s t o the smal l increas e in th e landing s whic h th e resource s wil l sustai n an d t o th e underemployment of labour currently in the industry's labour force. 82 To a considerabl e exten t th e futur e o f th e industr y i s dependen t upon America n markets whic h i n tur n depen d upo n America n tarif f policy. I n 195 8 tota l Canadia n production o f al l fishery products wa s about $231 million, total exports were $152 million, and export s to th e United State s wer e $10 2 millio n (4 4 per cen t o f total productio n an d 67 per cen t o f tota l exports). 83 Tarif f polic y i s especiall y relevan t t o the degre e o f processin g whic h ca n tak e plac e i n Canadia n plants . At present , fo r example , th e highe r tariff o n pre-cooke d froze n fis h sticks tha n o n th e froze n fis h block s fro m whic h th e fis h stick s ar e made permits the expor t of the block s but no t o f the sticks . A lowering of th e tarif f o n fish sticks would permi t furthe r processin g in Canada . An increas e i n th e tarif f o n fis h block s woul d reduc e th e exten t t o 80 The longline r ca n b e use d fo r catchin g groun d fis h lik e co d an d haddock , on the banks , o r elsewhere; for catchin g halibut, which must b e followe d around ; for draggin g fo r dee p se a scallops ; fo r draggin g smoot h bottom s fo r high-priced flat fis h (a n operatio n ne w t o th e province , known a s "Danis h seining") ; an d for swordfishing . Swordfishin g i s no t onl y profitable , bu t i s a sourc e o f excite ment and recreation to the fisherman, like deer hunting to the farmer . sl Commercial Fisheries of Canada, p. 117 .

sajbid., pp. 124-5.

^Canada Year Book, 1960, pp. 644, 1031.

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which eve n tha t produc t coul d b e sol d t o th e Unite d States . A s one observer pointe d out, 84 the fishing industry in Nova Scotia characteris tically depend s o n a large volum e of fish with smal l margins of profit . Consequently, an y drasti c upwar d movemen t of tariff s b y th e Unite d States woul d quickl y clos e th e les s efficien t plant s an d cu t int o fishermen's alread y lo w incomes . Rationalizatio n i s therefor e al l th e mor e important, to develop a more resilient industry. It would seem, moreover, that, within the limits imposed by markets, it is in the Nova Scotian industry's interest to concentrate o n producing high-value fis h products . Suc h a tren d ha s bee n ver y pronounce d i n recent year s i n th e swin g fro m low-value , salte d fis h t o th e higher value fres h an d froze n forms . Greate r emphasi s o n marketin g fres h and froze n lobste r an d les s on marketing the somewha t less palatabl e canned lobster would also seem to be desirable . The part-tim e natur e o f much of the fishin g industry , a s i n th e cas e of farmin g an d logging , i s n o doub t partl y responsibl e fo r th e lo w average productivit y i n th e industry . Th e amoun t o f capita l use d i n part-time fishin g i s generally ver y small. The commo n situation i s fo r the part-tim e activitie s i n al l thre e industrie s t o b e quit e primitive . This i s no t t o sa y tha t part-tim e occupation s ar e necessaril y undesir able. Properl y co-ordinate d the y ca n provid e mor e sustaine d us e o f the rura l labou r forc e and highe r averag e earning s than woul d other wise be possibl e in suc h highly seasonal industries a s farming, fishing, and logging . Bu t a greate r degre e o f specializatio n tha n a t presen t should b e possible , wit h concomitan t improvement s i n th e us e o f capital and in earnings. This discussio n indicates tha t ther e i s much room for improvement in th e us e o f the province' s fisherie s resources—tha t a n increas e i n th e use o f capital per ma n combine d wit h a reduction o f the labou r forc e could substantiall y rais e th e earning s o f those remaining i n th e indus try, with some increase in production. The prescription s fo r adjustment s i n agriculture , forestry , an d fishing are simila r in that they cal l for higher ratio s o f capital per ma n without sufficien t expansio n of production t o absor b al l o f th e labou r force presentl y i n thes e sectors . A s thes e adjustment s ar e graduall y made, improvements in income in the primar y and primar y processing sectors wil l wide n th e bas e fo r th e res t o f th e provincia l economy , so that a larg e par t o f th e populatio n tha t move s ou t o f th e primar y industries wil l fin d employmen t i n manufacturin g geared mainl y t o the provincia l an d regiona l markets, in distributin g th e large r volume ^In a letter to the writer.

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of primar y products , i n construction , i n retailing , an d i n th e othe r service industries . Mining A good deal has already been said about Nova Scotia's mining industry, in particular abou t its dominatio n by high-cost coa l mining whic h is sustained a t the present leve l of output onl y by large federal freight subventions designe d t o permi t th e coa l t o ente r centra l Canadia n markets in competition with low-cost American coal. In 196 0 Nova Scotia produce d 4,567,00 0 shor t ton s o f coal , 5 2 pe r cent o f which was shipped t o othe r provinces. Al l of the rest , excep t a very smal l quantit y exporte d t o othe r countrie s (les s tha n on e pe r cent), was used locally . Quebe c take s abou t a third o f total output. 88 Until recently , th e maximu m subvention wa s $4.5 0 pe r to n fo r Nov a Scotian coa l movin g int o th e subventio n are a (wester n Quebe c an d Ontario) b y rail, $3.00 per to n by water, an d $5.2 5 per to n by rail an d water. A graduated rat e wa s paid , u p t o th e maxima , ranging fro m 25 per cen t t o 6 0 per cen t o f freight rate s dependin g o n the distanc e the coa l wa s moved. In severa l recen t year s th e subventio n o n Nova Scotian coal has been over $8 million annually and usuall y over $3 per ton o f coa l move d unde r subvention. 86 Becaus e o f sever e marketin g difficulties whic h hav e been worldwide , an d whic h require d lon g layoffs o f man y miners , th e federa l governmen t i n 195 9 announce d a n additional emergenc y freigh t subventio n o f $4,340,00 0 fo r th e fisca l year 1959-60 , th e provincia l governmen t to pa y u p t o $500,00 0 o f it . It wa s designed to sell 700,000 tons in new markets in Ontario . At th e same time, th e existin g subvention schem e was made more flexible so that a larger subventio n per ton could be paid than before , in particular markets , to mee t competitio n withou t increasin g the over-al l total. In 1959-6 0 th e subventio n ros e t o $13. 5 millio n an d wa s $5.6 0 pe r ton.87 Practicall y al l o f th e coa l sol d i n th e subventio n are a i s sol d by Dosc o subsidiaries, which accoun t for ove r 90 per cen t o f the coa l mined i n Nov a Scotia. Th e smal l independent companie s ar e mainly dependent upo n loca l markets , includin g railwa y purchases . Thes e markets hav e bee n hur t b y th e us e o f fue l oi l fo r som e heating an d power generatio n an d b y th e conversio n o f th e railway s t o diese l locomotives. 85

Government of Nova Scotia , Annual Report on Mines, 1960 (Halifax: Queen's Printer, 1961), calculated from Tabl e 9. ^Report of the Royal Commission on Coal (Ottawa : Queen's Printer, I960) , p. 78. Sflbid., p . 78.

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A curren t programm e o f mechanizatio n o f som e o f Dosco' s Cap e Breton mines, 88 begu n i n 1950 , ha s resulte d i n som e increase i n pro ductivity pe r man-day . However, productivity i n American mines has been increasin g eve n mor e rapidl y tha n i n Nov a Scotia . Th e Roya l Commission on Coal states: "For 195 8 the averag e cost at the pit-hea d of Nov a Scotia coal was $10.7 2 agains t prices a t th e mine s of Unite d States coa l shipped int o Canada ranging from $3.6 0 to $5.33. A similar contrast shows in the average output per man-day. The average in 195 8 at th e Nov a Scotia mine s was 2.6 6 tons ; i n th e Unite d State s i t wa s over 11 tons and is steadily rising."89 Although increase d productivit y i s desirabl e i n itself , i t i s boun d to reduc e employmen t in vie w o f th e acut e marketin g problems , i n addition t o th e unemploymen t resulting from th e closur e o f high-cost mines. I n fact , mine s have been closin g in recen t year s (tw o o f them in Springhill as a result of terrible disaster s in 1956 and 1958) . In 1948 , there were 43 mines employing 12,044 men, which produced 6,412,00 0 tons of coal. In 1960 , there were 27 mines employing 8,073 men, which produced 4,567,00 0 tons. 90 Furthe r reduction s i n productio n an d em ployment have occurred with the more recent closures. A federa l Roya l Commissio n o n Coa l wa s appointe d i n October , 1959, wit h Justic e I . C . Ran d a s sol e commissioner . I t reporte d i n August, 1960, and made sixteen recommendations concerning subsidies, development o f th e touris t industr y i n Cap e Breton , productivit y of mines, utilization of coal, the setting up of trade and vocational schools, and reconstitutio n o f the Dominio n Coa l Board . Most of the repor t i s concerned wit h Nov a Scotia, particularl y Cap e Breto n Island . Whil e taking cognizanc e o f th e likelihoo d tha t th e competitiv e positio n o f coal in relation t o othe r fuel s wil l improve in abou t 25-3 5 years, possibly sooner, the commission argued that the hig h cost s of mining coal in Cap e Breto n necessitate d th e closur e o f thre e mine s withi n fiv e years an d a fourt h withi n te n years , wit h th e possibilit y o f furthe r closures i f th e cost s of the remainin g mines were fa r ou t o f Un e with market value. At the same time, it mentioned the possibility of opening up somewha t lower-cos t mine s i n th e Linga n area . Th e commission found tha t such measures were essential t o bring production int o line 88

Dosco's Cap e Breton mines accounted for 9 5 per cen t o f that company' s production in 1960. (Annual Report on Mines, 1960, calculated from Table s 7 and 8. ) "Report of the Royal Commission on Coal, p. 17 . ^Annual Report on Mines, 1957 (Halifax: Queen' s Printer, 1958) , Tabl e 11 ; ibid., 1960 , Tabl e 7 ; an d Urwic k Currie , Limited , The Nova Scotia Coal Industry (A stud y for the Roya l Commission on Canada's Economic Prospects; Ottawa: Queen's Printer, 1957), p. 19.

Why Nova Scotia is a Low-Income Province 12

9

with marke t deman d an d tha t eve n th e reduce d productio n woul d require a subsidy . Althoug h regrettin g th e necessit y o f suc h drasti c measures, the Commission stated: . . . there is no purpose i n bewailing th e failur e o f the impossible . No t to emphasize thi s i s t o encourag e deception ; and th e absurdit y fo r th e nex t ten year s t o continue , withou t othe r action , a subsid y o f ove r $1 3 millio n a yea r is made obvious by considerin g wha t $13 0 million, within that time, could brin g abou t i f pu t t o a differen t purpose . Wha t i s ther e no w o f permanent source s o f ne w productiv e wealt h fro m th e $10 0 millio n pai d out ove r th e las t 30 years ? Thes e are th e nake d fact s an d the y canno t b e evaded.91 The commissio n calle d fo r a ne w se t o f subsidie s t o th e min e operators, to be paid o n coal other than tha t mined for the primary use of th e owner , t o replac e th e freigh t subventions . Fo r Nov a Scoti a i t proposed a basic subsidy o f 50 cents pe r to n "t o assist mine s to main tain at least skeletal operations and in some degree to conserve existing mine investmen t values," 92 an d a socia l subsid y o f $2.0 0 pe r to n o n sales in the Atlanti c Provinces an d define d part s o f eastern Quebec , o r $4.00 per to n i n thos e part s o f Quebe c fo r whic h th e curren t freigh t subvention was 35 per cen t of the rai l freight rate, and $5.0 0 per to n in other part s o f Quebe c an d Ontario , t o conserv e "fo r futur e us e th e economic value s [socia l capital ] o f th e loca l populatio n whic h hav e grown up dependen t o n the mining industry."93 It propose d tha t thes e subsidies b e pai d fo r te n year s s o that th e industr y an d communitie s would kno w wher e the y stood , durin g whic h tim e th e productio n o f Dosco eligible fo r subsidies shoul d be reduce d t o not mor e than thre e million tons to bring it into line with market demand. The total annual subsidy to be paid t o Dosco was to be limited t o the subvention s pai d for it s coa l i n th e fisca l yea r 1959-60 . I n suppor t o f thes e proposals , the commission argued: The mai n objec t i s to assis t coa l production to a better competitive posi tion i n it s own market. I n tha t the carriag e charges ar e suc h tha t a greate r unit profi t shoul d resul t tha n o n remot e marketing ; an d excep t wher e th e absolute limits of local consumption are reached, t o send fuel, a t th e genera l government's expense, a thousand miles for consumption fo r purposes which are present locally but ar e served by a foreign fuel , appear s to be an ultimate in absurdity . Th e paramoun t objectiv e i s t o eas e the presen t straits , no t t o aggravate them.94 Although th e commissio n took a refreshingl y realisti c vie w o f th e Report of the Royal Commission on Coal, p. 25 .

61

«"Ibid., pp. 32, 51.

93Ibid.

94Ibid., p.34.

130

Fiscal Adjustment and Economic Development

economic prospect s o f th e coa l industr y i n Nov a Scoti a an d a com mendably human e attitud e toward s th e member s o f the communitie s afflicted b y closure s o f mines , it s repor t wa s disappointin g i n tha t i t made n o comprehensiv e provisio n fo r th e economi c an d socia l re habilitation o f th e member s o f th e minin g communitie s experiencin g closures. I t di d propos e reconstructio n o f th e fortres s o f Louisburg , completion o f a modern highway from Poin t Tupper t o Louisburg , and further developmen t o f Cape Breto n Highland s Nationa l Park a s projects which would both provide direc t employment and help to develop the touris t industry , bu t th e seasona l employmen t o n thes e project s and in the touris t industr y are by no means an adequat e substitut e fo r the year-aroun d employmen t tha t i s sorel y needed . Anothe r recom mendation urge s th e immediat e establishmen t o f a vocationa l an d a trade schoo l nea r Sydney . Whil e suc h school s ar e highl y desirable , even i n themselves , thei r developmen t shoul d b e relate d a s fa r a s possible t o employmen t opportunitie s i n Cap e Breto n o r elsewhere . Here is still another instance that underlines the urgent need for a wellthought-out programm e o f economi c an d socia l rehabilitation . Th e history of federal and provincial policies wit h respect t o the coa l industry an d wit h respec t t o th e economi c policies fo r th e Atlanti c regio n in genera l ha s bee n characterize d b y excessiv e amount s o f generall y well meaning but bungling "ad hockery" and by far too little thoughtful long-range planning . In June , 1961 , th e federa l governmen t announce d it s intentio n t o proceed wit h th e Louisbur g restoration , t o begi n a programm e of improvement o f fores t stand s i n Cap e Breton , t o accelerat e project s that wer e alread y part s o f departmental programmes , an d t o conside r several othe r unname d projects. 95 A t th e tim e o f writin g th e federa l government ha d no t acte d furthe r o n th e recommendation s o f th e commission. A new vocational high schoo l a t Sydne y and a trad e an d technical institut e i n Halifax , th e latte r t o serv e th e whol e province , are slated fo r completion late in 1962 . Because o f shrinking markets and recurrin g losse s on its coa l opera tions, Dosco , i n October , 1960 , announce d tha t thre e mine s would b e closed i n 1961 . The y ar e th e mine s the Roya l Commission suggeste d would hav e t o b e close d withi n five years; the y ha d al l been marke d for closur e in the fall of 1959, but had been kept open by the emergency subventions alread y referre d to . Caledoni a collier y a t Glac e Ba y was scheduled fo r closur e Januar y 14 , 1961, bu t wa s kep t ope n b y addi tional subsidie s unti l Ma y 31 . Florenc e collier y wa s close d Jul y 1 , ^Halifax Chronicle-Herald, June 19, 1961.

Why Nova Scotia i s a Low-Income Province 13

1

1961, bu t i t wa s decided tha t No . 16 at Ne w Waterford, scheduled fo r closure Augus t 12 , 1961, shoul d b e kep t ope n anothe r year , wit h th e government underwriting it s losses . No. 16 was close d Augus t 4, 1962 . The specia l subsid y wa s se t a t on e dolla r pe r to n sol d i n th e non subvention area , tha t is, in the Atlanti c Province s an d i n Quebe c eas t of Lévis , an d wa s mad e retroactiv e t o Apri l 1 , 1960. I t wa s intende d to compensat e Dosc o fo r losse s incurre d i n th e thre e mines . Th e province agreed t o pay 2 0 per cen t o f this subsid y up t o $300,000 , th e federal governmen t paying th e balance. 96 I n 1960 , th e Caledoni a an d Florence collierie s produce d abou t 644,00 0 ton s an d employe d abou t 1,300 men ; No. 16 at New Waterford produce d abou t 510,00 0 ton s an d employed abou t 1,00 0 men. 97 Th e Louisbur g restoratio n an d othe r projects mentione d abov e wer e initiate d largel y t o provid e a t leas t interim employment for the released miners. It seem s clea r tha t wit h respec t t o th e nationa l econom y muc h of the capita l an d labou r employe d in th e Nov a Scotia n coa l mine s has been uneconomicall y use d an d tha t th e federa l governmen t shoul d gradually reduc e it s subventions . At th e sam e tim e i t shoul d under write some of the painfu l reallocatio n of factors an d othe r adjustments which ar e require d an d appl y it s ai d t o th e provinc e i n mor e fruitfu l ways. The subventions are ofte n defende d with the argumen t that th e Canadian tarif f o n American coal o f 5 0 cents per to n give s ineffectiv e protection compare d t o tha t give n industrie s lik e th e automobil e industry i n Ontario . ( A drawbac k o f thi s dut y i s pai d t o Canadia n producers using this coal to produce goods for export. 98 ) This argument has som e weight , bu t become s flimsie r a s subvention s hav e t o b e increased furthe r an d furthe r t o provid e markets . The sloga n o f th e advocates of subventions seems to be "sell Nova Scotian coal in centra l Canada regardless of cost." Nevertheless, fro m Nov a Scotia' s poin t o f view , t o th e exten t tha t the federa l governmen t is prepared t o pa y subvention s and subsidie s sufficient t o kee p th e mine s open, mos t o f the resource s employe d i n the coal-minin g industry will probably b e a t least as productive wher e they ar e a s the y woul d b e elsewher e i n th e province . I n th e cas e of labour, for example, in 1959 averag e weekly earnings in coa l mining in ^Department of Trade an d Industry . ^Annual Report on Mines, 1960, Table 7. 98 A drawbac k o f 9 9 per cen t o f the dut y i s paid fo r importe d coa l use d i n th e making o f steel . Th e Canadia n Coa l Equalit y Ac t provide s fo r paymen t b y th e federal governmen t of 49.5 cents per to n on Canadian bituminous coa l used b y th e Canadian iro n an d stee l industr y t o produc e coke . Dosco' s iro n an d stee l opera tions are the mai n beneficiary. ( Report of Royal Commission on Coal, p. 85. )

132

Fiscal Adjustment and Economic Development

Nova Scotia o f $68.90 compared favourabl y with $60.1 7 fo r th e indus trial composit e fo r th e provinc e an d no t ver y unfavourabl y with th e industrial composit e fo r Canad a o f $73.47. " Afte r all , i f th e federa l government were willing to subsidize banana production in hot houses in th e provinc e a t highe r return s tha n th e factor s o f production em ployed in it could obtai n i n other occupations in the province, it woul d be i n th e province's , althoug h o f course no t i n th e nation's , economic interest to have them so employed. The Tourist Industry The genera l consensu s seem s t o b e tha t th e touris t industr y i s capable o f considerable expansion . At present th e annua l expenditur e of tourist s in the provinc e is about $45-$5 0 million a year. 100 A recent survey indicate d tha t fe w regula r tourist s retur n t o th e provinc e fo r repeat visits : "Althoug h ou r stud y confirme d th e opinio n tha t Nov a Scotia's natural sceni c beauty wa s a great attractio n t o tourists, it als o revealed tha t the tourist industr y faile d t o supplemen t natura l attrac tions wit h adequat e facilities , whic h migh t encourag e th e touris t t o extend his stay or return for future visits." 101 Although there are places wher e a tourist ca n get good comfortabl e accommodations an d excellen t foo d unde r congenia l conditions, thes e are fe w an d fa r between . Th e provinc e canno t expec t t o mak e best use of its excellent natural attraction s a s long as most accommodations and restaurants ar e mediocre or worse. Eve n the dinin g rooms in some of the large r hotels and inns are very disappointing. An d in a province abounding wit h excellen t seafood , it i s amazing how fe w restaurant s cook i t appetizingl y an d ho w man y offe r littl e o f i t o n thei r menus . The provincia l government is aware of these shortcoming s and i s continually workin g to remed y them. But since in many cases the peopl e catering t o tourist s ar e no t ver y imaginativ e an d moreove r ar e no t accustomed t o attac h muc h importance to thes e matter s in thei r ow n lives, progress i s likely to be slow . What i s more difficul t t o explai n is that even area s in the provinc e tha t hav e traditions o f excellent home cooking hav e poo r publi c eatin g places . Unfortunately , if on e ca n judge from th e defensiv e reactions of some proprietors to inoffensivel y expressed complaint s o f a constructiv e nature , som e of th e poo r foo d 99D.B.S., Review of Employment and Payrolls, 1959, pp. 38 , 47. lOODepartment of Trade and Industry. "«Arthur D . Little , Inc. , A Statistical Analysis of Tourists Visiting Nova Scotia in 1956 ( A repor t t o th e Departmen t o f Trad e an d Industry , Governmen t of Nova Scotia ; 1957) , p . 1 . See also Irene E. Johnson , Tourist Survey, Nova Scotia, 1960 (Halifax : Departmen t of Trade and Industry, 1960).

Why Nova Scotia is a Low-Income Province 13

3

and service ca n be attributed t o stubborn indifference . It is hoped tha t the provincia l government's new policy o f granting licence s t o som e of the bette r hotels , inns, an d restaurants to serv e beer, wine, an d spirits will resul t i n a substantia l improvemen t in th e qualit y o f meals. Pre viously, onl y beer an d win e were serve d wit h meals an d thes e onl y in a few hotels, most of which were in Halifax. The province's mai n attractions woul d appea r t o be its rustic aspect s and it s pleasan t summe r climate , tha t is , it s opportunitie s fo r whole some outdoor activity . Th e straightforwar d friendlines s o f the people , especially i n the rural areas , is another asset. These ar e feature s whic h appeal t o cit y dweller s wh o wish t o ge t awa y fro m th e pressure s an d confines o f city life. Car e must be take n in developing the industr y no t to destroy these attractions. Rather they should be enhanced an d mad e more accessible t o tourists. Apart from improvin g accommodations an d eating facilities , emphasi s shoul d b e o n suc h thing s a s mappin g ou t pleasant walks , developin g campsites , th e packin g o f tast y picni c lunches b y restaurants , an d providin g mor e opportunitie s fo r peopl e to go out with local fishermen. The provincial government is presentl y engaged in a vigorous programme along these lines . One problem i n developing th e touris t industry is that th e seaso n is very short , being confine d virtuall y to July and August . The fac t tha t many facilitie s ar e use d onl y i n thes e month s limit s th e amoun t o f capital i t i s profitabl e to inves t i n them . Septembe r an d Octobe r ar e very pleasan t months in Nov a Scotia an d ar e th e mos t reliable a s fa r as good weather is concerned, although somewhat cooler than July and August. If th e season could b e extende d int o these months , the longe r season woul d warran t improvement s i n accommodation s tha t ar e presently uneconomical . It appear s tha t th e province' s resource s i n th e touris t industr y ar e not bein g a s effectivel y use d a s the y coul d b e an d tha t provincia l incomes coul d b e raise d b y a n improvemen t in thei r use , althoug h a serious drawback of the industr y is that, because o f its seasonal nature, it doe s not provide th e year-aroun d employmen t that i s sorely neede d in the province.

Manufacturing "Manufacturing" i s a ver y heterogeneou s category . Sinc e som e primary manufacturing has been touche d upo n in the precedin g part s of thi s section , th e emphasi s here will be o n secondary manufacturing. But i t i s also of some value to ge t a n over-al l genera l pictur e o f bot h primary and secondary manufacturing. As might be expected, sinc e th e

134

Fiscal Adjustment and Economic Development

province i s not wel l situate d wit h respec t t o market s fo r product s o f secondary manufacturing , mos t o f th e importan t manufacturin g i n Nova Scoti a i s o f th e primar y sort , directl y relate d t o loca l natura l resources.102 Tabl e XXXI I bear s thi s out . Th e industrie s i n th e tabl e are arrange d in orde r o f net valu e adde d b y manufacture . O f the firs t five industries , al l excep t shipbuildin g ma y b e classe d a s primar y industries. I f th e industrie s were arrange d accordin g to gros s value of factory shipments , these five industries would still hea d th e list . If th e figures fo r oi l refinin g wer e give n separately , tha t industry woul d likely ran k hig h o n th e list ; bu t sinc e ther e i s onl y on e fir m i n th e industry, th e Dominio n Bureau o f Statistic s i s no t permitte d t o sho w it separatel y an d s o has pu t i t i n "al l othe r leadin g industries. " Mos t of th e secondar y industries in th e lis t ar e o f the sor t tha t ar e usuall y established t o suppl y loca l markets , for example , printin g an d pub lishing, baking, and the making of carbonated beverages . They require no specia l comment . Exception s ar e shipbuilding , perhap s confec tionery, an d som e o f th e item s i n th e catch-al l categor y "al l othe r leading industries" a t the end of the list, such as cotton yarn and cloth , aircraft an d parts, and railway rolling stock. It i s interestin g t o not e tha t amon g th e industrie s listed , wit h n o important exceptions , value added b y manufacturin g pe r employe e is lower for Nova Scotia than for Canada. An d in most cases value adde d as a ratio of selling value is lower for Nova Scotia. An important exception is the pul p an d pape r industr y whic h ha s been dominate d b y th e Mersey Pape r Compan y a t Liverpoo l (no w owne d b y th e Bowater s Paper Company) . This firm is advantageously situated wit h regar d t o natural resource s and is well located a t tidewater t o suppl y its foreign markets. Th e larg e ne w pul p mil l a t Poin t Tuppe r i s als o favourably situated. Table XXXII show s that primar y iron an d stee l productio n i s Nova Scotia's leadin g industr y i n term s o f valu e adde d b y manufacture . Some o f th e advantage s an d disadvantage s o f Dosco' s primar y iro n and stee l operations have already been referre d to in chapter n . While it i s probably tru e tha t i f th e compan y wer e makin g a ne w start , i t would no t locat e a t Sydney , it i s likely that i t wil l continu e its opera tions ther e fo r som e tim e t o come , especiall y i n vie w o f th e larg e amount of capital spen t i n modernizing both stee l an d coa l operation s since th e en d o f World Wa r II . A s the Maritim e market ca n absor b 102 As alread y mentioned , development s o f th e kin d whic h too k plac e i n Switzerland are not out of the question , although conditions do not see m propitious for the m at present.

TABLE XXXI I LEADING MANUFACTURIN G INDUSTRIE S OF NOV A SCOTIA , 195

Industry Primary iro n and stee l Fish processin g Pulp and pape r Shipbuilding Sawmills Printing and publishing Bread an d othe r baker y product s Sash, door, and planin g mills Butter an d chees e Carbonated beverage s Knitted goods , no t including hosiery Confectionery Miscellaneous food preparation s Fruit and vegetable preparatio n Milk pasteurizin g Miscellaneous wood products, n.e.s. Prepared stoc k an d poultr y feeds All other leadin g industries" TOTAL, LEADIN G INDUSTRIE S TOTAL, AL L INDUSTRIE S

Number of establishments

Value added Number by manufacture of employees ($'000,000)

8

Value added b y manufacture per employee

Value added as ratio o f sellin g value of factory shipments

Nova Scoti a

Canada

Nova Scoti a

Canada

3 138 3 17 467 26 76 51 21 27

3,999 4,015 1,227 2,470 2,055 878 867 712 701 260

24.3 15.3 11.7 10.5 5.8 5.7 4.4 4.4 3.6 3.2

6,080 3,810 9,540 4,250 2,820 6,490 5,070 6,180 5,140 12,310

10,080 4,580 10,970 5,930 4,960 7,810 4,840 5,170 5,660 13,660

.44 .32 .54 .61 .41 .75 .47 .53 .31 .65

.52 .33 .50 .64 .43 .73 .51 .39 .22 .68

3 6 11 17 30

731 904 240 515 453

2.7 2.4 2.2 1.9 1.8

3,690 2,650 9,170 3,690 3,970

3,970 6,760 12,420 6,060 5,540

.46 .41 .42 .37 .27

.44 .47 .35 .35 .33

7 16

18

118 121 4,338

1.0 1.0 54.9

8,470 8,260 12,660

5,620 8,310

.45 .20 .39

.46 .22 i>

937 1,297

24,604 29,010

156.9 177.0

6,380 6,100

7,590

6

.42 .43

.46

b

b

SOURCE: D.B.S. , General Review of the Manufacturing Industries of Canada, 1958 (Ottawa: Queen' s Printer , 1961) , calculated from Par t I , Table 2, and Par t II , Tabl e 7. "Includes: breweries, cotton yarn and cloth , boxes and bags , paper , bridge and structura l steel work , wir e and wir e goods, miscellaneous iron and stee l products , aircraft and parts , railway rolling stock, cok e and gas , an d petroleu m products. 6 Not available .

136

Fiscal Adjustment and Economic Development

only a few weeks ' production of steel, th e centra l Canadia n marke t i s very important . A s a result , th e company' s fabricatin g facilitie s ar e located mainl y a t Montreal , the Sydne y plant servin g as the supplie r of semi-finishe d steel. I t i s i n th e province' s long-ru n interest s tha t the company' s over-all coal, iron, and steel operation s be conducte d t o make its Nova Scotian operations as productive as possible. It i s better to hav e a n efficien t secur e operatio n employin g fewe r me n tha n a weak operation, wit h a larger labou r force . A s the company' s fabricat ing operation s expand , s o shoul d it s need s fo r th e product s o f th e Sydney plant.103 The steel shipbuilding industry in which there are four firms is dominated b y th e Halifa x Shipyard s Limited, a subsidiar y o f Dosco . Thi s company works mainly on naval an d othe r governmen t orders , mostly repairs, o n what amount s to a subsidize d basis , a s part o f the federa l government's polic y o f maintainin g shipbuilding facilities , largel y fo r reasons o f security . Mos t o f th e othe r stee l an d woode n shipbuildin g and numerous wooden boatbuilding companies make fishing boats an d pleasure boats of various kinds.104 Certainly boatbuilding i s an activit y indigenous t o Nov a Scotia, an d on e fo r whic h ther e i s long traditio n of skil l an d technica l knowledge . There shoul d b e a continue d basi s for a sound industry, dependent largely , but b y n o means entirely , o n regional markets. Most town s hav e som e woodwor k manufacturing industry, mainl y handling factor y millwork , suc h a s windows , doo r frames , kitche n cabinets, an d institutiona l built-i n furniture , geare d mainl y t o loca l needs. As a great dea l o f emphasis has in recent year s been place d b y th e provincial governmen t an d b y othe r group s o n encouragin g th e de velopment of new secondary manufacturing industries i n the province , it is of interest to ask what the prospects are. It woul d appea r tha t th e types o f secondar y industry th e provinc e migh t expec t t o develop , apart fro m industrie s base d o n regiona l markets , ar e thos e o f a specialized sor t fo r whic h ra w material s ar e obtainabl e cheapl y an d whose products ar e high i n value in proportion t o bulk, s o that trans 103 Agoo d discussio n of the natur e and problem s of Nova Scotia' s stee l industry is containe d i n L . A . Forsyth , "Memorandu m i n Connectio n wit h th e Primar y Iron an d Stee l Industr y o f Nov a Scotia " ( A submissio n t o th e Commissio n o n Canada's Economic Prospects; Halifax, 1955) . M^In 196 0 there were ove r eight y woode n shipbuildin g and boatbuildin g firms scattered throughou t Nov a Scoti a (Governmen t o f Nov a Scotia , Departmen t o f Trade an d Industry , Directory of Manufactures, 1960 [Halifax, 1960] , pp . 4-6 , 41-2.)

Why Nova Scotia is a Low-Income Province 13

7

portation cost s would no t be a seriou s hindrance t o competin g i n th e central Canadia n marke t an d perhap s eve n i n foreig n markets . A n intensive programme of technical trainin g t o provid e a highl y skille d labour forc e migh t als o b e desirable , althoug h th e reservation s ex pressed earlie r abou t th e prospect s o f development s simila r t o thos e in Switzerland are relevant here. Certainly firms of the typ e just describe d shoul d be encourage d (a s they ar e being ) t o locat e i n Nov a Scoti a i f the y hav e profitabl e prospects. Possibly a t som e time in th e futur e enoug h suc h firms will locate ther e t o generat e externa l economies of production which wil l make th e provinc e more than jus t marginally attractiv e t o them . Bu t soundly based opinion s have been expresse d that condition s are not a t present propitiou s fo r extensiv e developments , eve n o f th e mos t appropriate type. 105 A n illustratio n use d b y on e informan t wa s th e frequently mentione d possibilit y o f producin g high-quality , well designed furniture , usin g loca l wood . Wit h a superio r designe r a n aggressive manufacturer could probably make a living in the furnitur e industry in Nova Scotia, but woul d be bette r of f with the sam e capital and technica l knowledg e in , say, Hamilton, Ontario, wher e h e woul d have th e advantag e o f nearnes s t o customer s (includin g th e oppor tunity to deal expeditiously with problems arising from good s damaged in transit), quickness of delivery, lower freight costs, and a good labour supply. Sinc e thi s kin d o f busines s is highl y specialized , i t i s a n ad vantage t o a manufacturer to be in close contact with development s in techniques, materials , an d styles . H e ca n d o thi s mos t easil y i f h e i s located nea r hi s competitor s and nea r the manufacturer s of materials . Moreover, in some instances, furnitur e shipped fro m Montrea l can b e delivered t o som e points i n Nov a Scotia more cheapl y tha n furnitur e shipped accros s th e provinc e b y a Nov a Scotia n producer . Perhap s these consideration s explai n wh y th e furnitur e made i n Nov a Scotia , most o f it b y thre e firms, is largely o f a n institutiona l sor t and i s sol d mainly but not wholly in the Atlantic region. In instance s wher e secondar y manufacturing industries ar e supply ing market s outsid e o f th e region , ther e ar e usuall y specia l circum stances t o accoun t fo r them . I n on e cas e o f a n ol d textil e firm , th e special circumstance s are a well-establishe d nam e an d a lon g histor y of goo d managemen t combined , i t i s likely , wit h financia l resource s built up ove r the year s sufficient t o cop e wit h temporar y setbacks . I n another case , a n Englishma n wit h a goo d knowledg e o f textile s an d of th e Canadia n industr y obtaine d th e plan t o f a defunc t fir m ver y 10B

In confidential interviews .

138 Ftsco

Z Adjustment and Economic Development

cheaply, permittin g hi m t o us e mos t o f hi s financia l resource s fo r product developmen t an d marketing . I t woul d b e extremel y difficul t for ne w firm s o f thi s kin d t o establis h themselves , especiall y i n vie w of the generall y wea k position of the textil e industry in Canad a arisin g from stif f foreig n competition . A similar instanc e i s tha t o f the manu facturers o f a moulde d plywoo d pleasur e boat . The y ha d a goo d process, wer e imaginativ e an d aggressive , an d wer e abl e t o buil d u p good markets in the Unite d State s and Canada . But they also obtaine d a surplu s war plant fo r very little an d s o had littl e overhea d t o begin with. Even for their type of production, there were no great advantages to locatin g i n Nov a Scotia and , a s a resul t o f a combinatio n o f un favourable events , the firm went bankrupt an d had t o be reorganized. There was a swing in the industry from moulde d plywood t o fibre glass hulls, a senior sales representative wen t into the business himself taking with hi m muc h o f the firm' s custo m that h e ha d developed , an d th e organizer an d main driving force of the firm died. In al l three instance s cited , the firms were abl e t o d o well i n Nova Scotia, a t leas t fo r a time , bu t wit h th e sam e entrepreneurshi p an d capital the y coul d probabl y hav e done eve n better elsewhere . A large confectionery fir m i n Halifa x whic h sell s i n th e nationa l marke t i s another exampl e of a firm which might have higher potentia l earning s elsewhere i n Canada , bu t whic h ha s remained wher e i t go t started . Certainly suc h firm s ar e a n asse t t o th e province . Entrepreneur s o f unusual abilitie s wh o ar e willin g t o operat e i n Nov a Scotia , possibl y for non-monetar y reasons, ma y d o muc h t o rais e it s economi c level . But a t th e sam e time the fac t mus t b e face d tha t Nov a Scoti a in th e near future i s not likely to attract ver y much secondary manufacturin g industry, geare d t o market s outside o f th e Atlanti c region , althoug h some wil l develo p graduall y i n respons e t o growt h i n th e regiona l market. For example, a chemical plant producing chlorin e an d causti c soda, base d o n th e sal t deposit s a t Pugwas h o r elsewher e i n th e province, i s a possibility i f the marke t in th e pul p an d pape r industr y in the Atlantic region expands sufficiently, althoug h the nee d for chea p power fo r thi s kind of plant migh t be a n obstacle . Th e propose d ne w chemical pul p mil l i n easter n Nov a Scoti a migh t mak e th e plan t feasible. A similar type of plant will likely be buil t i n Sain t John, New Brunswick. If i t is , it ma y put th e buildin g o f a plant i n Nov a Scotia further int o the future . While no evidence has been foun d o f current misuse of resources in secondary manufacturin g in Nov a Scoti a whic h migh t contribut e t o the lowerin g o f the province' s pe r capit a income , i t doe s appea r tha t

Why Nova Scotia is a Low-Income Province 13

9

the majo r emphasi s of the governmen t should be place d o n correcting maladjustments in the primary industries.106 This descriptio n o f th e economi c prospect s fo r developmen t o f secondary manufacturin g is probably fairl y accurat e give n the presen t economic structure of the country and the existing framework of public, especially federal, policies. The question arises, however, as to whethe r the resultin g developmen t would b e conduciv e to th e bes t us e o f th e province's resources , i n particula r it s labour . Th e populatio n o f th e province an d th e labou r forc e ar e likel y t o continu e increasin g a t a fairly rapi d rate . A t th e sam e tim e employmen t opportunitie s hav e been declinin g i n th e primar y industrie s an d wil l likel y continu e t o decline i f thes e industrie s becom e mor e highl y rationalize d a s i t i s urged her e the y should . Coa l mining is a special case ; not onl y is th e cause o f unemployment different tha n i n the othe r primary industries, but th e men released b y closures of mines do not have the opportunit y to subsis t o n th e lan d o r th e se a unti l the y ca n transfe r t o othe r occupations a s hav e thos e preparin g t o leav e farming , fishing , o r forestry. Expansio n o f th e servic e an d constructio n industrie s ca n probably at bes t onl y compensate for th e reductio n o f employment i n the primary industries. There ar e onl y tw o avenue s fo r preventin g a larg e an d persisten t surplus o f labour: (1 ) eve n larger movement s of population fro m th e province tha n hav e bee n takin g place i n recen t years , o r (2 ) a con siderable expansio n o f secondar y manufacturin g industries . (Som e combination of the tw o avenues is the most likely outcome. ) Ordinarily the firs t alternativ e woul d see m to b e th e obviou s economi c solution, assuming tha t th e large-scal e unemploymen t that ha s bee n plaguin g the rest of the countr y is eliminated, and perhaps th e rat e o f migration of peopl e t o more productive pursuits elsewher e coul d be accelerate d by financial assistance to those prepared t o move; an d yet, experienc e suggests tha t afte r allowin g fo r al l o f th e migratio n tha t ca n b e ex pected t o tak e place, eve n wit h th e mos t prosperous of condition s i n 106

A stud y for th e Roya l Commissio n o n Canada's Economic Prospect s (D. H . Fullerton an d H . A . Hampson , Canadian Secondary Manufacturing Industry [Ottawa: Queen' s Printer , 1957 ] ) show s tha t th e degre e o f concentratio n o f secondary manufacturing i n Ontario and Quebe c has been substantially unchange d since 192 6 (Tabl e 27 ) an d adds : "I n fact , n o provincia l decentralizatio n o f domestic manufacturing ha s taken place since before th e tur n o f the centur y whe n first th e developmen t o f a singl e Canadian marke t an d late r th e growt h o f mas s production industrie s mad e suc h a mov e economicall y unsound " (p . 46) . Th e study i s no t optimisti c about th e prospect s o f expansio n o f secondar y industr y in th e Maritimes , "i n vie w o f the slowe r rat e o f growt h . . . an d thei r relativ e proximity to Ontario and Quebec manufacturers" (p . 199) .

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other part s o f th e country , ther e wil l stil l b e a larg e residu e o f un employed an d underemploye d labour . I f suc h a surplu s i s i n fac t inevitable, ther e i s a stron g argumen t o n economi c ground s fo r th e use o f federal subsidie s fo r a limite d duratio n i n suc h form s a s low interest loans , grants , ta x concession s o f various sorts , an d transporta tion adjustments to encourage the expansion of secondary manufacturing industries, provide d th e valu e of the contributio n t o production o f th e otherwise unemployed an d therefore completely waste d labou r exceed s the cos t o f th e subsidie s (including , o f course , th e subsidie s wit h respect to the cost of capital). The success of such a programme woul d still depen d upo n a considerabl e degre e o f occupationa l adaptabilit y of th e Nov a Scotia n peopl e an d a willingnes s t o mov e at leas t withi n the province to those localities where new industries can be established with th e bes t prospect s fo r success . Sinc e mos t o f th e condition s described appl y t o al l o f the Atlanti c Provinces , thes e statement s ar e applicable t o th e whol e region . I t i s likel y tha t an y expansio n tha t could be induced woul d be geared mainl y to regional markets, althoug h some industries , especiall y thos e producin g specialtie s o f a uniqu e character, migh t b e abl e t o ente r nationa l market s a s well . This lin e o f argumen t follow s tha t develope d b y Mr . A . C . Parks , Director o f Research fo r th e Atlanti c Province s Economi c Council , i n The Economy of the Atlantic Provinces, 1940-1958, and b y Professo r A. K. Cairncross in Economic Development of the Atlantic Provinces, his report for the Atlanti c Province s Researc h Board , a s the followin g quotations indicate . Although employment opportunities in the resource-base d industries, an d in the service trades of higher labour intensity . . . are expected t o increase, these additiona l opportunitie s ca n no t b e relie d upo n t o b e sufficien t t o remove th e chroni c situatio n o f unemploymen t and underemploymen t in low-income sectors . Fo r thi s purpos e furthe r developmen t o f industr y wit h relatively highe r labou r intensity , suc h a s othe r manufacturin g or manu facturing o f a secondar y nature based o n the resource s of the region , must be anticipated . Bu t suc h industr y b y an d large , face s seriou s locationa l disadvantages i n th e Atlanti c region . Thes e disadvantage s mus t then b e sufficiently overcom e t o mak e suc h developmen t mor e attractive . Thi s would involv e th e introductio n o f publi c policie s t o compensat e fo r th e natural disadvantage s of the are a and might , for example , be i n th e field of cheaper transportatio n t o centra l Canadia n markets, in th e are a o f regional taxation concessions, or in a combination of these and other policies.107 I star t fro m th e evidenc e tha t th e Atlanti c Provinces are laggin g behin d 1( T

> Arthur C . Parks , The Economy of the Atlantic Provinces (Halifax : Atlanti c Provinces Economic Council, 1960), p. 154 .

Why Nova Scotia is a Low-Income Province 14

1

the res t o f th e country . I the n g o o n t o discus s th e reason s fo r thi s lag , emphasizing th e downwar d tren d i n employmen t i n eac h o f th e primar y activities o f th e region—th e activitie s tha t endo w i t wit h a n economi c purpose an d ar e th e principa l sourc e of its prosperity. Thereafter , I discus s the handicap s t o which manufacturin g industry i n th e Atlanti c Province s i s subject an d th e dimension s which , give n thos e handicaps , a realisti c pro gramme o f industria l developmen t migh t assume . Althoug h I hav e no t se t out i n detail th e ground s upon whic h i t woul d be justifiabl e t o see k federa l help i n carrying out suc h a programme, it wil l be apparen t fro m th e lin e of argument pursue d tha t thos e ground s ar e twofold : th e probabilit y o f a labour surplu s afte r allowin g fo r migratio n t o othe r part s o f Canada ; an d the probabilit y that , fo r a limite d rang e o f industries , cost s o f productio n would no t ris e perceptibl y (excep t perhap s i n th e firs t yea r o r two ) i f a location i n th e Atlanti c Provinces were selecte d i n preferenc e to a location in centra l Canada . I t doe s not appea r t o m e tha t th e prope r criterio n b y which federa l ai d fo r thi s purpos e shoul d b e governe d i s th e disparit y i n income level s o r in rate s o f growth bu t rathe r th e wast e o f man-power an d the los s of production resultin g fro m loca l underemployment . I full y accep t the nee d to push ahead with th e developmen t o f those area s o f Canada tha t have th e greates t growt h potential , an d I se e long ter m advantage s i n en couraging th e movemen t o f labou r fro m declinin g t o expandin g areas . Bu t I recognis e tha t ther e ar e limit s t o th e scal e o n which labou r transfer s ar e possible withou t inflictin g lastin g damag e o n th e economi c and socia l lif e of bot h type s o f area ; an d ther e appear s t o m e a seriou s dange r that , a t current rates o f population growth , thes e limit s would hav e t o b e exceede d if n o specia l effort s wer e mad e t o develo p ne w industrie s i n th e Atlanti c Provinces.108 Even wit h a n imaginative , well-conceived , an d well-administere d programme o f economi c developmen t fo r Nov a Scoti a an d th e othe r Atlantic Provinces , i t i s unlikel y tha t substantia l economi c improve ment will take place quickly. The experienc e o f Britain an d Ital y with their redevelopmen t programme s an d knowledg e o f th e tim e i t take s for ne w industries to get established an d t o grow support this view. I t will probabl y tak e a decade , perhap s eve n a generation , befor e on e can hope to see a substantial expansio n o f secondary industry fro m it s present narro w base , o r improvement s i n agriculture , fishing , an d forestry o n the scal e envisage d here . Sociologica l factor s appea r t o b e generally not conducive to rapid economic change; but, again , if change is considere d i n term s o f takin g plac e ove r th e nex t generation , th e prospects fo r economi c improvemen t ar e quit e bright . Thes e con siderations mak e carefu l long-rang e plannin g mor e rathe r tha n les s important; for without such planning the provinc e an d th e res t o f th e region may be little further ahea d in ten years time than they are now.109 108

Cairncross, Economic Development of the Atlantic Provinces, p. 19 .

io»In May , 1962 , afte r thi s stud y wa s finished , th e Governmen t o f Nov a Scoti a

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With respect t o secondar y manufacturing, probably th e best tha t ca n be hoped for, even with powerful inducements , is to attract ne w industries fo r which th e condition s are a t leas t marginall y favourable . Th e forcing o f type s o f economi c developmen t fo r whic h condition s ar e clearly unfavourabl e i s likel y t o resul t i n considerabl e wast e o f re sources ove r lon g period s o f tim e an d a concomitan t depresse d psychological state of the people . Many reason s for Nov a Scotia' s bein g a low-incom e provinc e hav e been give n relatin g bot h t o th e natur e o f it s resource s an d t o thei r utilization. Whil e i t i s unlikel y tha t th e over-al l averag e productivit y of th e provincia l econom y can rise t o th e averag e level o f the riches t provinces, ther e ar e nevertheles s considerabl e opportunitie s fo r eco nomic adjustment s that coul d rais e it s over-al l productivit y consider ably above the present level.110 In any case, the long-run objective should be t o pu t th e econom y o f the provinc e o n a soun d economi c footing, not only so that it can make the maximu m contribution t o th e welfar e of it s people , bu t als o s o tha t i t wil l b e mor e attractiv e t o th e vigorous an d abl e men and wome n upon whom the leve l o f economic development an d th e qualit y o f society largel y depen d tha n woul d a basically sick economy that must be perpetually bolstere d b y subsidies . established a Departmen t o f Financ e an d Economics , whic h ha s embarke d upo n a programm e of voluntary economic planning, o n a sectora l basis , beginnin g wit h the agricultura l sector . Th e governmen t intend s t o co-ordinat e an d integrat e th e provincial plannin g wit h an y plannin g tha t develop s a t th e regiona l an d federa l levels. I t i s too earl y t o asses s this programme . It s succes s wil l depen d t o a larg e extent upo n federa l policie s an d th e degre e o f directio n th e federa l governmen t is prepare d t o giv e an d th e strengt h o f th e inducement s i t i s prepare d t o use . A necessary condition for it s succes s is th e acquisitio n o f a staf f o f highl y competen t economists a t th e outset , fo r th e formulatio n o f suc h a programm e i s a highl y technical task ; i t i s n o jo b fo r amateurs , howeve r capabl e the y ma y b e i n thei r own particular professions or businesses. 110 The federa l Agricultura l Rehabilitatio n an d Developmen t Ac t o f 196 1 pro vides fo r join t federal-provincia l project s fo r convertin g unproductiv e cultivate d land int o mor e appropriate uses , fo r raisin g the leve l o f income s an d employmen t in riva l agricultura l areas , for th e developmen t an d conservatio n of soi l an d wate r resources, an d fo r researc h o n lan d us e an d rura l economi c adjustment . Whil e i t is too early to assess this ne w act, it doe s seem to have considerabl e bearin g o n th e type of programme for agricultur e envisage d here .

VI

The Patter n fo r Optimum Economi c Adjustment : Further Analysi s i n th e Nova Scotia n Contex t

SOME SOCIOLOGICAL FACTORS IN ECONOMIC CHANGE

The Paradox of Emigration Accompanied by Lack of Adjustment SOME INDICATIO N o f th e degre e o f emigratio n fro m Nov a Scoti a ha s already been given ( chapter n , Table I ). There wa s particularly heav y emigration over the period 1871-193 1 and, apart fro m a slight interrup tion i n the decad e 1931-41 , th e tren d o f emigration ha s continue d t o the present . I n vie w of this lon g period o f heavy emigration from th e province it is surprising that s o much economic adjustment remains t o be mad e i n the primar y industries , especiall y agricultur e an d fishing. It ma y b e tha t th e grea t emphasi s whic h ha s lon g bee n place d o n migration fro m th e provinc e a s a mean s o f economi c adjustment has obscured an d slowe d dow n th e ver y considerabl e adjustment s which could profitably be made within the province. Lack of sufficient capita l to mov e b y thos e wit h ver y lo w income s i n th e rura l area s i s als o partly responsibl e for th e slownes s of adjustment. 1 An d n o doub t con-

1 Howland give s considerable weigh t t o poverty a s an explanatio n of immobility in hi s discussion o f economic rigidity in th e Atlanti c Provinces. H e doe s no t over look th e strengt h o f traditio n a s a n explanatio n o f immobility , bu t a t th e sam e time point s t o th e adventurou s seafaring traditio n a s being conduciv e to mobility . (Some Regional Aspects of Canada's Economic Development [ A stud y fo r th e Royal Commissio n o n Canada' s Economi c Prospects ; Ottawa : Queen' s Printer , 1958], pp. 194-200.)

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tinual emigratio n o f the mor e vigorous and ambitiou s members o f th e communities has tended t o leave people behind who were slow to effec t adjustments withi n th e province. Stron g though thes e two factors may be i n impedin g economi c adjustment , wha t seem s t o b e a n eve n stronger factor is the intense attachment that many rural Nova Scotians have to their homes , and their tenaciou s desire to stay where they are . This sort of attachment is also characteristic o f the Nov a Scotian townsfolk. There is a very pronounced insistence in the declining coal mining towns, fo r instance , tha t economi c opportunities i n th e for m o f ne w industries b e developed i n these towns and that the people should no t be expected t o seek new opportunities elsewhere. Thi s is the cas e eve n in town s that woul d not appea r t o b e ver y attractiv e t o th e outsider . Naturally, persona l friendship s pla y a bi g par t i n th e reluctanc e of people t o move . Bu t whateve r th e reason , th e reluctanc e t o mov e seems unusually strong in Nova Scotia an d i s a facto r to b e reckone d with in considering improvements in the use of Nova Scotia's resources . One further point i s worth mentionin g here. Whe n ther e i s a larg e amount o f emigratio n fro m a regio n ove r a lon g perio d o f tim e fo r economic reasons , i t i s bound t o mea n tha t man y of thos e wh o sta y do s o fo r sentimenta l reasons wit h ful l knowledg e o f highe r mone tary rewards elsewhere. As a result, the population left behin d become s heavily weighte d wit h people wh o ma y b e proficien t and ma y wor k very diligentl y a t thei r occupations , but wh o are no t muc h moved b y the lur e o f highe r incomes—peopl e wh o ar e "unproductive " becaus e they choos e t o be. This will not ofte n b e tru e wher e unemployment is the alternativ e t o movin g but i t ma y wel l b e wher e peopl e ca n ek e out a living in the farming , fishing, and loggin g sectors. To the exten t that thi s i s true , change s wil l no t com e easil y an d i t i s arguabl e whether they should be deliberately force d by public policy . The Happy Low-Income Casual Worker Those governmen t official s an d other s interviewe d wh o ar e wel l acquainted wit h th e province' s econom y and it s people agree d tha t a fairly substantial part of the labour force, particularly in the rural areas , consists o f men wh o wor k occasionall y a t a numbe r o f differen t job s and wh o sho w n o apparen t desir e t o acquir e full-tim e occupation s even when they ar e available. 2 They d o not wan t t o be pinne d down . 2 It i s difficul t t o ge t an y precis e measuremen t of th e numbe r i n thi s group . Only a rough guess is possible. The large number of low-income farming operators, already referre d t o i n chapte r v (16,92 6 ou t o f 23,496 farms i n 1951) , i s i n par t attributable to this group. The fac t tha t th e non-far m rura l population of 200,242 was 6 8 pe r cen t o r th e rura l populatio n in Nov a Scoti a i n 1956 , compare d t o

The Pattern for Optimum Economic Adjustment 14

5

They seem to have no desire to move to where permanent employmen t is available withi n th e provinc e or elsewhere . N o doub t al l province s in Canad a an d mos t othe r countrie s hav e me n o f thi s sort . Bu t th e group seems to be relatively large r in the Atlanti c Provinces than else where in Canada. The prevalence of part-time work in fishing, logging, and farmin g wa s probably mainl y responsible fo r th e developmen t of this situation and no doubt has made its perpetuation possible . Perhaps the lon g history o f emigration o f som e of th e vigorou s element s fro m the provinc e has helped t o creat e a disproportionall y large residu e of these people . Man y in th e grou p have a grea t likin g for thei r wa y of Hie. Man y ar e als o ver y muc h awar e o f and gla d t o receiv e benefits from socia l assistance measures. I f the y succee d in buildin g u p unem ployment insurance benefits the y ar e conten t to coast along with thei r payments throug h thei r entitlemen t period , withou t lookin g fo r o r wanting work. One might argu e that a s long as such people ar e satisfied with thei r live s an d d o no t wis h t o change , the y shoul d b e lef t alone, but thei r existenc e is to som e extent parasitic in that the y ar e a burden o n their fello w citizen s who must pay th e taxe s for th e publi c benefits they are glad to receive. Of thos e interviewed , th e perso n wh o wa s bes t informe d o n suc h questions was not optimistic about reducin g thi s kin d o f casual working, especially sinc e there is little desire on the par t o f these peopl e t o change their ways . He expect s the presen t proportio n o f rural to tota l population, 42.6 per cen t in 1956, 3 to decline very slowly, and itineran t operations to continu e for a long time. He emphasize d tha t rura l pat terns in Nova Scotia are very slow to change and offere d a s an illustration th e cas e o f Queens County where th e Merse y Paper Compan y is located. Whe n th e Merse y mill was establishe d a t Liverpoo l in 1928 , there wer e genera l prediction s tha t grea t socia l change s woul d ensu e in th e surroundin g rura l are a a s a resul t o f thi s majo r industria l development. I n fact th e change s have been very slight i n terms of the way people conduct their lives. It i s possible tha t th e low-incom e casual worker i s no t reall y misallocated, in that h e and his family ma y be less of a charge on the res t of th e communit y if he is left wher e he is , where, on e wa y o r another, 49 per cen t for Canada , may b e anothe r indicatio n o f its presence an d o f it s size. As a roug h guess , th e numbe r i n thi s grou p i s probabl y of th e orde r o f 10,00 0 male member s o f th e labou r force, o r abou t 6 pe r cen t o f th e siz e o f th e mal e labour forc e i n 1951 . (D.B.S. , Ninth Census of Canada, 1951 [Ottawa : Queen' s Printer, 1956], X, Part II, Tabl e 65; an d D.B.S. , Census of Canada, 1956 [Ottawa : Queen's Printer, 1958], Bulletin 3-2, Table XI.) 3D.B.S., Census of Canada, 1956, Bulletin 3-2, Table IV.

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he provide s fo r mos t o f thei r needs ; wherea s i f move d t o a n urba n area, h e migh t no t b e fi t fo r stead y wor k an d migh t eve n becom e a complete charg e o n the community . In an y cas e hi s presenc e i n th e province pose s a socio-economi c problem whic h shoul d no t b e over looked. The typ e o f worker discussed here shoul d no t b e confuse d with th e diligent worke r wh o work s in a sustaine d wa y a t a combinatio n of , say, runnin g hi s far m an d a woodlo t an d engagin g i n lobstering . Perhaps hi s activity , too , coul d b e mor e productive , bu t ther e i s i n his case no lack of application . Although sociologica l factor s discusse d briefl y abov e see m t o hav e been a deterren t t o economi c development i n Nov a Scotia, i t i s diffi cult to assess their importance . Moreover , one should not overloo k th e fact tha t provinces outsid e o f th e Atlanti c region , rura l Quebec , fo r example, als o face sociological impediment s t o economic development. THE PROBLEM OF THE DECLINING COMMUNITY

The Ghost Town as an Objective Ghost towns are not attractive things; but neither is poverty. Making a tow n a ghost town i s certainly no t a desirabl e thin g i n itself . Bu t if a town experience s a gradual or sudden loss of the economi c basis fo r its existenc e an d i f ther e i s n o soun d alternativ e i n th e offing , th e acceptance o f these objectiv e facts an d adjustmen t to the m wil l likel y produce result s mor e conduciv e t o th e long-ru n interest s o f th e province than an attempt to ignore them. It i s in the economi c interest o f any province a s a whole, and espe cially o f one with a lo w averag e income, that it s resource s b e pu t t o their mos t productive uses . If a tow n which woul d otherwis e declin e is prevented fro m declinin g by th e suppor t o f old o r ne w industr y b y perpetual provincia l subsidies, 4 i t ma y b e i n th e town' s interest s t o receive th e support , bu t no t likely in the genera l provincial interes t t o give it . Sinc e the town' s interes t i s usually more sharply focuse d tha n *Such subsidie s may be i n man y forms , suc h as low-interest loans t o industry, the writing-dow n o r writing-of f o r loan s t o industry , ta x concessions , o r direc t payments t o industries . Federal subsidie s migh t als o b e use d an d ma y be , a s already suggested , a desirabl e par t o f a programm e o f redevelopment , providing they ar e designe d to attrac t ne w industr y int o th e part s o f th e provinc e mos t suitable fo r them ; bu t suc h location s ma y no t b e i n distresse d areas . I t may , however, b e easie r fo r peopl e t o mov e fro m declinin g localitie s t o expandin g localities withi n the province , or region , than t o mov e t o othe r part s o f Canada or t o th e Unite d States. Provincial subsidies ar e stresse d here sinc e thi s stud y is primarily concerned with provincial-municipal fiscal relations.

The Pattern for Optimum Economic Adjustment 14

7

the provincia l interest , th e concentrate d effort s o f a tow n t o promot e its interests may result i n the mor e diffused an d less easil y understoo d over-all provincial interests bein g neglected . Although the idea of their tow n becoming a ghost town is bound t o be a cruel on e to the townsfolk , acceptanc e o f such a fate an d adjust ment to it may be kinder than th e discouragin g on e of economic stagnation, a s well a s being mor e just to th e peopl e o f the provinc e a s a whole. I t i s unlikely that a town that accept s suc h a fate wil l pass out of existenc e immediatel y o r fully . Retire d peopl e ma y continu e t o live ther e an d th e tow n ma y continu e t o serve , i f i t di d i n th e past , as a marketin g centr e fo r th e surroundin g rura l area . Rathe r tha n becoming a ghos t tow n i t migh t leve l of f an d thriv e wit h a muc h reduced populatio n an d wit h it s commercia l an d othe r servicin g establishments reduce d i n proportion . Suc h a n adjustmen t o f cours e creates seriou s problem s i n maintainin g publi c services , an d point s up th e nee d fo r determinin g ho w th e financia l responsibilit y fo r municipal service s ca n best b e divide d betwee n th e provinc e an d th e municipalities. The problem of how such services can best be provided is central to this study and will be taken up in later chapters . In Nov a Scoti a a t presen t th e questio n o f th e declinin g tow n i s especially relevan t t o thos e town s dependin g upo n the coa l industry . For a tim e Por t Hawkesbur y an d Mulgrave , which develope d a s ter mini fo r th e Strai t o f Cans o ferr y an d ar e no w by-passe d b y th e causeway replacin g it , als o faced seriou s adjustmen t problems . Th e construction a t Poin t Tuppe r o n Cap e Breto n Islan d o f a ne w $40,000,000 pulp mil l b y Nov a Scoti a Pul p Limited , a subsidiar y o f the Swedis h firm, Stora Kopparberg , i s now revivifyin g Port Hawkesbury which is nearby; Mulgrave may also benefit. At th e tim e th e Urwick , Curri e stud y wa s mad e fo r th e Gordo n Commission i n 1956 , Dosc o estimate d tha t abou t 120,00 0 person s i n Nova Scoti a wer e dependen t upo n th e coa l industr y a s a n industria l base. Urwick , Currie favoure d a mor e conservative estimat e o f abou t 90,000 persons. Th e numbe r will hav e decline d considerabl y wit h th e shrinkage o f th e industr y sinc e tha t date , whe n abou t 11,00 0 me n were directl y employe d i n coa l mining. 5 Fro m 195 6 t o 1960 , th e production of coal declined b y 20 per cent , fro m 5,731,00 0 to 4,567,00 0 tons. I f allowanc e i s made, o n th e basi s o f 196 0 data , for th e closur e of thre e o f th e mine s i n Cap e Breto n County , productio n wil l b e B Urwick, Curri e Limited , The Nova Scotia Coal Industry ( A stud y fo r th e Royal Commissio n o n Canada' s Economi c Prospects ; Ottawa : Queen' s Printer , 1957), pp. 20, 32.

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reduced b y anothe r 1,155,00 0 tons to 3,412,000 tons, a total reductio n since 195 6 o f 2,319,000 ton s o r 40 per cent . Ove r th e sam e period, th e number o f me n directl y employe d i n coa l minin g decline d t o abou t 8,000, a reduction o f 27 per cent . The thre e Cap e Breto n closures wil l reduce th e numbe r employe d b y anothe r 2,00 0 t o 6,00 0 men , a tota l reduction sinc e 195 6 o f 4 5 per cent. 6 I f th e Urwick , Curri e basi s o f estimate is used, it is likely that thi s amoun t of direct employmen t can provide th e basi s fo r a populatio n of onl y abou t 40,00 0 persons . Coal-mining towns , base d a s the y ar e upo n exploitin g a depletin g resource, hav e eventuall y t o fac e th e proble m o f reallocatio n o f movable resources an d shoul d prepar e themselve s for th e eventuality , unless the community in th e meantim e attract s othe r industr y whic h takes u p th e slack . I n th e cas e o f Springhill , fo r example , n o suc h industry developed . Whe n it s las t min e closed , followin g th e 195 8 disaster, th e tow n an d th e provincia l an d federa l government s combined force s t o persuad e ne w industr y t o locat e there . Th e provinc e set u p th e Springhil l Developmen t Corporatio n Limite d (a s a sub sidiary o f it s Industria l Estate s Limited) , capitalize d a t on e millio n dollars, t o induc e industr y t o locat e a t Springhill . Whil e i t seeme d possible tha t th e unemploye d labou r forc e o f 850-900 me n woul d b e attractive t o ne w industry , n o ne w industr y wa s attracte d ther e b y the surplu s labour resultin g fro m th e closin g of the town' s othe r min e after th e 195 6 disaster . A smal l woodworkin g plan t an d th e federa l government's ne w priso n far m hav e bee n locate d a t Springhil l sinc e 1958 i n respons e t o th e effort s t o attrac t ne w industry ; the y d o no t absorb a very large part o f the labou r force . A new, smalle r coa l min e opened by private interests wit h provincial assistance provides employment for about 100 men. The emotiona l elemen t i s understandabl y strong , i n th e desir e t o help th e tow n t o survive . Th e ver y though t o f th e horro r o f me n imprisoned an d dying underground is enough to cause those concerned to overloo k har d economi c realities. Bu t even so , as a mor e endurin g solution, it might be better, where a town i s not suitabl e fo r the loca tion of new industry, to place the emphasi s on emigration of labour an d capital. The province will be hard put to resist the demands from othe r declining town s for similar treatment and, if it yields , may onl y accen tuate th e alread y considerabl e maladjustmen t o f th e provincia l economy. e

/fctd., p . 19 ; Governmen t o f Nov a Scotia , Annual Report on Mines, 1960 (Halifax: Queen' s Printer , 1961) , Tabl e 9 ; an d Departmen t o f Trad e an d Industry.

The Pattern for Optimum Economic Adjustment 14

9

The problem o f the declining community is a real one in Nova Scotia and i t mus t b e take n int o accoun t i n an y discussio n o f influencin g economic developmen t b y adjustment s i n provincial-municipa l fisca l relations. Some Secondary Effects of Factor Migration According to the marginal productivity principle o f economic adjustment, factor s o f productio n shoul d mov e fro m wher e thei r margina l productivity is low to where it is high, allowing for the cost s of moving. For example , whe n a localit y lose s th e industr y whic h ha d bee n it s economic base, th e par t o f the populatio n directl y dependen t upo n i t should leav e th e localit y for employmen t elsewhere. Bu t th e resultin g loss o f thi s par t o f th e populatio n an d it s expenditure s wil l brin g a reduction i n the servic e industries since the populatio n bas e o n which these industrie s depended wil l have narrowed. As a result, labou r an d movable capita l employe d in the servic e industrie s wil l be induce d t o leave; muc h o f th e socia l capital , suc h a s houses , schools , churches , streets, sewers , an d th e wate r suppl y system , wil l g o unused ; th e extreme case is where all of the population is induced to leave. Here i s simpl y a partia l descriptio n o f th e economi c proces s b y which a tow n become s a ghos t town , o r a t leas t shrink s in size . Th e object in describing thi s process is to emphasize that all of the produc tive resource s o f a localit y ar e affecte d b y th e los s o f it s industria l base an d i n particular tha t th e valu e o f its immovabl e capital will b e much reduced, i f not wiped ou t entirely, eve n though onl y a relativel y small part o f the population , perhaps onl y 10-20 per cent, 7 ma y have been employed by the basic industry. Much social and private immovable capital that still has many years of potential use will be abandoned and will be lost in this sense as well a s resulting in losses to it s owners in terms of money value. If th e movemen t o f populatio n ou t o f th e communit y i s gradua l and i s anticipated , n o seriou s consequence s nee d ensu e wit h respec t to th e servic e industrie s an d socia l capital ; fo r adjustment s i n th e resources employe d in these sector s ca n also be mad e graduall y with out great loss of capital eithe r i n terms of its potential usefulnes s or in terms o f it s monetar y value. Bu t whe n th e populatio n movemen t is rapid, th e underminin g of th e economi c base o f th e communit y is a more seriou s matter , fo r larg e amount s of socia l capita l an d capita l in the service industries will be lost in the ways described. Th e productive potential o f both type s o f capital wil l b e a s grea t a s eve r i n rea l 7 Compare Urwick, Currie Limited, Nova Scotia Coal Industry, p . 20.

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terms, bu t th e valu e o f thei r margina l product s wil l b e drasticall y reduced and may even become zero. It ma y well be tha t i t i s stil l desirabl e fo r th e painfu l adjustment s in th e for m o f large-scal e migratio n o f populatio n an d capita l t o b e made. Certainl y the y ar e preferabl e t o th e economi c wast e whic h would resul t fro m unproductiv e us e o f labou r an d capita l i n sic k industries indefinitel y maintaine d b y subsidies . Bu t i n prescribing , in terms o f the margina l productivity principle , th e type s o f economic adjustment whic h shoul d b e mad e i n a localit y tha t ha s a declinin g industrial base , on e canno t concer n himsel f onl y wit h th e resource s employed i n th e basi c industry . Onl y whe n ther e i s n o alternativ e which i s consistent wit h economi c realities shoul d th e conclusio n tha t factor migratio n i s desirabl e b e accepted . Suc h a n alternativ e woul d be som e viabl e ne w industr y o r industries t o tak e th e plac e o f th e old one, or the revival of the old one by developing hitherto unexplore d potentialities. In sum , what migh t b e calle d th e secondar y effect s o f the realloca tion o f resources mus t be take n int o accoun t i n weighin g th e desira bility o f th e reallocation . Th e effec t o f thi s argumen t i s t o modif y somewhat, but no t to negate, th e conclusion s of the precedin g section . Implications of a Declining Farm Population One o f th e objective s propose d i n th e discussio n o f agricultur e i n chapter v i s th e eliminatio n o f subsistenc e farmin g operations , especially o f thos e farmer s whos e mai n sourc e o f incom e i s farming. If the y transfe r t o othe r occupation s i n Nov a Scotia , on e resul t wil l be bette r market s fo r th e farmer s wh o remain . Th e rationalizatio n of th e fishin g industr y into a smalle r numbe r o f communities , with a concomitant reductio n i n th e subsistenc e farmin g operation s o f fishermen, would have the same effect. On th e othe r hand , eve n i f th e subsistenc e farmer s wer e t o leav e the province , th e effec t o f their departur e woul d no t b e ver y serious , since a t present , wit h thei r ver y lo w incomes, they d o no t hav e muc h impact on the rest of the economy. The same could be sai d about thos e engaged i n submarginal fishing operations. A big reduction i n low-income farms woul d mean the abandonmen t of a considerable amount of capital suc h as buildings an d electrica l an d telephone installations , but i n vie w of the ver y smal l returns o n thes e farms a t present, th e abandonmen t would be mor e than warrante d b y gains fro m mor e remunerativ e employmen t o f th e relocate d far m

population, an d fro m superio r us e o f the free d lan d b y consolidatio n

The Pattern for Optimum Economic Adjustment 15

1

into large r far m unit s o r conversio n int o fores t tracts . Som e o f th e farmhouses would not be abandoned but would be used by hired help , by retire d people , an d a s summe r homes by cit y an d tow n dwellers ; however, experience ha s shown that whe n dwelling s an d outbuilding s are abandone d afte r consolidation , the y ar e usuall y to o ol d an d dilapidated fo r us e an d s o are o f little value anyhow. The rural municipalities would benefit by being able to extract more taxes becaus e o f th e appreciatio n i n lan d value s resultin g fro m im provement i n lan d use , and b y havin g fewe r peopl e t o serve . Th e reduction i n assessmen t resulting fro m th e abandonmen t o f buildings which did take place would be in part made up by better building s on the larger , mor e profitabl e farms. Furthermore , i n th e cas e o f many submarginal farm s i n the mor e remote rural areas , the valu e o f buildings is so small that thei r los s through abandonmen t makes very littl e difference t o municipa l assessmen t rolls . Th e ne t over-al l effec t o f consolidation would almost certainly be a n increase in property values and therefore also in assessments and taxes.8 THE HALIFAX AREA: A SPECIAL CASE

The populatio n o f th e Halifa x metropolita n are a gre w b y 66. 5 per cent ove r th e perio d 1941-5 6 (fro m 98,63 6 t o 164,200 ) an d b y 22.6 per cen t ove r th e perio d 1951-6 . Amon g the fiftee n Canadia n metro politan area s listed i n th e censu s of 1956 , its rate o f growt h ove r th e longer perio d wa s exceede d onl y b y Edmonton , Calgary , an d Vancouver, an d ove r th e shorte r period , b y Edmonto n an d Calgary . Fo r fourteen o f the area s taken together ( St. John's being the on e excluded from th e fifteen) , th e rate o f growt h wa s 52. 1 per cen t fo r 1941-56 , and for all fifteen areas, 19.3 per cen t for 1951-6. 9 Yet, Halifax ha s no t been th e centr e o f a n industria l boo m linked t o th e genera l postwa r expansion o f th e Canadia n economy , as hav e nearl y al l o f th e othe r areas on the list. There i s n o doub t tha t th e expande d defenc e installation s i n an d around Halifax have been th e predominant dynamic factor i n generat ing th e extraordinar y expansio n o f tha t city , especiall y sinc e 1950 . 8 An assessor , with much experienc e with assessment i n Nov a Scotia , expresse d general agreemen t with this paragraph and th e previou s one and added : "I n th e rural area s o f Nova Scoti a I kno w o f no case where a Municipalit y los t assessmen t by consolidation . As to wha t increase in valu e wil l resul t ove r th e year s I coul d not guess. " (Lette r t o th e author. ) H e als o note d tha t wher e abandonmen t o f land occurs without consolidation there is nearly always a drastic loss of value. ^Census of Canada, 1956, Bulletin 3-2, Table VII.

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Halifax i s th e easter n bas e fo r th e Roya l Canadia n Navy; the larg e dockyard an d othe r larg e nava l establishment s i n Halifax , th e nava l airbase acros s th e harbour , an d th e nava l researc h laborator y giv e considerable direc t employment . There are also much smaller army and air forc e contingents. 10 Th e Halifa x Shipyard s Limite d i s largel y de pendent o n defenc e contracts . Faire y Aviatio n Compan y o f Canad a Limited, whic h repair s aircraf t an d make s aircraft parts , an d Cosso r (Canada) Limited , a branc h o f a Britis h fir m whic h make s an d de signs electroni c equipment, 11 bot h locate d i n th e are a sinc e Worl d War I I becaus e o f the opportunit y fo r defence contracts and bot h ar e still heavil y dependen t o n them . Eve n th e large , recentl y expande d Imperial Oi l Compan y refiner y i n Dartmout h receive s muc h o f it s business fro m th e naval establishment. The defence establishmen t an d the industrie s directl y servin g i t hav e togethe r provide d a bas e fo r expansion o f construction an d servic e industrie s i n th e area. 12 There i s als o a larg e civi l servic e establishmen t i n Halifax , sinc e it i s the sea t of the provincia l governmen t and i s a regional centr e fo r many federal civil service activities. Four universities, general hospital s accounting for a third of the province's patient-days , an d the provincial mental hospital add further to the institutional activities o f the area . Its function a s the commercia l and financia l centr e o f the province , commercial por t activity , Moir s Limited ( a larg e confectionery , box, an d bakery concern ), and fish processing account for muc h of the remain ing industrial base of the Halifa x area . And in the cas e of port activity , the Nationa l Harbour s Board , a federa l Crow n corporation , play s a n important rôle. To the considerabl e exten t that th e Halifa x area i s dependent upo n governmental an d othe r institutiona l activities, the ordinar y theor y of allocation o f resources accordin g to th e margina l productivity rul e i s not relevant a s an explanation of economic development.13 It i s in thi s 10 For n

security reasons, data are lacking on the siz e of defence establishments . ln 1958 , Cosso r (Canada ) Limite d merge d wit h th e larg e Britis h firm , Electrical Musica l Industrie s Limite d (whic h control s Capito l Records , Inc. , i n the Unite d States) , t o for m EMI-Cosso r Electronic s Limited . I t i s hoped that th e merger will eventually result in a considerable extensio n o f products and activities , which woul d mak e th e compan y les s dependen t o n defenc e contracts . 12 In th e opinio n o f on e informant , wh o ha s observe d th e growt h o f th e are a very closely, the bi g growt h generate d b y th e defenc e establishmen t i s no w about over, althoug h ther e wil l continu e t o b e som e gradua l growt h o f th e servic e industries. 13 Marginal productivit y theor y is , o f course , applicabl e to th e publi c secto r i n the sens e and to the extent that the governmenta l an d othe r institutiona l activities are carrie d on i n th e Halifa x are a becaus e of th e superiorit y o f tha t locatio n fo r these activities, but suc h decisions are no t guided by marke t forces . Th e marginal

The Pattern for Optimum Economic Adjustment 15

3

important sense that Halifax is a special case . As a result, th e influence of fiscal adjustment on economic development in the Halifa x area wil l be les s tha n wher e developmen t i s mor e dependen t upo n marke t forces. This conclusio n als o holds in large part fo r the vicinitie s o f th e air forc e bas e a t Greenwoo d i n th e Annapoli s Valley an d th e Corn wallis naval installation near Digby. FACTOR ADJUSTMENTS APPROPRIATE TO NOVA SCOTIA AND THE SCOTT-BUCHANAN CONTROVERSY

It was argued in chapter v that Nova Scotia is a low-income province partly because it is not so well endowed with resources as the wealthie r provinces an d partl y becaus e it s resources ar e no t being pu t t o thei r most effectiv e use . Th e questio n o f adjustmen t i n th e Nov a Scotia n economy will now be examined in the framewor k o f a debate betwee n A. D . Scot t and J . M . Buchanan, 14 a debate tha t i s particularly usefu l for th e purpos e because o f the wa y in which i t illuminate s muc h that is of primary concern in this study. Two aspects of the debat e ar e of interest here, an d i t is important t o distinguish clearl y betwee n them . On e i s concerne d wit h th e reason s for a province in a federal country being a low-income province, 15 and with th e types of economic adjustment appropriate t o suc h a province vis-à-vis th e res t o f th e country . Th e othe r i s concerned , withi n thi s context, with whether federa l grants tend t o stimulat e th e appropriat e economic adjustments or tend to distort the allocation of resources from the optimum . Essentially , Scot t argue s tha t the y hav e a distortiv e effect; Buchanan , tha t grant s fo r som e service s ar e distortive , fo r others, corrective , an d tha t thei r ne t effec t i s no t easil y determined . He also argues that, in general, federal transfers are needed t o equalize fiscal pressur e o n similarl y situate d individual s i n ric h an d poo r productivity rul e is applicable in a market framework t o the considerabl e economi c activity generate d b y th e institutiona l base. Th e poin t i s tha t i t i s no t applicabl e in tha t framewor k t o muc h o f th e bas e itself . On e resul t i s tha t thi s importan t area o f th e provinc e i s largely insulate d fro m th e vicissitude s o f marke t forces. I t is, however , subjec t t o th e insecurit y resultin g fro m th e uncertaint y o f futur e defence policy . 14 The relevant articles are: A . D. Scott , "A Note on Grants in Federal Countries, " Económica, XVI I (November , 1950) ; J . M . Buchanan , "Federa l Grant s an d Resource Allocation, " Journal of Political Economy, L X (June , 1952) , a criticis m of Scott' s analysi s i n th e abov e articl e an d tha t o f othe r author s wit h simila r viewpoints; A . D . Scott , "Federa l Grant s an d Resourc e Allocation, " Journal of Political Economy, L X (December, 1952) , a criticis m o f Buchanan' s article ; an d in the sam e issue, "A Reply," Buchanan's reply to Scott's criticism. 15 The ter m "province ' i s substitute d fo r "state, " whic h i s use d i n th e debate , because the contex t of this study is that of a Canadian province .

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provinces. Th e secon d aspec t o f the debat e wil l b e considere d later ; the first will be examined now. Buchanan maintain s tha t t o th e exten t tha t a poo r are a i s poo r i n relation t o othe r area s o n account o f misallocation o f resources 16 it is : . . . largel y attributabl e to the comparativ e abundanc e o f unskilled labo r in relatio n t o capital, skille d labor , an d entrepreneurship . Thus , th e return s to capita l an d entrepreneurshi p ten d to b e higher , th e return s t o unskille d labor lower , tha n th e correspondin g rate s o f retur n i n th e riche r sections . Income difference s amon g regions will tend t o be reduced b y a n out-migration of the relatively abundant resources and an in-migration of the relativel y scarce resources in all areas.17 Scott argue s that natural resources may no t b e i n goo d suppl y or of high qualit y i n a poo r area , i n whic h cas e ther e shoul d b e a n out migration o f th e othe r factor s o f production , tha t is , o f bot h labou r and capital.18 Scott's point is well taken. In his reply to Scott, Buchanan attempts t o hol d hi s groun d b y minimizin g the importanc e o f natura l resources, whic h h e regard s (i n "Knightian " terms ) a s a subdivisio n of capital ; an d b y stressin g the importanc e of an exces s labour suppl y in attracting capital. H e argues that natural resource s ar e not o f grea t importance becaus e o f th e increasin g exten t t o whic h the y ca n b e "manufactured." "Invested capita l seem s clearly to be a more important subdivision [tha n natura l resources ] i n th e consideratio n o f mos t economic problems . Ther e ar e fe w resource s whic h canno t b e pro duced an d destroye d i n a n economi c sense ; investmen t ca n produc e soil an d eve n climat e t o a degree. " H e add s tha t wit h technologica l advances natura l resource s wil l becom e les s an d les s distinguishabl e from capital. 19 If suc h contention s wer e vali d t o th e extreme s to whic h Buchana n carries them , i t woul d mak e a very nebulous thing o f location theory . It woul d virtuall y eliminat e natura l resource s a s a facto r influencin g industrial locatio n an d woul d mak e irrelevan t mos t o f th e theor y o f 16 It wil l b e poo r eve n wit h n o misallocatio n o f resources i f i t ha s i n economi c equilibrium a higher proportion tha n othe r area s o f factors o f production tha t ar e relatively unproductive. "Buchanan, "Federa l Grants, " p . 209 . H e i s arguin g i n term s o f marginal returns. 18 Scott, "Federa l Grants, " p . 536 . He refer s t o "Buchanan' s implici t assump tions tha t natura l resource s ar e adequate , awaitin g onl y development , an d tha t labor i n poo r area s require s onl y trainin g an d experienc e fo r it s efficien t utiliza tion" and add s "my own assumption was that both natural resources and the othe r factors ar e scarc e an d tha t nationa l produc t wil l b e highes t whe n th e scarc e labor, capital , an d enterpris e ar e attracte d t o th e bes t soil , ports , mines , sites , etc." (Ibid.) "Buchanan, "A Reply," p. 538.

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international an d interregional trade . H e als o seems to be overlookin g transportation cost s a s a facto r i n location . Ther e i s n o particula r reason wh y th e margina l productivit y o f skille d an d professiona l labour, enterprise , an d capita l shoul d b e hig h wher e tha t o f unskille d and semi-skille d labou r i s low . I t i s quit e possibl e fo r th e margina l productivity of any or all of these factors t o b e lo w compared to othe r provinces if natural resources are poo r or if transportation costs are a n important factor . Buchanan , in thinkin g particularl y i n term s o f th e southern American states, seem s to be le d to adop t a s generally valid , premises which may well be applicable to thes e states . So muc h fo r th e debat e i n term s o f th e abstract . Wha t i s i n fac t Nova Scotia' s situation? Nova Scotia is an economicall y mature regio n in term s o f exploitatio n o f natura l resources , an d i s consequentl y no t now abundantl y endowe d wit h natura l resource s relativ e t o th e wealthier provinces . Thi s shortcomin g i s particularl y seriou s i n vie w of th e preponderanc e o f the developmen t o f natural resources an d th e production o f primary commoditie s i n Canada' s economi c growth , a n aspect o f Canada's growt h that makes this part o f Buchanan's analysis less applicabl e i n Canad a tha n i n th e Unite d States . The provinc e is poorly locate d t o compete , i n mos t industries , i n th e larg e centra l Canadian markets , an d ha s i n recen t year s continue d a long-perio d trend of developing a t a slower pace tha n the countr y a s a whole. As a result, th e marginal productivity of both capital an d labour has been persistently lower than in some other parts of the country , as evidenced by the chroni c drain of labour and capita l fund s fro m th e province . The provinc e ha s fo r man y years experience d emigratio n o f labou r of nearl y al l sorts . Skille d an d professiona l labour an d entrepreneur s have bee n exporte d i n large numbers, 20 quit e contrar y t o Buchanan' s prescription. A s already observed , it seem s clear tha t ther e i s a heavy net drai n o f capital ou t o f the region. 21 It doe s appear, althoug h i t i s difficult t o substantiate , tha t Nov a Scotia' s labou r forc e i s weighte d more heavil y wit h semi-skille d an d unskille d labou r tha n i n othe r 20 It i s a commo n sayin g in the Maritim e Provinces that on e of the area' s main exports is brains. Every yea r th e Nov a Scotia n universities see man y o f thei r best students leav e th e provinc e in respons e t o bette r economi c opportunitie s elsewhere. Rowlan d refer s t o th e trainin g of these peopl e a s a n "unrequite d export " ( Some Regional Aspects of Canada's Economic Development, p . 19 9 ). This is no t to say that there is necessarily direct correlation between amount o f education an d the propensit y to migrate . Mrs. K. Levit t foun d n o evidenc e of suc h correlation in th e Atlanti c Provinces . (Population Movements in the Atlantic Provinces [Halifax an d Fredericton: Atlantic Provinces Economi c Council, 1960] , pp. 30-8.) 21 See chapte r v . I t i s tru e tha t som e capita l an d som e type s o f labou r hav e moved into the province, but the outward movements have predominated.

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regions. T o the exten t suc h weightin g exists , it i s likely partly du e t o the relativel y heav y emigratio n o f trained labour , partl y t o th e mor e limited opportunitie s t o appl y skill s in Nov a Scotia , and partl y t o th e greater inerti a an d greate r poverty of the untraine d group . In hi s repl y t o Scott , Buchanan , whil e concedin g tha t "investmen t in heav y industr y woul d b e inefficien t i n region s deficien t i n powe r potential regardless of the degre e of labor surplus, " argues that "investment i n ligh t industr y requirin g littl e capita l equipmen t pe r worke r would probabl y b e efficien t i n region s possessin g surplu s populatio n no matte r ho w inadequat e th e resourc e base." 22 Thi s argumen t ha s really alread y bee n deal t wit h i n chapte r v , i n connectio n wit h th e question o f whether o r not ligh t industrie s simila r to som e of those in Switzerland coul d b e establishe d i n Nov a Scotia . Whil e i t i s con ceivable tha t they could, it was pointed out that Nov a Scotia' s locatio n in relatio n t o markets , and th e pull s o n labour an d capita l fro m else where, d o no t favou r thei r establishmen t a t present . Wit h regar d t o heavy industry , i t i s o f interes t tha t Dosc o woul d lik e t o expan d it s fabricating operation s in Montrea l rather tha n Sydney , not becaus e of lack o f power resources , bu t partl y becaus e o f the cos t o f transporta tion and mainl y because of the crucia l importanc e in othe r respects of nearness t o markets . A s was observe d i n chapte r v , no t onl y i s ligh t industry no t strongl y attracte d t o Nov a Scoti a unde r presen t circum stances, but a t leas t som e of the capita l an d entrepreneurshi p successfully employe d in such industries in the provinc e would be eve n more productive i f employe d elsewhere , agai n largel y becaus e o f reduce d transportation cost s and othe r advantage s of nearness to markets. While it is argued in chapter v that certai n industries in Nova Scotia, especially fishing and agriculture, woul d become more productive wit h the further us e of capital, the situation is essentially not the kind whic h Buchanan envisage s whe n h e talk s abou t facto r adjustmen t in a poor area. What is called for in Nova Scotia is mainly a consolidation o f and concentration (bu t als o som e expansion ) i n th e us e o f capita l and , possibly, even some decrease in population in some areas. For example, if two or more farms ar e combined, the total amount of capital used o n these farm s ma y b e littl e mor e tha n befor e (althoug h th e capita l per far m wil l be much more), but it s use may be much more effectiv e and th e capita l equipmen t itsel f ma y be o f a differen t sort . Similarly , in the fishing industry, five men can work o n one longliner rather tha n on fiv e separat e smal l boats , wit h a concomitan t reductio n i n th e total number of fishermen. Rationalization in fish processing wil l have 22

Buchanan, "A Reply," pp. 537-8.

The Pattern for Optimum Economic Adjustment 15

7

analogous effects . Wha t i s likel y t o com e abou t i s a highe r rati o o f capital per man , and consequentl y greate r productivity , greate r earn ings per man, and also greater tota l production. Recen t mechanizatio n of som e of the coa l mines is having the sam e kind o f effect . Thi s kin d of rationalizatio n i s rathe r differen t fro m Buchanan' s prescriptio n fo r a poo r are a o f importin g capita l i n relatio n t o labou r an d natura l resources. Fo r Buchana n envisage s th e establishmen t o f ne w manu facturing industrie s rathe r tha n adjustment s in ol d primar y ones , a s are particularly calle d fo r in Nov a Scotia. To th e exten t thes e adjust ments call for som e additional use o f capital an d fo r som e emigration of labour , the y d o bea r som e semblance o f Buchanan' s prescription . Even th e suggestio n mad e earlie r tha t th e establishmen t o f ne w secondary industrie s wit h th e hel p o f subsidie s ma y b e economicall y sound is at variance with Buchanan's analysis because i t is based upo n immobility o f labour , wherea s Buchanan' s analysi s provide s fo r mobility, tha t is , it is essentially an efficienc y argumen t in the conven tional sense. It i s importan t t o distinguis h clearl y betwee n th e tw o aspect s of adjustment i n allocation of resources discusse d above. ( 1 ) Adjustmen t of th e provincial economy vis-à-vis the res t of the country . This adjust ment call s for som e movement of bot h labou r an d capita l ou t o f th e province a s a resul t o f highe r margina l productivit y o f thes e factor s elsewhere. Thi s movement is a balancing one in that i t tend s to maintain the margina l productivity of labour an d capita l i n Nov a Scotia a t higher level s than woul d otherwis e obtain, although, becaus e o f some resistance to moving, probably stil l a t lower level s than in othe r part s of th e country . (2 ) Interna l adjustment s t o effec t mor e productive us e of th e factor s of production within the province . These ar e th e kin d of adjustments discussed in chapter v and just referred to in the discussion above. The tw o kind s of adjustmen t ar e related . Th e interna l adjustment s of the kind advocated will likely call for some addition to total capital , especially i f they ar e accelerated . On e effect , then , wil l b e t o reduce , at leas t temporarily , the ne t outflo w o f capital fro m th e province , be cause o f recognitio n o f th e opportunit y t o pu t i t t o bette r us e tha n before i n the province . Anothe r effec t wil l likel y be t o release labour , some o f whic h wil l fin d employmen t i n othe r occupation s i n th e province a s a resul t o f th e improvemen t i n th e economi c base , an d some of which will swell the tid e of emigration. Is a reduction o f the ne t outflo w o f capital, assumin g it doe s occur , the sam e thin g i n Buchanan' s term s a s th e importatio n o f capital ?

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Ostensibly i t is . But the fac t remain s that th e outwar d movement s of capital (an d labour) whic h hav e persisted fo r many years, and whic h are expecte d t o continue , reflect a tendenc y fo r th e margina l productivities o f labou r an d capita l t o b e greate r i n som e othe r part s o f Canada. While this traditional adjustmen t ma y be modifie d slightl y i n extent, i t i s not expecte d tha t i t wil l b e i n it s nature . An d s o Scott's argument that poor endowment with natura l resource s in a poor are a may mean that both labou r an d capita l hav e highe r marginal produc tivities elsewher e wil l likel y continu e t o b e vali d fo r Nov a Scotia for some time in the future a s it has been in the past. Both Scot t an d Buchana n wer e preoccupie d wit h th e proble m o f economic adjustmen t o f a provinc e wit h respec t t o th e res t o f th e country; neithe r concerne d himsel f wit h th e questio n o f interna l adjustment. I t i s now clear tha t th e questio n o f internal adjustmen t is a highly significant on e in Nova Scotia. Traditional pattern s o f resource use hav e prove n intractabl e eve n thoug h the y ar e glaringl y inap propriate t o the condition s of the presen t day. Even heavy emigration has ha d surprisingl y littl e effect . I t i s thes e interna l adjustment s tha t are o f particula r interes t t o thi s study . I n genera l th e adjustment s called fo r i n th e rura l municipalitie s ar e thos e whic h hav e bee n de scribed, relatin g t o farming , fishing , an d loggin g operations . Th e adjustments i n th e fishin g industr y wil l probabl y caus e th e town s depending i n whol e or in part upo n fishing to increas e i n importanc e as th e industry' s operation s becom e mor e concentrate d i n th e large r centres. T o the exten t tha t town s are marketing centres i n rural area s they wil l benefi t fro m th e highe r income s which wil l ensu e fro m im proved us e of agricultural an d fores t lan d an d wil l attract som e of th e displaced rura l population . Declinin g coal-minin g an d othe r town s that have lost part of their industrial base will probably lose population to other towns and cities and to other parts of Canada. Although some secondary industry migh t mov e int o town s havin g a . surplus labou r supply, suc h movemen t i s likel y t o b e concentrate d i n a fe w o f th e larger centre s wher e ancillar y industrie s ca n als o develo p an d wher e there is a sizable local market, and will be geare d mainl y to supplying markets i n th e Atlanti c Provinces , whic h wil l expan d slowl y wit h population, rathe r tha n t o supplyin g markets in centra l Canada . A s in the cas e of the provinc e vis-à-vis the res t o f the country , much o f th e required adjustmen t stem s fro m poo r natura l resource s whic h resul t in low marginal returns to both labou r and capita l (th e kind of adjust ment emphasized by Scott) . Where increase d capita l i s required, i t is mainly for rationalizing existin g industries, with th e effec t o f releasing

The Pattern for Optimum Economic Adjustment 15

9

labour, althoug h some industries based upo n an influx o f capital an d a surplus labour forc e migh t be initiated a s part of a publicly sponsored programme of development. THE EFFECT S OF PUBLIC SERVICES ON FACTOB MOBILITY

Since thi s stud y i s concerne d wit h th e effect s o f provincia l grants , or othe r form s o f provincial-municipal fiscal adjustment, on allocatio n of resources , an d sinc e fiscal adjustment is likely to affec t th e leve l of certain publi c service s (especiall y the genera l services ) i n th e poore r areas, it i s relevant t o as k what effect s th e leve l o f the genera l public services has o n factor movemen t in Nov a Scotia. Thi s questio n wil l i n part b e discusse d with referenc e to th e secon d aspec t o f the debat e between Scott and Buchanan—tha t concerned with die effect o f federal grants on the allocation of resources. Scott argue s that federa l transfers from ric h t o poo r provinces, providing a s the y d o additiona l service s i n poo r provinces , imped e th e migration o f labour ou t o f the poo r provinces , accordin g to th e mar ginal productivit y rule , an d s o lowe r th e leve l o f productio n o f th e nation as a whole. He also argues that since such services form a larger part o f income of poor people tha n o f rich people , the y wil l particu larly impede the movement of low-income groups.23 Buchanan argue s tha t Scott' s generalization s ar e no t necessaril y valid. T o suppor t hi s argumen t h e examine s th e effect s o n facto r mobility o f increase s i n th e leve l o f certai n services . Hi s conclusions will be o f some interest here. H e relate s his argumen t to hi s premises about th e desirabl e direction s o f facto r movement s for a poo r area , already criticall y deal t wit h i n th e previou s section ; th e followin g analysis wil l instea d b e relate d t o th e type s o f interna l adjustment s which it has just been argued are appropriate to Nova Scotia. Although his discussio n (an d Scott's ) i s concerned with change s in th e leve l of services an d thei r effect s arisin g fro m federa l transfer s t o poo r provinces, i t i s als o relevan t t o th e effect s o f provincia l transfer s t o poor localities. Highways and Roads Although in Nova Scotia all public roads except thos e in town s and cities are already provided by the provincial government, they do have 23 Scott, " A Not e o n Grants, " p . 419 . Th e latte r contentio n i s deal t wit h i n a more genera l theoretical contex t i n th e nex t chapter . Fo r th e present , i t i s th e effect o f publi c service s (especiall y o f increase s i n th e leve l o f service s in poo r municipalities ) that is of interest.

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a bearing o n this study . The provincial governmen t must decide wha t roads shall be built or maintained in one part of the province compare d with anothe r an d it s decision s wil l affec t economi c development . Furthermore, roads are in the nature of a general service, and localitie s in some other provinces do have some responsibility fo r them i n rura l areas, as they once did in Nova Scotia. Buchanan argues that highway s have little directly t o do with decisions of people to move but d o make a regio n mor e attractive t o industry , becaus e o f thei r importanc e fo r transportation, an d s o encourag e a n inwar d movemen t o f capital . According to his premises, suc h a movement would hav e a correctiv e effect o n the allocatio n of resources.24 In th e Nov a Scotia n contex t th e effec t o f provincia l responsibilit y for road s is that th e poorer area s tend t o have better road s tha n the y would have if they had t o provide them themselves. Since it i s almost certain tha t th e provinc e i n an y cas e woul d b e responsibl e fo r th e trunk roads, which lin k the mai n centres, it i s the othe r road s servin g the rural areas, including the numerous small villages, that are relevan t here. I t i s not likel y tha t manufacturing , since it i s mostly located i n towns and villages on the trunk roads, would be muc h affected b y th e secondary roads. These secondary roads are mainly, although certainl y not entirely , o f benefi t t o th e peopl e i n th e area s serve d b y them . (They ar e als o o f benefi t t o thos e wh o sel l an d distribut e good s t o those living in the rural areas. ) Fro m the industrial point o f view they serve mainl y th e primar y industrie s o f farming , fishing , an d forestr y with which the low-income groups are particularly associated. The cos t o f road s i s a relevan t factor . Th e provinc e canno t b e expected t o provide a s good roads in a remote rural are a wit h spars e population an d smal l potentia l fo r economi c developmen t a s i n a densely populated area o r one which has goo d prospects for economic development. Whil e particularl y importan t i n th e cas e o f roads , th e cost of providing a service to an area in relation to tha t area' s popula tion densit y an d potentia l fo r economi c development i s als o relevan t in determinin g th e leve l o f some othe r services . While this facto r wil l not be examine d in detail here , i t is assumed that the provinc e woul d take it into account. The effect s o f th e provinc e providin g bette r road s tha n th e rura l localities coul d themselve s provid e probably o n balanc e improv e th e use of resources in the cas e of farming an d forestry, because they make markets mor e accessibl e t o agricultura l an d forestr y product s an d d o not impede , bu t rathe r ten d t o encourage , th e adjustment s recom 2-tBuchanan, "Federal Grants, " p. 212.

The Pattern for Optimum Economic Adjustment 16

1

mended i n chapte r v. 25 Still , ther e woul d likel y b e som e instance s of these road s inducin g farmer s t o sta y wh o should leave . In th e cas e of fishing, too, th e better the roads the mor e accessibl e th e markets . Th e effect i n som e case s i s likel y t o b e contrar y t o tha t desired , fo r goo d roads facilitate the continuanc e of inefficient fishing and fish processing in the man y small fishing villages and s o impede th e rationalizatio n o f the industr y b y it s concentratio n i n a smalle r numbe r o f centre s an d continue the unnecessary duplication o f social capital . The touris t industry i s dependent t o a considerabl e exten t o n good roads, an d a s tourist attraction s i n Nova Scotia are t o a large exten t in rural areas , includin g th e poore r ones , bette r road s tha n coul d b e maintained b y th e poore r rura l municipalitie s themselve s permi t th e tourist resource s o f the provinc e t o be pu t t o better use ; tha t is , they enhance th e productivity o f both labou r an d capital used in the touris t industry and s o have a favourable effect. I t i s also appropriat e t o not e here tha t goo d road s mak e possibl e th e operatio n o f bigger , con solidated school s servin g large r areas , whic h result s i n better , ofte n more economical , education. Bette r education , i n turn, raise s the pro ductivity of the labour force and likely increases its mobility by making its member s more aware o f the rang e o f opportunitie s ope n t o them . This favourable educational effec t o f roads would tend i n the lon g run to offse t th e unfavourabl e effects wher e operative in the cas e of fishing and farming. While th e effect s o f bette r road s ar e neithe r al l correctiv e no r al l distortive wit h respec t t o th e allocatio n o f resources , i t appear s tha t the ne t effec t shoul d b e quit e strongl y corrective , althoug h alon g rather mor e complex lines than Buchanan suggests. Education The presen t educationa l programm e of the provinc e i s designe d t o make a good standar d o f educational facilitie s availabl e t o al l section s 2B It i s not claime d that th e road s are a t presen t satisfactor y to th e farmers . The fact tha t som e rural road s ar e bogge d dow n fo r severa l week s in th e yea r limit s the kind s of operations availabl e t o th e farmer s concerned. The y canno t generally , for example , specializ e i n dair y farmin g o r eg g productio n sinc e suc h operation s require uninterrupte d acces s to markets . In a recen t stud y o f Hant s County , th e authors, i n discussin g this sam e point , conclude : "Th e improvemen t of roads may be th e mos t importan t singl e facto r i n th e creatio n o f condition s favourabl e t o economic chang e i n th e whol e area. " (N . H . Mors e an d R . E . L . Watson , " A Report o n a Preliminar y Surve y o f Rural Condition s i n Hant s Count y Nov a Scotia" [Wit h specia l referenc e t o farme r organization s i n th e County ; Acadi a University Institute, 1957] , p. 29 . ) Wha t i s claimed here i s that th e rura l area s ar e generally bette r serve d wit h road s tha n i f th e rura l municipalities , especiall y th e poorer ones, were responsible fo r them.

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of th e province . Th e provincia l contribution s t o th e financin g o f this programme var y directly with the poorness o f the localities a s measured by equalize d assessment s o f property . Th e provincia l proportion s shown in Table XXXIII are used b y the province a s an inverse measur e of the ability of the municipalities t o pay for educational services . They TABLE XXXII I

PROVINCIAL PROPORTIONS " FOR TH E NOV A SCOTIAN MUNICIPALITIE S BASED O N THE 195 8 EQUALIZE D ASSESSMENT S AN D ON THE 1957 COS T O F THE FOUNDATIO N PROGRA M

Amherst 27.4 Annapolis Royal ni Antigonish 4 Berwick 29.8 Bridgetown 9.8 Bridgewater .8 Canso 80.0 Clark's Harbou r 53.7 Dartmouth ni Digby 18.1 Dominion 86.7 Glace Bay 58.5 Halifax ni Hantsport 16.6 Inverness 79.9 Kentville 20.5 Liverpool 33.0 Lockeport 66.3 Louisburg 41.2 Lunenburg ni Mahone Bay 34.1 Annapolis 68.0 Antigonish 84.9 Argyle 84.0 Barrington 81.6 Cape Breto n 66.7 Chester 45.3 Clare 74.8 Colchester 69.3 Cumberland 73.65 Digby 77.1 Guysborough 83.8 Halifax 33.0

Towns and Cities %' 4 Middleto n 9.5 l Mulgrav e 71.4 7 . 12 Ne w Glasgow ni 3 Ne w Waterford 74.6 3 Nort h Sydne y 55.8 7 Oxfor d 62.4 0 Parrsbor o 63.8 9 Picto u 53.3 l Por t Hawkesbury 70.0 9 Shelburn e 49.7 4 Springhil l 61.4 7 Stellarto n 56.0 l Stewiack e 56.3 0 Sydne y 8.2 5 Sydne y Mine s 63.0 5 Trento n ni 2 Trur o .6 0 Westvill e 75.9 0 Windso r 32.2 l Wolfvill e 25.4 0 Yarmout h 34.9 Rural Municipalities 5 Hants , East 72.2 5 Hants , Wes t 61.7 2 Invernes s 86.3 0 King s 61.4 5 Lunenbur g 62.8 7 Picto u 75.8 0 Queen s 35.5 2 Richmon d 86.5 Shelburn e 81.6 9 St . Mary' s 78.5 1 Victori a 67.8 0 Yarmout h 60.8

TOTAL, towns and citie s 3 TOTAL, rural municipalities 6 TOTAL, all municipalitie s 52.8

%'

l

l

9 9 3 7 4 8 2 5 0 6 6 1 3 1 5 5 2 9 3 3 2 2 6 1 1 8 1 6 8 2 2

7 . 22 3 . 79 4

SOURCE: "Summary: Foundatio n Progra m Percentag e Proportions," based o n Academi c School Year , 1957-5 8 (supplie d b y Governmen t of Nova Scotia , Departmen t o f Education) . "The "provincia l proportion " i s the province' s shar e o f th e non-capita l costs o f th e Foundatio n Progra m fo r education . Se e chapter IV , p. 72 .

The Pattern for Optimum Economic Adjustment 16

3

also serve as quite a good index of poverty of the municipalities , t o th e extent poverty can be measured in terms of value of real an d persona l property.26 The table i s given to indicate th e grea t variatio n o f wealt h among th e municipalitie s an d betwee n th e rura l an d urba n munici palities, and at the same time to show the extent to which the provinc e pays fo r educatio n i n th e poore r areas. 27 Th e ful l impac t o f the ne w programme wil l no t b e fel t fo r a numbe r o f years . I t take s tim e fo r standards o f teachin g t o ris e i n respons e t o highe r salarie s an d fo r physical facilitie s t o b e improved . Th e consolidatio n o f smal l (some times one-room ) rura l school s int o larger , better-equipped , better staffed regiona l school s has bee n greatl y accelerate d i n th e postwa r period, but i s still far from complete. As alread y suggeste d i n th e brie f referenc e t o educatio n i n th e previous section , i t i s expected tha t improvemen t in educatio n i n th e poorer area s wil l wor k i n favou r o f bette r allocatio n o f resources . Buchanan states that evidenc e for the Unite d State s indicates a direc t correlation betwee n educatio n and migratio n and tha t thi s correlatio n exists becaus e th e better-educate d ar e bot h bette r informe d abou t "the availabilit y o f alternativ e employmen t opportunities," an d "mor e fully cognisan t o f the advantage s to b e secure d fro m th e highe r rea l income whic h migratio n t o othe r area s ma y mak e possible." 28 Mrs . Levitt's study doe s no t sho w any clear correlatio n betwee n migratio n and leve l o f educatio n i n th e Atlanti c Provinces; 29 bu t thi s i s likel y explained by the greate r migratio n from th e rural , lower-incom e areas where the educational attainment was generally less than in the urban , 26 There i s stron g negativ e correlatio n betwee n th e rankin g o f town s an d o f rural municipalitie s accordin g t o provincia l proportion s an d accordin g t o th e 195 8 equalized assessments per capita . 27 As state d i n chapte r rv , th e provinc e pays a minimu m of 25 pe r cen t o f non capital cost s i n al l municipalities , bu t contribute s t o capita l cost s onl y accordin g to the provincial proportions. 28 Buchanan, "Federal Grants," pp. 212-13. Buchanan's analysi s is not altogethe r clear. H e seem s t o argu e tha t increase d educatio n wil l increas e th e mobilit y of labour an d s o will b e resourc e corrective . Bu t h e doe s no t tak e int o accoun t th e fact tha t wit h greate r educatio n th e labou r forc e wil l i n th e lon g ru n becom e more skilled . Thi s latte r effect , accordin g t o hi s premises , wil l b e corrective , bu t at th e sam e tim e wil l mak e th e movemen t o f labou r les s desirable . H e i s no t explicit i n the first part of his argument abou t th e desirabl e directio n o f migration. He proceed s t o argu e that i n th e shor t ru n a s well a s in th e lon g ru n th e skilled , professional, an d manageria l groups , t o who m educatio n matter s most , wil l b e encouraged t o sta y b y increase d educationa l facilities , wit h desirabl e effects , an d that furthermore , a better-educate d labou r forc e wil l mak e a provinc e mor e attractive t o outsid e capital . H e appear s no t t o b e altogethe r consistent , althoug h he seems to place greater emphasi s upo n the latte r considerations , whic h ar e mor e in accord with his premises. 29 Levirt, Population Movements in the Atlantic Provinces, pp. 30-8.

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higher-income areas . Th e rat e o f migration fro m th e rura l area s ma y well hav e bee n muc h greate r i f ther e ha d bee n a highe r leve l o f educational attainmen t there. There seems little doubt, in terms of a priori reasoning at least , that education has a favourable effect wit h respect t o use of resources. Th e effect i s twofold . I t increase s th e qualit y o f huma n resource s an d s o makes the m mor e productiv e and , a s Buchana n suggests , i t make s people mor e alert to the opportunities ope n to them an d more able to take advantage of them; that is, it makes them more mobile and on that account more productive.30 Both effect s hav e been operativ e i n Nov a Scotia , bu t th e secon d i s the central one here, since it relates t o allocation of resources. The fact that a comparativel y larg e proportio n o f th e province' s populatio n attends university, combined wit h the comparativel y smal l proportio n of person s with universit y trainin g i n th e labou r force , suggest s that there i s a positiv e correlatio n betwee n th e amoun t of educatio n an d the degre e of mobility of labour. Th e heavier weighting in Nova Scotia of activitie s closel y relate d t o primar y productio n i s conduciv e t o outward migratio n o f part o f the better-educate d population . It i s not onl y with respect t o inducin g movement s of population t o more productive pursuit s outsid e of the provinc e that educatio n ha s a favourable allocativ e effect . I t i s als o favourable in inducin g interna l movements int o more productive pursuits. The extensio n o f good edu cational opportunitie s int o th e poore r rura l area s i s conducive to just the types of adjustments deemed desirable. Fo r example, in rural area s where agricultur e an d forestr y are prevalent, goo d educatio n induce s some people to give up low-income operations and to move on to othe r pursuits (som e of the m i n th e province ) wher e the y ar e mor e pro ductive. An d i t induce s other s t o seiz e th e opportunitie s fo r bette r farming an d forestr y practice s b y consolidatin g holding s an d usin g better technique s an d equipment . I n fishing , effect s wil l b e similar ; not onl y i s th e rationalizatio n o f th e industr y i n bot h catchin g an d processing speede d up , bu t a greate r appreciatio n o f social amenitie s stemming from bette r educatio n i s conducive to th e formin g o f large r communities, which furthe r favour s rationalization . There i s anothe r wa y i n whic h improve d educatio n i n th e poore r areas favours better allocation o f resources. I t i s related to Buchanan' s suggestion that skilled, professional , and manageria l groups, t o whom 30 Scott take s note o f th e firs t effect , bu t argues , correctly, in hi s debat e wit h Buchanan tha t th e rea l poin t a t issu e i s no t whethe r educatio n wil l mak e th e labour forc e mor e productiv e but whether , when educated , people ar e no t mor e productive elsewhere.

The Pattern /o r Optimum Economic Adjustment 16

5

education matter s most , will b e encourage d t o sta y i n poo r area s b y improved educationa l facilitie s for thei r children . The y ar e no t likel y to sta y i f thei r economi c opportunities ar e bette r i n wealthie r areas , where educationa l facilitie s ar e als o likely t o b e good . Bu t th e poin t is tha t i f thei r economi c opportunitie s ar e bes t i n th e poore r areas , they will be encouraged to stay there or go there if educational facilities are good, whereas otherwise they would not. Although th e abov e proposition s ar e mad e wit h respec t t o rura l areas, the y ar e als o vali d fo r th e poore r towns . Goo d school s als o have favourabl e allocativ e effect s i n wealthie r localitie s bu t i t i s th e effect o f improve d service s i n poo r localitie s mad e possibl e b y pro vincial-municipal fiscal adjustment on which this study is focused. Health and Social Services The provinc e no w assume s mos t o f th e responsibilit y fo r publi c health, excep t i n Halifa x which i s on e o f the wealthie r localities , an d with the ne w hospital plan, fre e war d car e and diagnosti c services ar e available to all of the citizen s of the province . In effect , then , there ar e provincial transfer s to th e poore r localities . The localitie s ar e stil l re sponsible for capital costs , but eve n here the unifor m provincia l grants for hospita l construction , als o finance d b y th e sale s tax , provide fo r some transfers . Th e provinc e take s responsibilit y fo r treatin g th e curable, mentall y il l wh o requir e institutiona l car e an d no w con tributes t o th e maintenanc e o f municipa l custodia l hospital s fo r th e mentally ill. Buchanan argue s tha t improvement s in publi c healt h hav e effect s similar t o improvement s in educatio n b y enhancin g mobility an d im proving the quality of the part of the labour force which remains in th e poor area, with the result that capita l an d natural resources are put t o more effectiv e us e an d income s ar e raised . Thes e favourabl e effect s would seem to apply in Nova Scotia. Better health also enables children to get more benefit fro m thei r education and s o accentuates the favour able effects o f education already described. The provincial provisions for public healt h service s ca n be expecte d to have favourable effects o n allocation of resources, although probably the effect s ar e weaker than in the case of education. Improve d hospita l care increases the productivit y of the labou r force , bu t i s not likel y to have muc h influence o n where people liv e an d work. 31 To th e exten t 81 Compare Buchanan , "Federa l Grants, " p . 214 : "Few , i f any , familie s ar e influenced i n thei r occupationa l an d locationa l choice s by th e availabilit y o f better hospitals, an d thos e wh o ar e s o influence d ar e eithe r th e bette r educate d o r th e unproductive."

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that it has, its effect wil l likely be favourable, in that, if hospital servic e in low-incom e localitie s i s simila r t o tha t i n high-incom e localities , workers will no t b e influence d i n thei r decision s o f where to liv e an d work by the qualit y o f hospital service , bu t wil l ten d t o liv e wherever they wil l b e mos t productive , tha t is , whereve r the y ca n ear n th e highest incomes , which may be i n a low- or high-income locality. Th e effect i s weakened by the existence of the provincially-operated genera l hospital i n Halifa x whos e facilities ar e availabl e t o al l provincial resi dents. Provisio n fo r treatmen t o f th e mentall y il l a t th e provincia l institution a t Dartmout h also increases th e productivit y o f th e labou r force bu t ha s n o allocativ e effects , excep t t o th e exten t tha t familie s of th e mentall y ill may be draw n to the Halifax-Dartmout h area eve n though their workin g members may be more productive elsewhere . The incurable insan e in the municipa l mental hospitals ar e no t pro ductive factors, s o there are no direct allocativ e effects fro m improvin g these institutions . T o th e exten t tha t member s o f familie s o f th e mentally il l i n thes e institution s ar e productive , ther e wil l b e som e effect, fo r the y wil l b e les s influenced i n decidin g wher e t o locat e b y the quality of the mental hospitals if their standards are generally good, even i n poor localities, an d mor e influenced b y economi c factors. Th e allocative effect o n them will be favourable. In th e field of social services, Buchanan considers Scott's argument — that highe r level s o f service s i n poo r province s mad e possibl e b y federal grant s ar e likel y t o imped e mobilit y an d s o distor t allocatio n of resources—t o be sounde r than i n th e cas e o f the othe r services . H e states tha t grant s fo r th e blind , aged , an d otherwis e infir m wil l en courage these groups to remain; but sinc e they are usually not productive resources , he claim s that ther e is no allocativ e effec t excep t wit h regard t o members of their familie s who ar e productive. H e add s that it i s t o th e advantag e o f th e poore r province s t o hav e thes e group s move out , bu t probabl y t o th e advantag e o f th e riche r province s t o support transfer s t o preven t thei r migration . Althoug h h e feel s tha t grants fo r unemploymen t relie f probabl y distor t th e allocatio n o f resources whe n unemploymen t i s no t general , h e see s n o particula r reason why unemployment should be in low-income provinces.32 But it so happen s that , i n th e particula r cas e o f Nov a Scotia , a low-income province, there has in recent years been persistentl y greate r unemployment than in the country as a whole. The situatio n o f a provinc e wit h respec t t o it s localitie s i s quit e different fro m tha t o f a federation with respec t t o th e provinces . This wibid., pp. 213-14.

The Pattern for Optimum Economic Adjustment 16

7

difference exist s because th e onl y flow of services int o a province fro m other jurisdiction s is from th e federa l government, whil e th e localitie s receive services from both the provincial and federal governments. Some services whic h benefi t peopl e in the localitie s ar e provided directl y b y the federa l government , a s i n th e cas e o f unemploymen t insurance , old ag e pension s fo r thos e ove r 70 , and famil y allowances . Othe r ser vices, suc h a s ol d ag e pension s for thos e 65-6 9 year s ol d wh o ar e i n need, pension s fo r th e blin d an d disabled , an d socia l assistance , ar e administered b y th e provinc e bu t partl y finance d b y th e Dominion . The socia l assistanc e i s pai d t o th e municipalitie s t o assis t the m i n meeting th e cost s o f outdoo r relie f (municipa l assistance ) an d o f running thei r poo r homes . Th e othe r payment s are mad e b y th e pro vincial governmen t directl y t o persons . The n ther e ar e service s suc h as mothers ' allowance s an d provision s fo r chil d welfar e whic h ar e entirely provincial ; th e mothers ' allowance s ar e pai d directl y t o indi viduals an d th e payment s fo r chil d welfar e ar e pai d partl y t o loca l Children's Ai d Societies, partly directly t o foster parents , an d partly t o child-caring institutions . It ha s already bee n suggeste d ho w unemployment insurance , famil y allowances, and ol d age pensions reduce the mobility o f labour in Nova Scotia, especiall y i n th e poore r areas , an d s o distort th e allocatio n of resources. But these services are all federal, except for old age pensions for thos e 65-6 9 years old , an d s o while o f interes t i n considerin g th e general questio n o f th e effect s o f publi c service s o n th e allocatio n of resources i n th e province , the y ar e no t withi n th e scop e o f this stud y since they are out of the contro l of the province. 33 It i s worth pointin g out, however , tha t contrary t o Buchanan' s contentio n tha t grant s fo r the blind , aged, and otherwis e infir m hav e n o direc t allocativ e effect s since thes e group s ar e no t productiv e resources , in th e cas e o f Nova Scotia such grants, especially old age pensions, do have some allocative effects t o the extent that they enable th e recipient s t o remain o n farm s without workin g the m an d s o delay improvement s i n th e us e o f some of th e province's agricultura l resources . Since the provinc e administer s the payments to the aged i n the 65-69 year range, the payments to the 33

It i s no t suggeste d tha t publi c service s ar e undesirabl e simpl y becaus e the y adversely affec t th e allocatio n o f resources . Bu t i t i s o f importanc e i n framin g policy t o tak e int o accoun t thei r effect s o n th e allocatio n of resource s so that , i f possible, distortio n ca n b e avoided . I t i s possible , fo r example , tha t farm s no t being activel y farme d b y ol d peopl e livin g o n the m coul d b e consolidate d fo r farming purpose s an d worke d b y othe r farmer s withou t interferin g wit h th e ol d people, and tha t loophole s i n the la w that permi t chroni c abuse s o f unemployment insurance coul d be plugged .

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blind an d disabled, an d also pays part o f the costs , it i s partly respon sible fo r th e distortion , an d thi s stud y is therefore concerne d wit h it . As already mentioned, there ar e two general type s of unemployment relief whic h ar e th e direc t responsibilit y o f the municipalitie s bu t fo r which unemployment assistanc e payments are now being made by th e province an d th e Dominion . On e i s institutional car e i n poo r homes . People care d for in these institutions ar e no t capabl e o f talcing care of themselves an d ar e therefor e no t productiv e resource s and , a s Buchanan point s out , ca n hav e allocativ e effect s onl y t o th e exten t that member s o f the inhabitants ' familie s ar e productive . A raising of standards o f the municipa l poo r home s in the low-incom e municipali ties will cause members of the labour force who have members o f their families i n poo r home s t o b e les s influence d b y th e non-economi c factor o f quality o f poor home s in decidin g wher e t o work . They wil l then wor k in a low- or high-income locality, accordin g t o wher e the y are most productive. The othe r kin d o f unemploymen t relie f relevan t her e i s outdoo r relief fo r thos e unemploye d wh o ar e no t eligibl e fo r unemploymen t insurance or whose benefits have run out. Some chronic periodic unem ployment (seasona l unemployment ) i s relieved b y federa l unemployment insuranc e a s note d earlier ; bu t mos t relie f require d fo r th e chronically unemploye d i s provide d b y th e municipalities . I t i s th e chronic unemployment of those who are employable that is particularl y serious from th e poin t of view of allocation o f resources.34 It i s difficul t to determin e th e distributio n o f chroni c unemploymen t amon g th e municipalities, bu t on e ca n sa y th e highe r ar e th e payment s t o th e chronically unemploye d wh o are employable , th e les s i s the incentiv e for the m t o see k employmen t elsewhere . Th e relie f administere d t o the chronicall y unemploye d b y th e municipalitie s ca n reasonabl y b e assumed to impede desirabl e economi c adjustments. The abov e proposition probably ha s validity as a first approximation but require s som e modification. To the exten t that amounts of relief i n the poore r municipalitie s ar e raise d t o mee t standard s require d t o qualify fo r th e federa l an d provincia l grant s administere d b y th e provincial government , the incentiv e of those chronicall y unemploye d who hav e malingerin g tendencie s t o see k job s i n othe r part s o f th e province o r outsid e o f the provinc e wil l b e weakened . O n th e othe r S4 Much relief give n i s for what i s sometime s calle d "cas e poverty" arising fro m such cause s a s th e hea d o f th e famil y bein g alcoholi c o r mentall y deficien t an d therefore unemployable . Relie f t o suc h group s ha s n o effec t o n allocatio n o f resources.

The Pattern for Optimum Economic Adjustment 16

9

hand, for those earnestl y desirin g t o take som e initiative i n alleviatin g their plight , mor e generou s relie f payment s may no t onl y giv e hop e but hel p provid e th e mean s o f movin g to wher e job s ar e available . Malingerers ar e a proble m i n al l type s o f programmes for cushionin g the distres s resulting from unemployment . Their abuses , although the y have important economic consequences, constitute in the first instance a sociological, psychological, and moral rather tha n a n economic problem. When thes e modification s ar e take n into account , it seem s ques tionable that the modest levels of relief in Nova Scotia have on balance a strongly distortive effect o n allocation of resources. The payment of mothers' allowances and provisions for child welfar e by th e provinc e woul d no t appea r t o hav e any appreciabl e effect s o n allocation o f resources. A CONCLUDING STATEMENT

The argumen t i n thi s chapte r show s tha t th e kind s o f economi c adjustment whic h are desirabl e i n Nova Scotia vis-a-vis the res t o f th e country ar e mor e i n accor d wit h Scott' s contention s tha n wit h Buchanan's; tha t is , th e margina l productivity o f capita l an d o f most types o f labou r i s lowe r tha n i n othe r provinces . Th e pictur e fo r internal adjustment s is more complicated. I n the case of towns sufferin g from los s of basic industry, with n o soun d alternative , outwar d movements of both capital and labou r ar e called for—th e typ e of adjustment Scott sai d migh t b e desirabl e i n som e cases . Th e adjustment s calle d for i n the rural areas in farming, fishing, and forestry, requiring as they do greate r ratio s o f capita l t o labour , ar e i n lin e wit h Buchanan' s prescription, wit h a n importan t qualification . Th e margina l produc tivity of both labour and capita l is low in much of the farming , fishing, and forestr y operations , a s they ar e presently carrie d on . If there were no alternative s t o thes e type s o f operations , th e desirabl e adjustmen t would be tha t suggeste d b y Scott : move both labou r an d capita l out . It i s the opportunit y fo r improve d use o f resources b y rationalizatio n of thes e primar y operations , that is , for combinin g the factor s o f production i n mor e productiv e ways , tha t lead s t o a prescriptio n fo r adjustment similar to Buchanan's of using less labour and more capital. The conclusions regarding the second question of the effec t o f public services fo r whic h th e provincia l an d municipa l government s ar e responsible o n facto r mobilit y withi n th e provinc e ar e mor e i n lin e with Buchanan' s treatmen t tha n wit h Scott's , i n tha t i t appear s fro m the analysi s tha t publi c service s hav e som e favourabl e an d som e

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unfavourable effect s upo n facto r mobility . Ther e are , however , som e differences fro m Buchanan' s conclusions, both in terms o f the premise s about the kinds of adjustments in the use of resources that are desirabl e and abou t th e effect s o f som e type s o f publi c service s o n facto r mobility. These differences hav e been brought ou t in the cours e of the analysis and need not be repeated here. On balance, the effec t o f those public service s discusse d o n allocatio n o f resource s woul d appea r t o be favourable , but th e presenc e o f some unfavourable effects an d th e difficulty i n assigning precise weight s to th e favourabl e an d unfavourable effect s preclud e th e drawin g o f a completel y unequivoca l con clusion a s t o th e over-al l effects . Bein g able t o mak e a n unequivoca l conclusion abou t th e ne t effec t o f publi c service s o n allocatio n o f resources, however , i s les s importan t tha n determinin g th e effect s o f particular service s so that thes e effect s ca n b e take n int o accoun t i n framing policy in each case.

VII

Principles o f Fisca l Adjustmen t

NOW THA T TH E TYPES OF ADJUSTMENT conducive to bette r us e o f Nov a Scotia's resources have been sketched and the effect s o f public services in questio n o n facto r mobilit y hav e bee n examined , the patter n o f provincial-municipal fiscal relations, most conduciv e to optimu m use of the province's resources, may be determined. 1 THE PRINCIPLE OF FISCAL EQUITY2 AND ITS APPLICABILITY TO PROVINCIAL-MUNICIPAL FISCAL ADJUSTMENT

In hi s discussio n of th e pur e theor y o f governmen t finance , J . M . Buchanan work s wit h the "individualistic " theory o f th e state , whic h regards th e stat e a s reflectin g i n it s decision s th e balancin g o f th e aggregate benefit s fro m publi c service s of th e individual s who com prise th e stat e agains t the aggregat e costs t o the m o f these services . He reject s the alternativ e o f wha t h e call s th e "organismic " theory , which regard s th e stat e a s a n organi c unit , a s bein g o f littl e us e i n 1 There ar e man y criteri a accordin g t o whic h a fisca l syste m ca n b e judged , such a s the traditiona l norms of equity , certainty , convenience , econom y in collec tion, lo w cos t o f compliance , flexibilit y o f revenue , an d fisca l adequacy . Th e validity o f thes e norm s is no t denie d here . Bu t th e focu s o f thi s stud y i s o n th e effect o f provincial-municipa l financia l relation s o n economi c development ; an d even mor e particularly , o n the wa y i n whic h th e principl e o f fiscal equity ca n b e applied b y mean s o f adjustment s i n provincial-municipa l fisca l relations . T o th e extent tha t th e principl e o f fisca l equit y ha s ethica l virtue s a s wel l a s economi c ones, the argumen t fo r implementin g it is further strengthened . 2 Buchanan's treatmen t o f th e principl e o f fisca l equit y an d o f it s applicatio n to problem s o f federal financ e i s develope d i n tw o articles : "Th e Pur e Theor y of Government Finance : A Suggeste d Approach, " Journal of Political Economy, XLVII (December , 1949) ; an d "Federalis m an d Fisca l Equity, " American Economic Review, XL (September, 1950).

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practical problems. 8 Whil e perhap s usefu l a s a n initia l abstraction , as Professo r Pigo u use s i t i n hi s discussio n o f th e theor y o f publi c expenditure,4 i t i s unacceptabl e o n mor e fundamenta l grounds tha n on an y concernin g it s practicability ; fo r i t implie s th e existenc e o f collective want s i n th e sens e o f thei r bein g fel t b y th e stat e a s a collection o f individual s whic h i n itsel f i s a "sentien t organism" ; whereas want s ca n onl y b e fel t b y individual s a s such , although , o f course, the y ca n aris e fro m th e fac t tha t individual s liv e togethe r i n society an d the y ma y b e capabl e o f bein g satisfie d only , o r best , b y collective action , a s throug h governments. 6 Thi s lin e o f reasonin g leads back to the onl y approach that has ultimate validit y in question s of publi c finance , tha t is , t o considerin g th e effec t o f publi c service s and o f the burdens of taxation on individuals. In orde r t o facilitat e comparison s between th e fisca l treatmen t o f individuals fo r who m the leve l o f benefits from publi c service s migh t vary, Buchanan introduces th e concep t o f the "fisca l residuum, " whic h he define s a s bein g equa l t o a n individual' s ta x burden s minu s hi s benefits fro m public services. "Only b y a comparison of the residuum s of individual s ca n th e tota l effect s o f a fiscal system be analyze d an d evaluated. Tax-burde n comparison s alon e ar e likel y t o yiel d quit e different an d perhap s misleadin g conclusions." 6 The residuu m define d the othe r wa y around , as being equa l t o benefit s minu s burdens, wil l be use d here , s o that a n individua l wit h a positiv e residuu m woul d have an excess of benefits. One o f th e advantage s o f takin g benefit s a s wel l a s burden s int o account in this wa y is that i t permit s a more satisfactory approac h t o questions concernin g th e redistributiv e effect s o f a fisca l system . Buchanan note s tha t a progressiv e ta x syste m doe s no t necessaril y redistribute incom e in a n egalitarian wa y if, for example , those i n th e upper incom e bracket s benefi t mor e fro m publi c service s finance d by taxatio n tha n i n proportion t o thei r taxes , that is , have a positiv e residuum, and thos e in th e lowe r income brackets benefi t les s than i n proportion to their taxes, that is, have a negative residuum. This way of looking a t a fisca l syste m i s particularl y usefu l i n examinin g a ne w public servic e tha t i s finance d b y a particula r tax . A n extension o f a SBuchanan, "The Pure Theory," pp. 496-8. •*A. C . Pigou , A Study in Public Finance (3r d edition , revised ; London : Macmillan and Co., 1949), pp. 30-4. This point is carefully mad e in Antoni o d e Vit i d e Marco , First Principles of Public Finance (Translate d by E . P . Marget; New York: Harcour t Brace an d Co., 1936), p. 38. «Buchanan, "The Pure Theory," pp. 501-02.

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regressive tax , sa y a genera l retai l sale s tax , i f accompanie d b y a n increase i n a servic e tha t especiall y benefit s lower-incom e groups , such as "free" hospital care , may have egalitarian redistributiv e effects . Another advantage , whethe r fiscal residua ar e used o r not, an d on e of greate r concer n fo r thi s stndy , i s tha t th e rational e fo r grant s o r other type s o f transfer from ric h province s t o poo r provinces, o r fro m rich localitie s t o poo r localitie s withi n a province , ca n b e examine d more clearly. There are two relevant point s in considering the rational e for suc h transfers , whic h Buchana n develops . On e ha s t o d o wit h equity i n term s o f equa l treatmen t fo r similarl y situated individuals; 7 the othe r wit h th e effec t o f transfer s o n th e allocatio n o f resources . Buchanan argue s tha t transfers 8 ar e desirabl e o n bot h ethica l an d economic grounds : t o permi t similarl y situate d peopl e i n differen t provinces t o b e treate d equall y i n term s o f the ne t fisca l pressur e o n them a s measured b y thei r residu a and , a t th e sam e time, t o preven t distortion i n allocatio n o f resources which woul d result fro m unequa l fiscal pressur e o n otherwis e well-allocate d resources , tha t is , fro m heavier pressur e o n a n individua l i n a poo r provinc e o r localit y tha n he woul d bea r i n a ric h provinc e o r locality. 9 Buchana n call s thi s concept o f equa l treatmen t o f equal s "fisca l equity." Th e principl e o f fiscal equity applie s t o both labou r income and to income from capital . Thus, differentia l fisca l pressur e i n differen t province s o r localitie s may caus e movements of capital o r labour o r both t o wher e they ar e less productive . "I f 'equals ' ar e thu s presse d mor e i n on e are a tha n another, ther e wil l b e provide d a n incentiv e fo r migratio n o f bot h human an d non-huma n resource s int o th e area s o f leas t fisca l pressure."10 Buchanan give s tw o cogen t argument s t o suppor t hi s contentio n 7 In man y instance s th e "family " or "household " i s a mor e relevant uni t tha n the individual , but th e ter m "individual" wil l be use d here, fo r convenience. 8 Buchanan presents some theoretica l arguments i n favou r o f effectin g transfer s by differentia l persona l incom e taxatio n i n th e differen t province s (Buchanan , "Federalism an d Fisca l Equity," pp . 595- 6 ). As long a s the provinc e wa s renting its righ t t o lev y personal income taxes, t o th e federa l government, this metho d of effecting transfer s wit h respec t to th e localitie s wa s no t available , eve n if i t wer e practicable otherwise . The us e o f differentia l provincia l taxation a s a n adjustmen t device is discussed briefly i n chapter rx. 9 In considerin g questions of equity (justice) , i t i s necessary to thin k in terms of similarl y situated individual s in differen t province s or localities . I n considering questions o f fisca l effect s o n allocatio n of resources , i t i s preferabl e t o thin k i n terms o f th e fisca l pressur e o n th e sam e individua l i n differen t province s o r localities, althoug h generall y fo r convenienc e the ter m "similarl y situate d indi viduals" will be used even in the latter context. lOBuchanan, "Federalism an d Fiscal Equity," p. 589 .

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that th e appropriat e politica l uni t fo r the applicatio n o f the principl e of fisca l equit y i s th e whol e countr y in spit e o f th e heterogeneit y o f the provinces o r states which is inherent i n a federation. (Thes e argu ments hold , i f anything , mor e strongl y fo r th e applicatio n o f th e principle withi n a provinc e wit h respec t t o it s localities , fo r eac h province i s mor e homogeneou s tha n th e federatio n o f province s o f which a nation consists. ) ( 1 ) Sinc e the econom y is national i n scope , th e diversifie d political framework notwithstanding , th e fisca l syste m shoul d b e designe d t o interfere a s little as possible wit h th e optimu m allocatio n o f resources on a national scale. Since the provinces vary as to average productivity , as measure d b y incom e pe r capita , fisca l transfer s ar e necessar y t o make possibl e equa l fisca l treatmen t o f similarl y situate d person s i n different provinces . Otherwise, peopl e in low-income provinces will b e subject t o greate r fisca l pressur e tha n the y woul d b e i n high-incom e provinces, an d wil l hav e a n incentiv e t o mov e themselve s o r thei r capital, o r both , t o th e higher-incom e provinces . I n othe r words , a province i s poor becaus e it s averag e incom e is low; bu t i t wil l likel y at th e sam e tim e hav e man y factor s o f productio n whic h ar e mor e productive ther e tha n the y woul d b e elsewhere . I n th e absenc e o f equalizing fisca l transfers , th e heavie r fisca l pressure s tha t wil l b e exerted o n individual s o f an y give n economi c circumstance s i n a low-income provinc e wil l induc e som e uneconomi c movement s o f labour an d capita l fro m low-incom e t o high-incom e province s an d impede som e economi c movement s o f labour an d capita l fro m high income provinces to low-income provinces. As Buchanan puts it : Requiring stat e area s t o remai n integrate d i n th e nationa l econom y i s inconsistent wit h th e forcin g o f th e governmenta l unit s o f thes e area s to ac t a s i f th e economie s wer e fiscall y separat e an d independent . Thi s inconsistency ca n onl y b e remove d b y centralizatio n o f fisca l authorit y or b y th e provisio n o f som e intergovernmenta l fisca l adjustment. 11

(2) Incom e distributio n i s arrive d a t throug h th e marke t force s operating ove r th e whol e nation . I f on e o f th e function s o f a fisca l system i s to alte r thi s distributio n accordin g t o som e concept o f socia l justice, then "th e fiscal system . . . should operat e i n a general manne r over the whol e area o f the econom y determining th e origina l distribu tion."12 Otherwise, "the syste m necessarily operates i n a geographicall y iilbid., p . 590 . Thi s argumen t become s al l th e stronge r when applie d i n th e provincial context , where the localitie s are creature s o f the provincia l government. 12 Ibid., p . 590 . Compar e wit h the followin g statemen t relatin g to stat e grantsin-aid, i n Stat e o f Ne w York , Report of the New York State Commission on State

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discriminatory fashion."13 In this same connection, it should be stressed that a prime virtue o f the principl e o f fiscal equity i s that i t put s th e emphasis o n th e effec t o f th e fisca l syste m o n th e individua l citize n rather tha n o n political units . It make s sense to spea k of equalization , where question s o f economi c welfare an d justic e ar e a t issue , onl y with regar d t o individuals, not, in an y ultimate sense , with regar d t o provinces and localities. Buchanan's argument s are strengthene d b y the fac t tha t eve n with perfect mobilit y of resources, that is , even when each factor i s located where it s margina l productivit y i s a maximum, 14 interprovincia l o r intermunicipal difference s i n pe r capit a incom e wil l almos t certainly persist. Fo r onl y i f al l factor s wer e homogeneous , o r distributed , when al l unit s o f eac h facto r wer e earnin g their maximu m rewards , in the sam e proportions in al l provinces ( an extremel y unlikely occurrence), o r distributed i n differen t proportion s but i n suc h a way tha t per capita incomes were the same (a n even more unlikely occurrence), would pe r capit a incom e b e th e sam e fo r al l provinces . Withou t transfers an d failin g thes e unlikel y conditions , th e achievemen t o f optimum allocation of resources is impeded because the fiscal pressure will be heavier on at least some factors i n the poorer provinces than on otherwise similarly situated factors i n the richer provinces, creating an incentive fo r the m t o mov e to th e riche r provinces. 15 Th e discussion in chapte r v indicated tha t Nov a Scotia , even i f i t wer e i n economic equilibrium bot h wit h th e res t o f th e countr y and internally , would have a lowe r pe r capit a incom e tha n som e o f th e othe r province s and woul d als o hav e discrepancie s i n pe r capit a incom e amon g it s municipalities. Aid to Municipal Subdivisions (Legislativ e Documen t No . 58 , memorandu m sub mitted b y the Stat e Ta x Commission; Albany, 1936) , p . 356 . "Th e ter m 'stat e aid ' is perhaps a misnomer. Substantiall y al l fund s findin g thei r wa y int o th e treasur y of th e stat e hav e bee n withdraw n fro m thos e o f th e citizen s o f al l th e municipa l subdivisions. Governmen t neve r create d anythin g o f considerabl e taxabl e value . Government garner s fro m wher e th e thrift y o r skillfu l hav e alread y sown . Th e benefits o f government should i n tur n b e distribute d accordin g t o th e actua l need s of th e entir e bod y politic . I t i s a lon g an d deviou s journe y fro m th e Tiors e an d buggy' condition s o f th e pas t t o th e air-minde d an d high-flyin g attitud e o f th e present generation . I n man y ways th e necessitie s o f a localit y ar e neithe r wholl y nor i n th e majo r par t local . The y carr y wit h the m a larg e elemen t o f th e need s not onl y of their neighbours but als o those of far distan t localities." 13 Buchanan, "Federalism an d Fiscal Equity, " p. 590 . 14 It is assumed here tha t non-monetary inducements are taken int o account. 15 The qualificatio n "at leas t some " is necessary becaus e wit h differen t distribu tions of the ta x burden o r of benefits, som e taxpayers in a poor provinc e o r localit y could b e bette r of f in term s o f th e fisca l pressur e o n the m tha n similarl y situate d taxpayers in a rich province o r locality.

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As ha s alread y bee n pointe d ou t i n chapte r i , fo r th e principl e o f fiscal equit y t o b e full y applie d i n a federa l countr y b y mean s of grants, i t must b e followe d throug h a t th e provincia l an d municipa l levels t o assur e tha t similarl y situate d peopl e withi n th e provinc e are accorde d equa l fiscal treatment. I t wa s shown in chapte r m tha t the grant s now being mad e by the federa l governmen t to th e govern ment o f Nova Scotia, large thoug h they ma y seem , are fa r fro m suffi cient t o permi t a s favourabl e fisca l treatmen t o f Nov a Scotian s a s similarly situated persons in the richest provinces. In an y case, whethe r the principl e o f fiscal equity i s applie d a t th e federal-provincia l leve l or not, it will still be appropriate to apply it at the provincial-municipal level. Buchana n himself considere d tha t hi s analysi s applied t o fiscal adjustment amon g localities a s wel l a s amon g provinces althoug h h e did no t pursu e this application . Adjustmen t amon g localities i s easie r than adjustment among provinces. A province, holding th e powe r ove r the localitie s i t does , i s free , t o a degre e th e federa l governmen t i n dealing wit h th e province s is not, to us e conditiona l or unconditional grants or to alter the powers of the localities , withou t being concerne d about poaching on the powers of another jurisdiction.16 If, for example, a province considers it desirable on the one hand that the localities tak e some responsibilit y wit h regar d t o educatio n an d o n th e othe r tha t minimum standard s be maintaine d throughou t th e province , i t i s fre e to charg e th e localitie s wit h thi s responsibility , eve n t o specif y th e way their shar e of the necessar y revenue is to be raised , t o defin e th e minimum standard s i t require s i n a s muc h detai l a s i t chooses , an d make grants, if it deem s them necessary, to enabl e thes e standard s t o be maintained. Not only are there no constitutional barriers to provin cial-municipal fiscal adjustment, but th e greate r uniformity o f the loca l than o f th e provincia l ta x structure s make s th e applicatio n o f th e principle o f fiscal equity a simpler , thoug h perhap s stil l no t a n easy , task. A CRITICISM OF THE USE OF THE FISCAL BESIDUUM IN IMPLEMENTING THE PRINCIPLE OF FISCAL EQUITY

There i s a n importan t respec t i n whic h Buchanan' s analysi s must be calle d int o question . H e use s th e fisca l residuu m t o measur e th e fiscal pressure o n similarl y situated individual s i n differen t province s 16 As Buchana n put s it: "th e scop e for adjustmen t b y non-fisca l means , through political o r administrativ e devices (loca l governmen t consolidation , stat e assump tion of local functions, etc.) , seem s broader in state-loca l relations." ("Federalis m and Fiscal Equity," p. 525.)

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or localitie s an d argue s tha t i f thei r residu a ar e equal , thei r fisca l treatment will be equal . The whol e fiscal structure shoul d b e a s neutra l a s possibl e i n a geographi c sense. A n individua l shoul d hav e th e assuranc e tha t whereve r h e shoul d desire to reside in the nation , th e over-all fiscal treatment whic h he receive s will be approximately th e same. 17 Neither th e ta x burden s no r th e standard s o f public servic e nee d b e equa l for "equals " in an y of the states . Satisfactio n o f the equit y criterion require s only that the residua be substantially the same.18

Buchanan, in working with residua i n his discussio n o f fiscal adjustment amon g provinces, i s trying t o take accoun t o f the fac t that eve n in provinces wit h th e sam e fiscal capacity ther e woul d b e difference s in th e level s o f publi c service s provided . Bu t th e questio n arises : does th e equalizin g o f residu a o f similarl y situate d taxpayer s neces sarily mak e thei r "over-al l fisca l treatment " th e same ? Th e answe r is "no" becaus e th e level of services itsel f ha s a bearing o n a person' s welfare apar t fro m th e ne t fiscal pressure o n him. Sinc e the legislator s or councillors have to determine the leve l of public services ( as well as of taxes ) fo r all o f th e resident s o f th e provinc e o r locality , som e residents wil l fee l tha t thei r welfar e woul d b e enhance d b y mor e public service s an d les s privat e goods , an d som e th e reverse. 19 Fo r example, individua l A may live in locality Y in which th e peopl e a s a whole choos e t o maintai n a lowe r leve l o f educationa l service s than in locality Z, and he may prefer t o have available th e higher leve l of service s in Z even if his residuum would be the sam e in both places . And individual B living in Z may prefer the lowe r level s o f services i n Y even if his residuum would b e th e sam e in both places . Th e receip t of benefit s costin g th e governmen t $2,00 0 an d th e paymen t o f taxe s of $1,80 0 i s not the sam e thing to an individual a s the receip t of bene fits costin g $40 0 and th e paymen t o f taxe s o f $200 , eve n thoug h th e residuum is the same ($200 ) i n both cases . Transfers are still necessary "Ibid., p. 589, italics mine. isibid., p. 591 . 19 This situatio n arises fro m th e fac t tha t ther e ar e n o clos e substitute s i n th e private econom y for man y public services . I t i s doubtfu l tha t an y fisca l devic e could adjus t fo r differentia l fisca l pressur e i n different province s o r localitie s arising in th e wa y described here, sinc e it arise s fro m th e fac t tha t a n individual is not fre e t o choose the level of most of the publi c service s made available to him . This element of coercion with regard to the leve l of services is generally recognized with respect t o th e taxe s levied t o pa y fo r services . The coercio n with respec t t o the leve l of services itself is the opposit e side o f the sam e coin, with the importan t difference tha t a n individua l ma y b e coerce d int o havin g a lower leve l o f publi c services than h e wants and than h e would b e willin g t o pa y for voluntarily .

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to mak e i t possibl e t o equaliz e fisca l pressure s o f equal s i n ric h an d poor province s and localitie s an d ca n be justifie d o n this ground ; bu t the equalizin g o f residua is , in itself , insufficient t o equaliz e "over-al l fiscal treatment" of similarly situated individuals. Nevertheless, wher e on e objectiv e i s t o enabl e al l localitie s i n a province t o maintai n a minimu m leve l o f service s (especiall y genera l services), wit h equa l burdens , th e difficultie s whic h woul d otherwis e stem from th e us e o f fiscal residua, because o f the fla w i n Buchanan' s argument, d o no t arise. 20 Th e proble m become s on e o f equalizin g burdens of similarly situated individuals. In th e cas e o f Nov a Scotia , th e trend , a s show n i n chapte r rv , i s generally toward s establishin g th e sam e minimu m standard s o f th e general publi c service s throughout th e province . I t i s true tha t t o th e extent som e localitie s provid e service s abov e th e minima , som e differential fiscal pressures will be generated . I n particular , a s long as municipal fisca l capacities , a s measure d b y th e equalize d valu e o f property pe r capita , differ , th e municipalitie s wit h th e highe r fisca l capacities wil l b e mor e attractiv e t o resident s an d t o prospectiv e residents, fo r an y supplement s t o th e minimu m levels o f service s ca n be provide d wit h a lowe r increas e i n th e propert y ta x rat e tha n i n municipalities wit h lowe r fisca l capacitie s an d s o ar e mor e likel y t o be provided, to the benefit o f both the property owner and the residen t who own s no property. 21 Bu t i f th e minim a are kep t quit e high , th e effects o f th e differentia l pressur e wil l no t b e ver y great . Moreover , the raisin g o f standard s i n th e riche r localitie s wil l exer t upwar d pressure on the minima which will tend to eliminate the differentials. The criticism of the us e o f the residuu m is more serious in considerin g th e 20 Interestingly enough , althoug h Buchana n di d no t i n hi s earlie r article s per ceive thi s flaw in hi s argument , h e di d expres s th e opinio n tha t variation s i n th e levels o f particular service s in differen t province s stemme d mainly from variation s in fiscal capacity an d tha t i f thes e variation s wer e compensate d b y transfers , th e levels o f service s woul d b e brough t int o approximat e equalit y ("Federalis m an d Fiscal Equity," p. 59 7 ). I f h e i s correct, h e n o longer need s t o rel y o n th e fault y concept of equalizing fiscal treatment b y equalizing residua . 21 Buchanan make s a simila r poin t i n a recen t paper . I n thi s paper , whil e stil l upholding th e genera l validit y o f th e principl e o f fisca l equity , h e point s ou t a weakness i n usin g residu a i n comparin g th e fisca l treatmen t o f individual s simila r to the on e discussed above , althoug h i n a differen t context . In discussin g the cas e of quid pro quo relationship s betwee n individual s an d th e state , wher e th e residuum i s zero , h e argues : "Th e tota l fisca l situatio n i n whic h th e individua l finds himself i s determine d . .. by the tota l ta x pressure exerte d o n him by th e fisc in compariso n with th e tota l benefit s h e receive d fro m havin g public service s available t o him. " ( A comment , kindly supplie d directl y b y Professo r Buchanan , which appear s i n the conferenc e volume entitled Public Finances: Needs, Sources, and Utilization [Ne w York: Nationa l Bureau of Economic Research , 1959]. )

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application o f th e principl e o f fisca l equit y a t th e federal-provincia l level tha n a t th e provincial-municipa l level . I n an y case , i t i s no t claimed tha t th e principl e o f fisca l equit y ca n b e applie d wit h grea t precision. A t best, it can only be approximated. The propositio n tha t transfer s shoul d b e mad e i n orde r t o mak e possible th e equalizatio n o f residu a o f "equals " i s stil l vali d i f th e proviso is added tha t th e leve l o f services mus t also be th e same . Bu t if service s are the sam e in the differen t localities , the y ca n be ignore d in examinin g differentia l fisca l treatmen t o f similarl y situate d indi viduals. Moreover , th e concep t o f th e fisca l residuu m i s bot h vali d and usefu l i n examinin g the redistributiv e effect s o f a fisca l syste m with respect to income within an y political unit. Buchanan's centra l proposition , tha t i n a n economicall y integrate d country o r regio n th e equalizatio n o f th e fisca l treatmen t o f similarly situated individual s shoul d b e mad e possibl e b y transfer s fro m th e rich t o th e poo r section s i n orde r t o preven t distortion s i n allocatio n of resources, is unaffected. Wha t is called into question is his argumen t that th e equalizatio n o f residu a o f similarl y situate d taxpayer s wil l accomplish this end . Transfer s are still necessar y to permit equivalen t benefits t o be financed by equivalent burden s i n ric h an d poo r locali ties and are still justified b y the fact tha t even in economic equilibrium per capit a income s of provinces an d localitie s wil l differ . Give n differ ences i n natura l resources an d i n locationa l factor s o f differen t areas , any programm e designed t o equaliz e pe r capit a income s of the area s would onl y resul t i n gros s distortio n fro m th e optimu m us e o f re sources, for there ar e boun d to be, in equilibrium , considerabl e differ ences i n pe r capit a income s resultin g fro m th e differen t mixture s of factors o f production appropriat e t o eac h area . Th e equa l fisca l treat ment o f similarl y situate d individual s throughou t th e countr y o r throughout th e province , t o th e exten t i t i s practical, retain s bot h it s ethical an d economi c virtues an d remain s a better basi s fo r transfers than the vaguer notion of fiscal need a s between province s or localities. An important consequence o f the acceptanc e o f the principle o f fiscal equity, a s Buchanan points out, is that "the principle establishe s a firm basis fo r the clai m tha t th e citizen s o f the lo w income state s withi n a national economy possess the 'right' that their state s receive sum s suffi cient to enable these citizens to be placed i n positions of fiscal equality with thei r equal s i n othe r states." 22 Althoug h th e us e o f th e ter m "right," eve n i n quotatio n marks , ma y b e subjec t t o challenge , th e strong economic and ethica l arguments for equalizing transfer s should 22

Buchanan, "Federalism an d Fiscal Equity," p. 596.

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still remove from the m th e stigma , whic h ha s ofte n bee n attache d t o them i n th e past , o f being regarde d a s subsidie s tha t smac k of bein g handouts. THE PRINCIPLE OF FISCAL EQUITY AND THE CONDITIONS FOR ECONOMIC EQUILIBBIUM

It i s worthwhile a t thi s point t o sho w more formally tha n ha s bee n done so far how provincial-municipal fiscal adjustment according to the modified principl e o f fisca l equit y woul d b e conduciv e t o optimu m allocation of resources. The necessary condition for economic equilibrium (optimu m allocation o f resources ) unde r condition s of perfect competitio n i s tha t th e marginal productivity o f eac h factor o f production mus t b e th e sam e in all of its uses throughout th e region , with eac h uni t o f every factor earning it s maximu m possibl e reward , s o that tota l productio n coul d not b e increase d b y an y sor t o f factor movement. This equilibriu m i s stable i n tha t an y departur e fro m i t wil l ten d t o b e self-corrective , since a departure would result in the factor in question having a higher marginal productivit y i n on e employmen t tha n i n anothe r an d i n it s being entice d b y th e opportunit y fo r greate r remuneratio n t o tha t employment in which its marginal productivity is higher. What i s require d i s a fiscal system which wil l no t induc e change s in facto r allocatio n whe n th e economi c system i s in equilibriu m an d which will not impede movements of factors towards their equilibriu m allocation whe n th e economi c syste m i s no t i n equilibrium . A fiscal system based on the principle of fiscal equity meets these requirements . If a n individual, regardless of where he lived in the province , received the sam e level o f public service s an d incurre d th e sam e ta x burden s with respec t t o hi s give n income , wealth, expenditure , an d whateve r other tax bases were used, he would have no differential fiscal pressure on hi m t o mov e himself o r hi s capita l i f bot h wer e employe d wher e their marginal productivities were highest. If his marginal productivity or that o f his capital, o r both, were higher elsewhere , th e inducemen t to move himself or his capital in the directions required fo r the restora tion o f economic equilibrium would remain.23 A polic y o f fisca l adjustmen t base d upo n th e principa l o f fisca l equity may be called "neutral" in that it neither reinforce s nor impedes geographical movement s calle d fo r b y th e margina l productivit y d, o f course , that th e fisca l syste m woul d no t depriv e hi m o f all , o r more than, his increased remuneration.

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principle. Suc h a polic y i s i n genera l advocate d here . I t shoul d b e noted, however , tha t desirabl e movement s o f labou r an d capita l ca n be accelerate d b y withholdin g benefit s o r imposin g particularl y severe ta x burden s fo r a s lon g a s thes e factor s continu e t o b e use d where the y ar e les s productiv e tha n elsewhere . (Alternatively , th e province coul d offe r additiona l benefit s o r reduce d burden s i n th e localities to which it wished to encourage them to move. ) For example, if it is clear that a town has no economic future an d that its inhabitant s and thei r movabl e capita l woul d b e bette r employe d elsewhere , th e province coul d giv e notic e tha t a t th e en d o f a give n perio d o f tim e sufficient fo r th e factor s t o move , i t woul d n o longe r giv e grant s t o support loca l service s an d woul d reduc e th e leve l o f service s it pro vided t o th e town' s inhabitants . Or , t o giv e anothe r example , i f i t wished t o discourag e th e continuatio n o f low-incom e fishin g opera tions i n smal l villages, the provinc e could refrain fro m improvin g th e roads to these villages an d build especiall y good roads into the fishing communities whos e developmen t i t wishe d t o encourage . While government s ma y b e reluctan t t o tak e suc h measure s fo r humanitarian an d politica l reasons , the possibilit y o f thei r usefulness in som e instance s shoul d no t b e overlooked . Thes e measure s coul d probably be applie d onl y where i t i s considered desirabl e t o mov e all of th e labou r an d movabl e capital fro m a locality . Usuall y only some of the factors in a given locality are poorly allocated there. While there may b e som e instances wher e it woul d b e possibl e t o us e differentia l fiscal pressure on individuals to accelerate economi c adjustment where maladjustment i s particularly intractable, i t is unlikely that i n genera l the applicatio n o f unequal fiscal pressure a s part o f a schem e of fiscal adjustment ca n be made a sufficiently selectiv e device for that purpose, quite apar t fro m th e probably overwhelmin g political an d administrative difficulties that would be encountered. Mention should be made of the fac t tha t the conditio n fo r economic equilibrium, i n terms of the margina l productivity principl e describe d above, i s me t i n a fre e enterpris e econom y onl y under condition s of perfect competition . Wha t modification s need t o b e mad e t o tak e account o f the existence o f imperfect competition? 24 Economi c equilibrium from th e socia l point o f view requires the outpu t o f each firm to be tha t a t whic h th e margina l cos t o f th e produc t equal s it s price , assuming tha t socia l cost s an d benefit s ar e equa l t o privat e cost s and benefits . From th e poin t of view of allocation of factors o f produc24 "Imperfect competition " i s use d her e t o includ e monopoly , oligopoly , an d monopolistic competition.

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tion, th e correspondin g conditio n i s tha t th e valu e o f th e margina l product o f each facto r must be equa l t o it s margina l cos t an d b e th e same in al l of its uses. In th e cas e of perfect competition , the meetin g of thes e condition s i s consisten t wit h th e ai m o f entrepreneur s t o maximize thei r profits , bu t i n th e cas e o f imperfec t competition , i t is not. Th e reason is that i n a firm in a perfectly competitiv e industry , a factor tends to be used up to the poin t where th e valu e of its marginal produc t i s equa l t o it s margina l cost ; wherea s i n a n imperfectl y competitive industry , i t tend s t o b e use d onl y up t o th e poin t wher e its marginal revenue productivit y equal s it s margina l cost . I n a n eco nomy in which ther e ar e varying degree s o f competition, th e valu e of total production coul d b e enhance d b y th e movemen t of factors fro m the more competitive t o the less competitive industries. It i s not necessar y t o g o further int o th e intricacie s o f price theor y here. I t i s sufficien t t o not e tha t wher e ther e ar e varyin g degree s o f competition, an d Nova Scotia is no exception to this condition generall y found i n advance d capitalis t countries , th e allocatio n wil l ten d t o depart from th e social optimum. Nor is it necessary to go into the arguments for and against a policy designed t o induce each business firm to produce at the output where the marginal cost of its product equal s it s price, fo r i t i s th e effec t o f provincial-municipa l fisca l relation s o n allocation o f resources which is of concern in this study. Although fiscal adjustment according to the principle of fiscal equity would no t likel y eliminat e departure s fro m th e optimu m allocation of resources in an imperfectly competitiv e world , i t ma y still be th e bes t guide i f mor e specifi c informatio n i s lackin g a s t o th e kind s o f fisca l adjustments whic h ar e require d t o compensat e fo r imperfections. 25 I t also has th e virtu e of not impedin g th e implementatio n o f other type s of policy aimed at correcting the departures . It appear s tha t provincial-municipa l fisca l adjustmen t base d upo n the principl e o f fiscal equity woul d b e conduciv e to optimu m alloca tion of the province's resources . THE VAKIATION OF INCOME AMONG LOCALITIES OF A PROVINCE AND AMONG PROVINCES

It migh t see m offhan d tha t th e localitie s o f a provinc e ar e mor e homogeneous wit h regar d t o pe r capit a incom e tha n th e provinces , 25

For a discussio n o f th e proble m o f determinin g th e bes t positio n when on e or mor e condition s fo r optimu m equilibriu m ar e lacking , se e R . G . Lipse y an d R. K . Lancaster , "Th e Genera l Theor y o f Secon d Best, " Review of Economic Studies, XXIV , 1 (1956-7) , pp . 11-32 . I t appear s tha t a geographicall y neutra l

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since th e latte r represen t mor e divers e geographica l regions , henc e that th e nee d fo r equalizatio n i s much less . Bu t th e revers e ma y ver y well be true; for the per capit a income of each province is the outcom e of averagin g income s of rich an d poo r throughou t th e province , whil e the pe r capit a income s o f th e localitie s o f a provinc e wil l b e deter mined b y les s divers e economi c condition s i n muc h smalle r area s an d so wil l b e subjec t t o greate r variatio n tha n thos e o f th e provinces . Thus there wil l likely be greater variatio n i n the per capit a income s of localities fo r an y provinc e tha n i n th e pe r capit a income s o f th e te n provinces. Fo r example , in 1958 , the standar d deviatio n o f per capit a incomes o f thos e payin g persona l incom e ta x wa s $23 5 fo r th e Canadian provinces , an d $28 9 fo r th e eightee n countie s o f Nov a Scotia. Th e coefficient s o f variatio n wer e 6.1 8 per cen t an d 8.7 1 pe r cent, respectively. 28 I f th e variatio n i n incom e i s greate r fo r Nov a Scotian localitie s tha n fo r th e province s o f Canada , a s th e evidenc e just give n indicates, then , i f equalization o f some sort is desirable , th e need fo r i t i s even mor e urgen t wit h respec t t o th e localitie s o f Nova Scotia tha n fo r th e province s o f Canada . (Or , if equalizatio n ha s resource-distorting effects , th e distortio n woul d b e mor e sever e fo r the localities. ) Agains t this contentio n mus t b e se t th e mor e limite d functions assigne d t o th e localitie s b y th e provinc e compare d wit h those assigne d t o the province s b y the Britis h Nort h America Act. THE ADDITION OF THE EGALITABIAN POSTULATE

Although thi s stud y i s mor e directl y concerne d wit h question s re lating t o the equa l fiscal treatment o f equals tha n wit h thos e relatin g to equitabl e treatmen t o f unequals , sufficien t commen t wil l b e mad e on th e latte r ver y importan t questio n relatin g t o th e redistribu system o f fiscal adjustment, suc h a s i s proposed here , woul d b e consisten t wit h a "second best " solutio n fo r allocatio n o f resources , sinc e th e burden s o f taxatio n and th e benefit s fro m publi c service s woul d b e unifor m wit h respec t t o al l similarly situated factors o f production. 26 Calculated fro m Departmen t o f Nationa l Revenue , Taxation Statistics, 1960 (Ottawa: Queen' s Printer) , Table s 1 an d 5 . Pe r capit a persona l incom e dat a would b e preferabl e fo r thi s illustration , bu t the y ar e no t availabl e fo r unit s below th e provincia l level . Th e taxabl e persona l incom e dat a use d ar e availabl e only fo r th e countie s (includin g town s an d cities ) an d fo r th e citie s an d a fe w towns. Althoug h th e countie s ar e no t synonomou s wit h municipalitie s i n Nov a Scotia, the variatio n in income for them give s a measur e which i s likely indicativ e of th e variatio n for Nov a Scotia n municipalitie s an d whic h i s i f anythin g o n th e low sid e becaus e o f th e averagin g ou t o f income s fo r th e citie s an d town s an d rural municipalities . The rang e wa s $3,402-$4,152 fo r th e province s an d $2,697 $3,668 fo r the Nov a Scotian counties.

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tive effect s o f th e fisca l syste m t o sho w ho w i t shoul d b e take n int o account. Sinc e bot h benefit s an d burden s mus t b e considered , thes e redistributive effect s ca n bes t b e examine d in term s o f the behaviou r of th e fiscal residuum with change s in income ( a use o f the fisca l re siduum whic h i s valid) . Th e proble m o f ho w th e burde n o f taxation to pa y fo r publi c service s shoul d b e distribute d amon g individual s with varyin g income s i s probabl y insolubl e i n absolut e terms . Social justic e wit h respec t t o thi s questio n i s wha t societ y actin g through its government deems it to be at any given time. Nevertheless , the vagu e notio n tha t publi c service s shoul d b e pai d fo r accordin g to abilit y t o pa y ha s wide acceptance . I n th e egalitaria n spiri t o f th e present tim e thi s criterio n i s generally , althoug h no t universally , believed t o require a progressive tax system.27 Without discussin g her e th e argument s i n th e literatur e o f publi c finance related t o this whol e question , i t wil l be assume d that i t i s at least desirabl e tha t th e fiscal system hav e a n egalitaria n tendenc y i n its redistributive effects . Fo r a fiscal system to b e egalitaria n require s simply that the fiscal residuum of benefits minus burdens must decrease as income rises. This minimu m requirement coul d b e me t even with a regressive ta x system , providin g th e regressiv e ta x burde n increase d more rapidl y tha n benefi t a s incom e increased . O f cours e th e mor e progressive th e ta x syste m is , an d th e greate r th e exten t t o whic h public service s particularl y benefi t lower-incom e groups , th e mor e egalitarian th e fiscal system will be. Figure 2 illustrate s th e egalitaria n postulat e tha t benefit s minu s burdens mus t decrease wit h income, bot h i n terms of absolute benefit from publi c services and absolut e ta x burden, an d i n term s o f rates of benefit an d tax , wit h respec t t o income . Benefit s ar e measure d her e in term s o f th e cos t t o th e governmen t o f renderin g them , an d ar e assumed t o b e constan t fo r al l individual s regardles s o f incom e t o simplify th e illustration . Measurin g benefit i n thi s wa y i s consisten t with measurin g tax burdens in term s of money income taken i n taxes , and i t avoid s complication s arisin g fro m th e behaviou r o f margina l utility of income as income increases. I n fact , th e benefit s fro m publi c services accruing to persons will vary with their circumstances , such as their tastes, o r whether the y hav e children o f school age an d whethe r they liv e i n a tow n o r i n th e country . Thes e variations , whic h wil l occur a t eac h incom e level n o matter ho w benefit s ar e measured , ar e 27 For a critica l vie w o f th e abilit y to pa y principl e an d o f associatin g i t wit h progressive taxation , se e M . Slad e Kendrick , "Th e Abilit y t o Pa y Theor y o f Taxation," American Economic Review, XXIX (March , 1939), pp . 92-101 .

Principles of Fiscal Adjustment

FIGURE 2 . GRAPHICA L ILLUSTRATION S O F THE EGALITARIA N POSTULATE

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regarded a s bein g average d ou t here . Th e assumptio n tha t benefit s from publi c service s ar e constan t fo r al l individual s regardles s o f in come permits a les s rapidly fallin g regressive rate , fo r th e egalitaria n postulate to hold, than does the more likely situation that benefit s wil l decrease wit h income . O f course , th e mone y value o f benefit s to the individual, a s oppose d t o thei r cos t t o th e governmen t considere d above, woul d likel y increas e wit h incom e i f th e margina l utilit y o f money declines quite rapidly with income. Figure 2 a illustrate s th e egalitaria n postulat e i n term s o f absolut e benefit an d burden , fo r al l thre e kind s o f ta x system . I t i s necessar y for al l ta x curve s t o cros s th e benefi t curv e i f a balance d budge t i s at least approximated: the excess of benefits t o those with low incomes must b e offse t b y th e exces s o f burden s o f thos e wit h hig h incomes. The slop e o f th e regressiv e tax curv e i s positiv e throughou t th e in come range . I f i t becam e zer o o r negative , th e egalitaria n postulat e would be violated. Figure 2 b illustrate s th e egalitaria n postulat e i n term s o f benefits and burden s expresse d as percentages o f income. The benefi t curv e is a rectangular hyperbola ( the rate o f benefit X incom e =the constan t benefit). Th e postulate i s clearly met b y progressive and proportiona l tax rates . Th e progressiv e rate i s represented i n th e char t b y a posi tively-sloped straigh t line , bu t ma y b e o f an y shap e provide d it s slope i s positiv e fo r al l incomes . A s alread y pointe d out , fo r th e egalitarian postulat e to hold with a regressive tax system, the regressive tax burden must increase more rapidly than benefit as income increases. Expressed in terms of rates, this conditio n requires tha t the regressiv e tax rate mus t fal l les s rapidl y tha n th e rat e o f increas e i n income , where th e benefi t i s constant fo r al l incomes as i s assume d here. Th e curve representing the regressiv e rate i n the char t clearl y satisfie s th e postulate, sinc e past the poin t o f intersection wit h th e benefi t curve it falls less rapidly than the benefit curve . It coul d even fall more rapidly than th e benefi t curv e an d stil l satisf y th e postulat e a s lon g a s th e rate o f benefit X incom e ( = th e amoun t of benefit) minu s th e rat e of ta x X incom e (= th e amoun t of tax) decrease s wit h income. It i s most likely that i n practice th e Canadia n publi c finance system (and a fortiori tha t o f Nova Scotia) wil l b e egalitaria n whe n benefit s as wel l a s burden s ar e take n int o account . Man y importan t publi c services benefi t th e poo r mor e in absolut e term s tha n th e rich , eve n when the y ar e o f genera l benefi t t o societ y an d canno t therefore b e valued onl y in terms of the gain s to th e immediat e recipients. Thi s i s especially tru e o f th e kind s o f service s wit h whic h th e province s ar e

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concerned. Socia l welfare measure s (includin g social security) , public health, education , an d recreationa l an d cultura l facilitie s (includin g parks ) ar e probably al l of this nature . Othe r services , suc h as defence , are likely of equal benefit t o all. Services relating to the protectio n an d enhancement o f property ma y be of greater benefi t t o the rich , bu t ar e provided t o some vague degree o n a benefit basis . THE EFFECT OF INCOME TRANSFERS ON ALLOCATION OF RESOtJHCES

It i s now possible t o summariz e the argument s tha t hav e bee n de veloped regarding a n important contention of A. D. Scott. Scott argue s that transfer s mad e i n federa l countrie s fro m ric h t o poo r provinces , providing a s the y d o service s fo r peopl e i n poo r provinces , interfer e with th e migratio n o f labou r accordin g t o th e margina l productivit y rule. Sinc e publi c service s for m a large r par t o f th e rea l income s of low-income than of high-income groups, they will, he argues, especiall y impede th e mobilit y o f low-incom e groups , whic h ar e likel y t o b e especially numerou s in a low-incom e province. 28 Presumably , i f thes e arguments were valid, the y woul d als o apply t o provincial transfer s to poor municipalities . I n thi s regard , thre e line s o f argumen t wil l b e considered briefly . ( 1 ) I n the Nova Scotian context it was shown that improved service s of th e kin d which th e provinc e an d th e municipalitie s provid e woul d probably o n balanc e hav e correctiv e rathe r tha n distortiv e effect s o n allocation o f resources, althoug h som e kinds of services t o som e kinds of localities, suc h as roads to som e fishing villages, may have distortiv e effects. (2) Buchana n maintain s tha t th e generalit y o f th e argumen t tha t distortion o f allocatio n o f resource s result s whe n level s o f public ser vices in poor provinces are raised i s further reduced i f it ca n be shown that eve n perfec t mobilit y o f resources nee d no t eliminat e inter-are a differences i n per capit a income . The validit y o f his position ha s bee n demonstrated bot h theoreticall y and , wit h respec t t o Nov a Scotia , empirically. Withou t transfers , under suc h conditions, the allocatio n of resources canno t reach it s optimum because th e fiscal pressure wil l b e heavier o n factors i n the poo r province s o r localities tha n o n similarl y situated factor s i n the ric h province s o r localities, creatin g a n induce ment for them to move to the richer ones . ( It ha s already been pointe d out that th e cos t to the governmen t of supplying a unit o f a service t o 28 A. D . Scott , " A Not e o n Grant s i n Federa l Countries, " Económica, XVI I (November, 1950), p. 419.

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an area, relative to its population densit y an d economic potential, must be taken into account. ) (3) Eve n if public service s do form a large part o f the rea l incomes of peopl e i n low-incom e groups , an d therefor e mak e privat e reward s relatively les s importan t fo r the m whe n the y compar e thei r positio n with th e possibl y bette r position s the y ca n obtai n elsewher e i n othe r provinces o r othe r municipalities , thi s situatio n i s a resul t o f th e de cision o f society tha t th e provisio n of public service s o n suc h a scal e is desirable. 29 I t i s n o argumen t fo r providin g inferio r service s o r imposing heavier ta x burdens in poor provinces and localities . People , especially poo r people , i n ric h localitie s a s well a s in poo r ones , hav e their incentive s t o mov e blunte d becaus e th e publi c service s mak e them bette r of f than the y woul d otherwis e b e an d s o diminis h th e marginal utility o f higher private incomes they could obtain by moving in respons e t o bette r opportunitie s elsewhere . Thi s bluntin g effec t depends o n ther e bein g som e substitutabilit y betwee n privat e an d public goods. Scott i s actuall y arguin g tha t a n egalitaria n fisca l syste m impede s the movemen t of resources t o thei r mos t productive uses . While i t i s useful t o point this out, it is important to recognize that such distortion is attributable t o a redistributive fiscal system that societ y deem s bes t serves it s interest s rathe r tha n t o federa l o r provincia l transfer s a s such. In fact, federal and provincial transfers ar e necessary to equaliz e the fisca l pressur e o n similarl y situate d individual s i n ric h an d poo r provinces o r localities . Consider , fo r example , tw o individuals , C an d D, wit h equa l income s i n th e for m o f wages , C i n a low-incom e province o r locality P , and D in a high-income provinc e o r locality Ç , before any transfer, that is, when fiscal pressures on them ar e unequal . Transfers ar e mad e fro m Q t o P an d ar e allocate d s o that th e fiscal pressure o n C an d D i s th e same . C an d D nee d no t hav e th e sam e occupation. I f the y have , an d i f the y ar e equall y competent , the y ar e in geographical equilibriu m an d neither o f them shoul d move. (With out transfers C would be pressed t o move to Q, even if he wer e somewhat les s productiv e there. ) I f the y hav e not , C migh t b e mor e productive i n Q an d therefor e b e induce d t o move . O r D migh t b e more productiv e i n P, eve n thoug h th e average level o f income s i s lower there , an d s o would have a n incentive t o mov e there. C an d D may hav e a relativel y hig h o r lo w income , compare d wit h other s i n the two provinces or localities. 29 A similar point is made in J. E . Meade , The Theory of International Economic Policy. II . Trade and Welfare (London : Oxfor d Universit y Press , 1955) , p . 419 .

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All three of these Unes of argument point t o conclusion s that, in th e Nova Scotian contex t a t least , ar e oppose d t o Scott' s argument s abou t the effect s o f transfer s o n allocatio n o f resources . Transfer s coul d b e used i n way s in whic h the y woul d distor t th e allocatio n o f resources , but the y woul d no t d o s o if the y wer e use d i n accordanc e wit h th e principle o f fiscal equity . CONDITIONAL AND UNCONDITIONAL GEANTS AND PUBLIC WELFARE: THE CONFLICT OF LOCAL AND PBOVINCIAL INTEBESTS

If th e principl e o f fisca l equity i s t o b e implemente d b y mean s of federal equalizatio n grant s t o province s an d provincia l equalizatio n grants to localities, should such grants be conditional or unconditional ? The Conflict of Federal and Provincial Interests in the Case of Federal Grants30 The answe r depend s i n par t upo n th e answer s t o tw o othe r ques tions: (1 ) Ho w much importance is to be attache d t o the doctrin e of financial responsibilit y an d (2 ) i s maximizin g o f provincia l o r o f national welfar e to have priority ? Conditiona l grants , sinc e the y mus t be use d for specified services , are mor e in accor d wit h th e doctrin e of financial responsibility an d wit h expenditure s bein g mad e accordin g to nationa l interests , whil e unconditiona l grant s violat e th e doctrin e of financia l responsibilit y bu t ar e conduciv e t o expenditure s bein g made accordin g t o provincia l interests . I f conditiona l grant s requir e matching i n whol e o r i n part , ther e i s th e additiona l consideratio n (related t o th e secon d questio n above ) tha t provincia l expenditure s may b e distorte d b y th e drai n o f funds fro m othe r provincia l service s to provide par t o r all of the matching expenditures. Whethe r matching is required o r not , a conditiona l gran t i s les s conduciv e t o welfar e a s far a s a province is concerned than a n equivalen t unconditiona l grant . Scott abl y compares th e effect s o n provincial welfar e o f conditiona l and unconditiona l federa l grant s usin g th e indifferenc e curv e tech nique.31 Hi s mai n conclusio n i s essentiall y that , whethe r th e federa l conditional gran t require s matchin g o r not , whethe r th e matchin g i s contingent upo n a minimu m expenditur e b y th e provinc e fo r th e

30 For a n interesting , althoug h no t conclusive , discussio n o f thi s questio n wit h reference t o the Unite d States , see J. A. Maxwell, The Fiscal Impact of Federalism in the United States (Cambridge : Harvar d Universit y Press , 1946) , chap . xvii . See als o th e sam e author' s Federal Subsidies to the Provincial Governments in Canada (Cambridge : Harvard University Press, 1937), passim. s1 A. D . Scott , "The Evaluatio n o f Federa l Grants, " Económica, XI X (Novem ber, 1952), passim.

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service i n questio n o r not , whethe r th e federa l shar e ha s a limi t o r not, th e provinc e woul d b e bette r of f if a n unconditiona l gran t wer e made equal to the conditional gran t which the province would receiv e in equilibrium. Furthermore , i f a grant doe s require a minimum outlay by the provinc e an d i f the amount s of expenditure involve d ar e quit e large, "th e outcom e may be th e extensio n of taxation and spendin g by the stat e wel l beyond th e poin t whic h woul d have been chose n i f th e state ha d freedo m o f action." 32 Thi s analysi s take s int o accoun t onl y the discrepanc y i n welfar e betwee n a conditiona l an d a n equivalen t unconditional grant for the province itself. It doe s not take into account the discrepanc y i n th e opposit e directio n fo r th e countr y a s a whol e which ma y outweigh th e discrepanc y for the province. 33 For a schem e of conditiona l grant s requirin g matchin g t o b e i n accor d wit h th e principle of fiscal equity, it would be necessary either fo r th e provinces ' share to b e scale d i n suc h a way that n o province woul d hav e t o impose heavie r ta x burdens t o pa y it s shar e tha n an y othe r province , or for th e burden s incurre d i n th e matchin g o f conditiona l grant s t o b e equalized withi n th e framewor k o f a concomitan t schem e o f uncon ditional grants . As alread y note d earlie r i n thi s chapter , Buchana n argue s wit h respect t o th e Unite d State s tha t ther e i s very little conflic t betwee n state an d national interests i n the wa y equalizing unconditiona l grants would likely be used by the states . He believes tha t states , if they ha d sufficient revenue , woul d o f thei r ow n accor d undertak e a t adequat e levels th e function s th e federa l governmen t wishes t o encourage . It seem s highly probable that, if a n equalization polic y o f the sor t propose d here were carrie d out , national interest s woul d b e adequatel y serve d with out any national government direction o f state expenditure. Th e lo w income states provid e deficien t educationa l standard s largel y becaus e o f thei r fiscal plight; remov e this , an d i t seem s likel y tha t thei r servic e standard s would approac h thos e o f othe r state s withou t an y restraint s upo n stat e budgetary freedom. 34 Buchanan i s inclined t o regar d th e doctrin e o f financia l responsibilit y as a traditiona l precep t withou t muc h intrinsi c merit , whic h shoul d not be permitted t o impede the implementatio n o f sound principles of fiscal adjustment. wibid., p. 391. 33 Scott recognize s thi s problem , bu t argues : "Th e resolution o f th e deadloc k cannot be achieve d by economic s alone." (Ibid., pp . 392-3. ) H e probabl y ha s i n mind tha t ther e i s n o objectiv e mean s o f comparin g th e discrepancies , sinc e i t requires makin g interpersona l comparison s betwee n th e peopl e i n th e whol e country and the people in the province in question. 34 Buchanan, "Federalism and Fiscal Equity," p. 597.

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For service s o f nationa l importanc e bu t bes t administere d b y th e provinces, conditiona l grants would probably no t lead to much conflic t of interest . Fo r service s solel y o r ver y largel y o f provincia l interest , conditional grant s woul d no t onl y constitut e to o blatan t interferenc e with provincia l autonom y but woul d be impractical wher e th e natur e of suc h service s varie s fro m provinc e t o province . I n an y case , ther e would b e littl e conflic t betwee n nationa l an d provincia l interes t i n regard t o suc h provincia l service s an d henc e les s justificatio n fo r conditions. In so far a s federal grants are mad e for the purpos e o f equalization , in accordanc e wit h th e principl e o f fisca l equity , Buchana n argue s cogently that they should be unconditional: The fac t tha t th e centra l governmen t mus t ente r th e adjustmen t proces s and transfe r funds t o effectuat e equit y i n the over-al l fiscal system doe s no t . . . impl y tha t th e centra l governmen t shoul d b e allowe d t o direc t th e recipient state s i n th e allocatio n o f thei r expenditure . Ther e seem s n o apparent reaso n why there should be more central interference or direction i n the financial operation of the recipient state s than in that of the non-recipien t states. State s ar e mad e claiman t throug h n o faul t o f thei r ow n o r o f thei r respective citizens . The y ar e mad e claiman t b y th e incom e distributio n arising from a resource allocation and paymen t i n a national economy . Onc e it i s recognize d tha t th e transfer s ar e adjustment s whic h ar e necessar y t o coordinate th e federa l politica l structur e wit h a nationa l economy , an d a s such ar e ethicall y du e th e citizen s o f th e lo w incom e stat e units , the n th e freedom o f thes e citizen s t o choos e th e patter n o f thei r states ' expenditur e follows.35

The choice of conditional or unconditional grants will in fact depen d to a large exten t upon the tradition s o f the country . The stron g tradition of financial responsibility in the Unite d State s has resulte d i n th e use solel y o f conditiona l federa l grant s there , wherea s financia l de pendence o f the province s o n the federa l government from th e tim e of Confederation combine d wit h insistenc e o n provincia l autonom y i n Canada, especiall y b y Quebec , ha s favoure d unconditiona l grants , although a n extensiv e networ k o f conditional grant s ha s als o evolved . In Australia , th e emphasi s on unconditiona l grant s i s als o strong , for somewhat similar reasons. The Applicability of Conditional and Unconditional Grants to Provincial-Municipal Fiscal Adjustment To wha t exten t d o thes e argument s concernin g federa l conditiona l and unconditiona l grant s appl y t o provincial grant s t o municipalities ? 3BIfcíá., p. 598.

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Since a provincia l governmen t face s n o constitutiona l barrier s i n dealing wit h it s municipalitie s (a s th e federa l governmen t doe s i n dealing wit h th e province s which hav e certai n sovereig n powers), its scope fo r usin g conditiona l grant s i s muc h greate r tha n th e federa l government's, a t leas t wit h regar d t o general services . Althoug h there are no constitutional barriers to prevent the province from withdrawin g or alterin g th e delegate d power s o f th e localities , o r eve n dissolvin g the localities, there are very real political barrier s to such action. In th e course o f time , th e localities , wit h thei r functions , hav e becom e s o cemented i n the politica l fabri c of the province , tha t majo r alteration s in their powers are not likely to be taken lightly by the citizenr y of the province. I t woul d not be easy , for example, to merge two smal l rura l municipalities, even if obvious gains in administrative efficiency woul d ensue. Even so , the provincia l governmen t ca n requir e tha t standards , se t provincially, be met by non-recipient a s well as by recipient localitiessomething th e federa l governmen t coul d no t thin k o f doin g wit h respect t o non-recipien t provinces . Buchanan' s argumen t fo r uncon ditional grant s i s therefor e fa r les s relevan t t o provincial-municipa l than to federal-provincial relations. Furthermore , a provincial govern ment having a smaller unit to administer tha n th e federa l government can, i n administerin g conditiona l grant s t o localities , tak e loca l conditions into account more satisfactorily than can the federal government in dealing with the provinces. There woul d stil l b e som e conflic t betwee n provincia l an d loca l interests if conditional grants were used by the provinces with respect to services primarily of local concern, such as services relating to property, community development, and recreational facilities. The municipalitie s owe their existence primarily to the general recognition o f the fact tha t the nature and extent of these local services can best be determined b y the peopl e who m they directl y concern . It i s likely that if the municipalities wer e o f equa l fisca l capacit y (o r i f thei r unequa l fisca l capacities wer e compensated for by unconditiona l grants) an d i f the y were free t o determine the level of the genera l services, such as education (a s well as of the local services), for which they were responsible , there would be considerabl e variatio n i n th e leve l o f the genera l services.86 Sinc e th e service s ar e o f a genera l natur e an d sinc e th e 8

*Other\vise ther e woul d b e n o nee d i n th e cas e o f Nov a Scotia , fo r example , for th e elaborat e definitions o f educationa l services i n th e province' s educational programme; o r fo r requirin g th e municipalitie s to mee t standard s to qualif y fo r

Principles of Fiscal Adjustment 19

3

province's jurisdictio n ove r the m i s complete , i t i s quit e appropriat e for th e province to exert as much control over them as it deem s in th e general provincia l interes t eve n whe n on e outcom e is a distortio n of municipal expenditure s fro m thos e tha t woul d b e mad e i f the y wer e entirely unde r municipa l control . Moreover , a s alread y pointe d ou t earlier i n thi s chapter , th e principl e o f fiscal equity i s easier t o appl y if minimu m levels o f genera l service s ar e maintaine d throughou t th e province. One effec t o f conditiona l grant s t o municipalitie s accompanie d b y the impositio n o f minimum standards o f services an d b y th e require ment tha t th e municipalitie s mak e a minimu m contribution t o then support i s tha t th e municipalitie s ten d t o becom e tax-collectin g an d administrative units of th e provincia l government. As far a s the fisca l impact o n th e person s i n th e municipalitie s i s concerned , th e effec t may be much the sam e as if the provincia l governmen t took over bot h full fiscal and ful l administrativ e responsibility fo r th e services . It appear s tha t th e conflic t o f provincia l an d loca l interes t arisin g from conditiona l grants is much less significant i n provincial-municipal relations tha n i s th e conflic t o f federa l an d provincia l interest s i n federal-provincial relations . T o the exten t it exist s in th e forme r case , it i s wit h respec t t o loca l service s wit h whic h a provinc e woul d no t likely wis h t o interfer e i n an y case . Conditiona l grant s ar e quit e appropriate fo r genera l services , probabl y eve n superio r t o uncon ditional grants, 87 whil e unconditional grant s ar e appropriat e fo r loca l services. Suc h a combinatio n o f grant s i s quit e consisten t wit h th e unemployment assistanc e grant s an d grant s fo r menta l hospitals . I t appear s tha t Buchanan's contentio n tha t if th e state s have sufficien t fund s the y wil l suppl y th e nationally-desired leve l o f service s doe s no t hol d a t th e municipa l leve l i n Nov a Scotia. ( A number o f people interviewed referre d t o the "penny-pinching " attitude of som e Nova Scotia n municipalities , no t al l o f the m poor. ) Th e variatio n i n th e level o f service s woul d b e i n par t a resul t o f th e smal l siz e o f th e municipalitie s (which i s les s conduciv e t o a n averagin g ou t o f attitude s tha n i n large r units) , and i n par t o f th e fac t tha t som e o f the m ar e rura l an d som e urban , leadin g t o different socia l conditions an d therefor e differen t attitudes. 37 Whatever importanc e ma y b e attache d t o th e doctrin e o f financia l responsi bility, conditiona l grant s ar e mor e consisten t wit h th e doctrin e tha n unconditiona l grants. A s i n th e cas e o f federa l grant s t o provinces , fo r provincia l conditiona l grants requirin g matchin g t o b e i n accor d wit h th e principl e o f fiscal equity , i t would b e necessar y fo r th e municipalities ' share s t o b e scale d i n suc h a wa y tha t no municipalit y woul d hav e t o impos e heavie r ta x burden s t o pa y it s shar e tha n any othe r municipality , o r for the burden s incurre d in th e matchin g o f conditiona l grants t o b e equalize d withi n th e framewor k o f a concomitan t schem e o f uncon ditional grants .

194

Fiscal Adjustment and Economic Development

application o f the principl e o f fiscal equity i n a province, 88 a s i s also the complet e assumption of responsibility fo r genera l service s by th e provincial government . There i s not onl y greater scop e for adjustment at the provincial-municipal level than at the federal-provincial level by non-fiscal means , that is , by politica l an d administrativ e devices, bu t also by fiscal means. 38 Of course , equalizatio n migh t no t b e th e onl y ai m o f grants . Grant s migh t also be mad e t o effec t a general adjustmen t in th e relatio n betwee n function s an d revenues o f municipalities . Bot h element s o f equalizatio n an d o f adjustmen t fo r a genera l deficienc y of revenues might be presen t i n a syste m of grant s (a s migh t stimulation o f particula r services) . A t present , a s wa s show n i n chapte r rv , th e provincial governmen t i n Nov a Scoti a i s makin g conditiona l an d unconditiona l grants, bot h o f whic h hav e equalizatio n an d deficienc y elements . Som e o f th e conditional grants have strong stimulative elements.

VIII

The Presen t Fisca l Syste m i n Nova Scoti a an d th e Criterio n of Fiscal Equit y

THE FISCAL EQUIT Y CRITERION calls for equa l fisca l treatment of similarly situated individual s i n th e differen t municipalitie s o f the province . I t is no t enoug h tha t th e residu a o f similarl y situate d individual s b e equal; thei r actua l benefit s fro m publi c service s mus t b e equal . Th e criterion would be met if, regardless of where he lived in the province, an individual would receive the sam e public service s and would incu r the sam e ta x burden s wit h respec t t o hi s give n income , wealth , expenditure, and whatever other tax bases were used. It i s unlikely that thes e rigi d condition s could b e me t i n practice ; nor is it desirable tha t the y be met. Even with complet e centralizatio n of al l services , bot h genera l an d local , i n th e hand s o f the provincia l government ther e woul d b e difference s i n th e level s o f some service s which i t woul d b e practica l t o suppl y i n rura l area s compare d wit h urban ones—street lighting and sewers, for example. Without centralization, ther e ar e boun d t o b e variation s i n loca l service s eve n amon g municipalities o f the sam e type (urba n o r rural), as well a s variations in the supplements to general services. There would be suc h variations even if the fisca l capacitie s o f municipalities of each typ e were equal . To requir e a perfectl y unifor m leve l o f service s woul d resul t i n con siderable los s of satisfaction of wants, for a municipality would not b e free t o determin e th e leve l o f loca l service s o r t o supplemen t th e general services according to the consensu s of its ow n citizens. Nevertheless, th e fisca l equit y criterion , wit h thes e reservations , ca n b e

196

Fiscal Adjustment and Economic Development

useful a s a guid e t o a n evaluatio n o f an y give n provincial-municipa l fiscal system and as a basis for adjustments to that system. AN OVER-AL L VIEW OF THE NOV A SCOTIAN FISCAL SYSTEM

The purpose of this chapter i s to show how the provincial-municipa l fiscal system in Nova Scotia measures up t o th e fiscal equity criterion . There are als o brief discussion s of the fiscal flexibility of the provincia l government, an d o f th e redistributiv e element s i n th e provincial municipal fisca l system . Mean s by whic h th e fisca l syste m migh t b e adjusted i n accordanc e wit h th e fisca l equit y criterion , t o th e exten t that it does not already measur e up t o it, will be discusse d in the next chapter. The approac h i n this chapter wil l be based i n part upo n th e distinction betwee n genera l an d loca l service s develope d i n earlie r chapters. Th e loca l service s ar e deeme d t o b e th e particula r concer n of th e localities , whil e som e general service s ar e th e concer n o f bot h the provinc e an d th e localitie s an d som e only of th e province . Wit h complete centralizatio n i n th e hand s o f th e provincia l governmen t of all public services presentl y provided b y the province and th e municipalities, and with uniform policies of taxation and expenditure throughout th e province , th e principl e o f fisca l equit y woul d b e mos t full y implemented. A n individua l wit h give n incom e an d wealt h an d expenditure woul d receive th e sam e benefits fro m publi c services an d incur th e sam e burdens o f taxation anywher e i n th e province . Violations o f th e criterio n occu r essentiall y becaus e municipalitie s ar e responsible fo r loca l service s and , i n part , fo r som e general services , and because they have unequal fiscal capacity. Provincial Taxes Since th e provincia l ta x syste m operate s uniforml y throughout th e province, there i s no inter-municipal discrimination arising from it . An individual pay s the sam e liquor monopol y prices fo r alcoholi c bever ages, th e sam e percentage retail sales tax, 1 an d th e sam e taxes on his motor vehicl e an d o n eac h gallo n o f gasolin e h e use s regardles s o f where he resides in the province . Purely Provincial Services These services are, in general, provided at a uniform level throughout the provinc e althoug h th e difference s i n urba n an d rura l conditions , !The retai l sale s ta x ma y hav e a highe r incidenc e in rura l areas , compare d to towns and cities, to th e exten t tha t prices are higher in th e country , bu t acces s to mai l orde r facilitie s o f departmen t stores tend s t o eliminat e such differences .

Nova Scotia's Fiscal System and Fiscal Equity 19

7

especially wit h respec t t o densit y o f population , inevitabl y lea d t o some difference s i n services . I n th e cas e o f roads , fo r example , som e people i n th e rura l area s hav e property abuttin g o n paved highways , and som e are provide d wit h onl y grave l o r dir t road s and ar e a lon g way fro m pave d highways . Th e provincia l governmen t build s an d maintains paved highway s according to priorities. Trunk roads ringin g the provinc e an d cuttin g acros s it i n a number o f places ar e designe d to lin k up th e large r centre s o f population an d a t th e sam e tim e pu t the unpopulate d rura l area s withi n a s eas y reac h o f pavemen t a s i s practicable. I t i s inevitable tha t som e people i n the rural area s will b e better served than others. Nearness to pavement will also influence th e value o f rural property . Ther e wil l b e varyin g levels o f service s wit h respect t o highways in each of the rural municipalities bu t th e service s provided wil l no t b e relate d t o thei r bein g ric h o r poor . Th e sor t of road availabl e t o people i n remote parts of poor municipalities wil l b y and larg e b e comparabl e t o tha t availabl e i n remot e part s o f ric h municipalities. I t i s i n thi s sens e tru e t o sa y tha t similarl y situate d people i n th e differen t rura l municipalitie s ar e treate d similarl y eve n with respect to roads. Local Services, and General Services for Which the Municipalities Have Some Responsibility The questio n o f unequa l fiscal treatment o f similarl y situate d indi viduals doe s arise with respec t t o those general service s for which th e municipalities hav e some responsibility a s well as for local services fo r which the y are entirely responsible, that is , with regard to al l services provided b y th e municipalities . Municipalitie s o f unequa l fisca l capacity cannot provide, on their own, the same levels of services without ther e bein g differen t burden s o n thei r taxpayers . Significan t dif ferences i n fisca l capacit y d o i n fac t exis t amon g th e Nov a Scotia n municipalities, whethe r fisca l capacit y i s measure d i n term s o f pe r capita valu e o f taxabl e propert y (Tabl e XXXIV ) o r i n term s o f pe r capita income, using per capit a income s of payers o f personal incom e tax, by counties (Tabl e XXXV) . The range of the inde x in the secon d column o f Tabl e XXX V i s les s tha n i t woul d b e i f simila r dat a fo r municipalities could be shown separately, since using the larger county unit result s i n considerabl e averagin g ou t o f the hig h an d lo w values for the municipalities within each county. Since a t presen t nearl y al l loca l taxatio n revenu e i s obtaine d fro m the property tax 2 on real propert y and tangibl e persona l property, pe r 2See Tables XIV and XVI.

198

Fiscal Adjustment and Economic Development

TABLE XXXIV UNIFORM ASSESSMENT S PER CAPIT A O F NOV A SCOTIA N MUNICIPALITIES, " 195 8

Assess. per cap .

Amherst Annapolis Roya l Antigonish Berwick Bridgetown Bridgewater Canso Clark's Harbou r Dartmouth Digby Dominion Glace Ba y Hantsport Inverness Kentville Liverpool Lockeport Louisburg Lunenburg Mahone Bay

$1805 2933 2061 2788 2653 2945 765 1177 3540 2144 519 1431 3320 634 3107 2507 1350 1689 3320 1613

Halifax

3907

Annapolis Antigonish Argyle Barrington Cape Breton Chester Clare Colchester Cumberland Digby Guysborough Halifax

1341 773 558 618 1118 1380 867 1419 1222 981 462 2121

Assess. per cap .

% of av . assess. per cap. 6

Towns and Cities Middleton 96 $3011 M u Igra ve 155 837 109 New Glasgo w 2669 148 New Waterford 985 140 North Sydne y 1424 156 Oxford 1076 Parrsboro 40 1181 62 Pictou 1168 187 Pt. Hawkesbury 1168 113 Shelburne 1550 27 Springhill 749 76 Stellarton 966 Stewiacke 1574 176 34 Sydney Mines 1104 164 Trenton 3170 133 Truro 3035 71 Westville 659 89 Windsor 2299 176 Wolfville 2727 Yarmouth 85 1892 i

Sydney

Rural Municipalities Hants, Eas t 119 Hants, West 69 Inverness 49 Kings 55 Lunenburg 99 122 Pictou Queens 77 Richmond 126 Shelburne 108 St. Mary' s 87 41 Victoria Yarmouth 188

% of av. assess. per cap. 6 159 44 141 52 75 57 63 62 62 82 40 51 83 58 168 161 35 122 144 100

3158

t>

1260 1397 663 1358 1066 1040 2453 496 870 1047 1363 1208

112

124 59 120 95 92 217 44 77 93 121 107

SOURCE: Calculate d fro m Governmen t o f Nov a Scotia , Report of the Revaluation Commission for the Province of Nova Scotia, 1958, using 1956 populatio n figure s fro m Annual Report of Municipal Statistics, 1956. "These assessment s includ e real propert y an d tangibl e persona l property . The y are estimate s o f "ful l value " mad e o n th e basi s o f the municipa l unit, rather tha n individual property, an d includ e all taxable propert y an d al l property owne d by th e federal an d provincia l governments and thei r Crow n Corporations fo r which grant s in lie u o f taxation ar e made . 'The average value s of per capit a assessment s ar e $188 9 for towns, and $112 8 fo r rural municipalities . These ar e unweighte d averages a s the y ar e mor e appropriat e for comparin g the values of the municipalities than weighted averages. (The weighted averages ar e $199 0 fo r town s an d $135 1 fo r rura l municipalities. ) Sinc e ther e ar e only tw o cities , ther e i s no t muc h poin t i n computin g th e percentage s o f averag e assessment pe r capit a fo r them .

Nova Scotia's Fiscal System and Fiscal Equity 19

9

TABLE XXXV INCOME PE R TAXPAYER O F PAYER S O F PERSONA L INCOM E TAX FOR TH E COUNTIE S O F NOVA SCOTIA, " 195 8

Income pe r taxpayer

Income per taxpayer as %of average

Annapolis Antigonish Cape Breto n Colchester Cumberland Digby Guysborough Halifax Hants Inverness Kings Lunenburg Pictou Queens Richmond Shelburne Victoria Yarmouth

3279 3313 3689 3402 3335 2968 2697 3678 3451 2930 3271 3652 3464 3668 3076 3566 2953 3338

99 100 111 102 100 89 81 111 104 88 98 110 104 110 93 107 89 101

AVERAGE

3318e

100

Number of taxpayers as %o f 6

population 9.4 9.2

18.3 14.4 11.9 7.4 5.4

24.4 10.0 5.9

11.8 11.7 12.4 15.1 7.7 5.4 7.3 9.5

SOURCE: Calcula ted fro m Departmen t of Nationa l Revenue, Taxation Statistics, 1960, Table 5 ; usin g 195 6 population figure s fro m D.B.S. , Census of Canada, 1956, Bulletin 3-1, Tabl e 1. "Includes al l taxpayer s i n eac h county , regardless o f whethe r they live i n cities, towns, or rura l municipalities. 'This column is given to show that the variation in taxable capacity, to th e exten t i t ca n be measure d with th e dat a i n this table , i s even greater tha n i s indicated by the secon d column. 'This i s an unweighte d average, a s i t i s more appropriate fo r comparing th e value s of th e differen t countie s than a weighte d average . The weighted average, that is the incom e per taxpayer for the province as a whole , is $3,839.

capita valu e of taxabl e propert y provide s th e bes t inde x o f municipal fiscal capacity. Tha t ther e i s considerabl e variatio n i n ta x burden s i s indicated b y Table XXXVI . A s would b e expected , th e burde n o f th e property ta x i s greater, o n th e average , fo r citie s an d town s tha n fo r the rura l municipalities , sinc e th e citie s an d town s provid e a wide r range of services. Table XXXVII shows the great variation in municipal assessments i n 195 8 i n relatio n t o th e equalize d assessment s made b y the Revaluatio n Commission . (On e shoul d bea r i n min d tha t th e commission's assessment s wer e mad e o n th e basi s o f th e municipa l unit no t o n the basi s of each individua l property. ) Ther e i s also grea t variation i n assessment s within man y municipalitie s whic h woul d

200

Fiscal Adjustment and Economic Development TABLE XXXV I PROPERTY TA X REVENUES O F NOV A SCOTIA N MUNICIPALITIE S I N 1959 " AS PERCENTAGES OF THE 195 8 UNIFOR M ASSESSMENT S

Amherst Annapolis Royal Antigonish Berwick Bridgetown Bridgewater Canso Clark's Harbour Dartmouth Digby Dominion Glace Bay Hantsport Inverness

2.6% 2.1 3.0 2.3 2.5 2.2 5.8 3.0 1.8 2.6 4.5 2.9 2.6 3.2

Halifax Cit y

2.9

Annapolis Antigonish Argyle Barrington Cape Breton Chester Clare Colchester

1.7% 3.1 2.6 3.4 2.3 1.8 2.0 2.0

Towns and Cities Kentville 2.4% Pt. Hawkesbury Liverpool 2.8 Shelburne Lockeport 2.8 Springhill Louisburg 4.1 Stellarton Lunenburg 2.1 Stewiacke Mahone Bay Sydney Mines 3.5 2.1 Middleton Trenton Mulgrave 6.1 Truro New Glasgow 2.5 Westville Windsor New Waterford 4.0 North Sydney 3.3 Wolfville Oxford Yarmouth 3.7 Parrsboro Average (towns) 3.0 Pictou 2.9 Rural Municipalities Cumberland 1.7% Digby 2.3 Guysborough 4.9 Halifax 1.7 Hants, Eas t 1.8 Hants, West 1.9 Inverness 3.0 Kings 1.6

3.2% 3.0 4.3 3.6 2.0 2.8 2.4 2.2 4.1 2.9 2.4 3.9 3.1»

Sydney

2.6

Lunenburg Pictou Queens Richmond Shelburne St. Mary's Victoria Yarmouth

1.9% 2.2 1.5 3.4 2.7 1.8 2.5 2.2

AVERAGE 2.3 *

SOURCE: Calculated from Report of the Revaluation Commission for the Province of Nova Scotia, 1958; and Annual Report of Municipal Statistics, 1959. "Includes rea l and persona l propert y taxe s and grant s pai d in lie u of propert y taxation by federal and provincial governments and enterprises of these governments. 'Unweighted average .

reduce th e exten t t o whic h th e principl e o f fisca l equit y ca n b e effectively implemente d a s lon g a s th e variatio n persists . The polic y o f the provinc e a t presen t i s to continu e t o charg e th e municipalities with responsibility fo r some of the service s which ar e n o longer regarde d a s bein g onl y local i n character , tha t is , fo r genera l services, but to help them financially, in various ways, to perform them, and i n additio n t o mak e som e unconditiona l grant s whic h ma y b e applied eithe r to local or general services . Provincial Fiscal Practices and the Fiscal Equity Criterion There ar e a number of kinds of equalization3 with regard t o munici pal service s i n presen t provincia l fiscal practices. Th e mai n one s are : 8

The ter m "equalization, " a s use d here , i s no t synonymou s with equalizatio n

Nova Scotia's Fiscal System and Fiscal Equity

201

TABLE XXXVI I ACTUAL MUNICIPA L ASSESSMENTS IN NOV A SCOTIA I N 195 8 AS PERCENTAGE S OF UNIFOR M 195 8 ASSESSMENT S MAD E BY REVALUATIO N COMMISSIO N

Amherst Annapolis Royal Antigonish Berwick Bridgetown Bridge water Canso Clark's Harbour Dartmouth Digby Dominion Glace Ba y Hantsport Inverness

29.4% 24.6 57.7 88.4 72.4 57.9 32.5 95.9 40.1 77.1 52.9 26.1 25.0 45.6

Towns and Cities Kentville 57.1% Liverpool 60.8 Lockeport 28.7 Louisburg 72.8 Lunenburg 92.6 Mahone Ba y 74.4 Middleton 74.8 50.2 Mulgrave New Glasgo w 85.5 New Waterfor d 26.7 North Sydne y 28.3 76.4 Oxford Parrsboro 26.1 Pictou 38.4

Pt. Hawkesbur y 57.8% 77.3 Shelburne 52.8 Springhill 57.6 Stellarton 23.5 Stewiacke Sydney Mine s 29.3 26.6 Trenton 90.1 Truro 42.3 Westville 91.0 Windsor 72.6 Wolfville 71.8 Yarmouth 76.4 Halifax Cit y 23.9 Sydney

Annapolis Antigonish Argyle Barrington Cape Breto n Chester Clare Colchester

17.6% 91.5 87.5 59.4 11.0 79.9 78.9 22.0

Rural Municipalities 14.9% Cumberland Digby 19.8 Guysborough 21.7 Halifax 34.4 Hants, Eas t 24.0 Hants, West 75.2 Inverness 32.0 Kings 12.9

Lunenburg Pictou Queens Richmond Shelburne St. Mary's Victoria Yarmouth

53.6% 24.6 77.9 50.8 69.6 78.6 96.6 88.8

SOURCE: Calculated fro m Report of the Revaluation Commission for the Province of Nova Scotia, 1968.

(1) Unconditiona l per capit a grants , the siz e o f the pe r capit a gran t varying with th e typ e o f municipality, being largest fo r the citie s an d smallest fo r th e rura l municipalities . (2 ) Conditiona l grant s whic h cover a certai n proportio n o f cost s o f municipa l services , provide d standards ar e met . Th e socia l assistanc e grant s (fo r municipa l poo r homes an d outdoo r relief ) coverin g two-third s o f th e ne t costs , th e grants to mental hospitals covering one-half of the ne t costs , the grant s for administratio n of local welfare services coverin g half the costs , an d the sharin g of costs of highways passing through town s and citie s ar e all o f this type . Th e municipalitie s ar e no t compelle d t o qualif y fo r these grants . (3 ) Conditiona l grant s fo r educatio n whic h tak e int o according to the principl e of fiscal equity. Equalization i s a more genera l concept . It simpl y mean s an y fisca l adjustmen t tha t tend s t o compensat e fo r difference s in municipa l fiscal capacity. Not e als o tha t i n neithe r cas e i s th e ai m t o equaliz e fiscal capacity itself . T o achiev e suc h a n en d woul d requir e tha t pe r capit a ta x bases themselves be mad e equa l for al l localities s o that, fo r example , al l localities would hav e equa l pe r capit a incomes , a resul t quit e inconsisten t wit h optimu m allocation of resources.

TABLE XXXVII I DIVISION O F MUNICIPA L EXPENDITURE S I N NOV A SCOTI A INT O LOCA L AN D GENERAL SERVICES, " 1959

Cities

General government* Protection t o1persons and property 0 Public works' Sanitation an d waste removal Recreation and communit y services Other, including capital charge s out of revenue Debt charges' TOTAL LOCA L SERVICES Health Public Health General hospitals' Mental hospital s TOTAL HEALT H

Social welfar e Municipal assistanc e Child welfare Other, includin g grants

TOTAL SOCIA L WELFAR E

Towns

$'000

%of total

1,121 3,024 1,102 576 529

7.2 19.6 7.1 3.7 3.4

32 3 6,387

.2 — 41.2

Rural municipalities

All municipalities

%of total

$'000

%of total

$'000

%of total

788 1,856 1,206 276 192

6.5 15.4 10.0 2.3 1.6

970 615 38 55 58

8.4 5.3 .3 .5 .5

2,879 5,495 2,346 907 779

7.4 14.0 6.0 2.3 2.0

434 4 4,756

3.6 — 39.4

48 101 1,885

.4 .9 16.3

514 108 13,028

1.3 .3 33.3

$'000

Local services

General services

222 318 442 982

1.4 2.0 2.8 6.2

40 243 314 597

.3 2.0 2.6 4.9

20 444 696 1,160

.2 3.8 6.0 10.0

282 1,005 1,452 2,739

.7 2.6 3.7 7.0

327 127 36 490

2.1 .8 .2 3.1

279 143 17 439

2.3 1.2 .1 3.6

702 257 18 977

6.0 2.2 .2 8.4

1,308 527 71 1,906

3.3 1.3 .2 4.8

TABLE XXXVII I (Continued) Cities Town $'000 tota —

%of %o l $'00

s Rura 0 tota

f %o l $'00

1

0.

18

l municipalities Al 0 tota .

l municipalities

f %o l $'00

0 tota

f l

12

5.

1

Debt charges ' 7 Education' Costs, except debt charge s 4,50 Debt charges , schools 99 TOTAL EDUCATION 5,50 TOTAL GENERAL SERVICE S 6,98

5 29. 6 6. 1 35. 0 44.

1 4,21 4 51 5 4,73 8 5,77

5 34. 8 4. 3 39. 9 47.

9 6,25 3 1,00 2 7,25 8 9,29

1 53. 1 8. 2 62. 7 81.

9 14,97 6 2,51 5 17,48 0 22,15

1 38. 5 6. 6 44. 6 56.

3 4 7 6

Unallocated deb t charge s and othe r costs (mostl y local) 2,099 TOTAL ALL SERVICES 15,46

* 13. 6 100.

6 1,535' 0 12,07

' 12. 0 100.

7 303 0 11,58

' 2. 5 100.

6 3,93 0 39,12

7 10. 1 100.

1 0

SOURCE: Calculated fro m variou s data i n Annual Report of Municipal Statistics, 1959. «Only actual expenditures on services (includin g debt charges) are included. Adjustment items such as discounts, deficits, surpluses, and provisio n fo r reserve s ar e excluded . Discount o n debentur e sales i s included. As a result , th e total s diffe r fro m thos e give n in Annual Report of Municipal Statistics. Public utilities operate d o n a pricin g basis are no t include d except fo r deficit s pai d o n thei r account b y municipalities . Joint expenditures , special district an d are a charges , an d expenditure s of village commissions and othe r similar commission s are included . The allocatio n of joint expenditures among th e thre e type s o f municipality and betwee n genera l and loca l service s is quite rough. 'An undetermined part of the costs of general government, which include s legislative and administrativ e costs, shoul d be allocate d to general services . «Includes fire protection, la w enforcement and corrections, street lighting, civil defence, etc . •'Includes streets, sidewalks, sewers, etc . •These deb t charges are related t o joint expenditures, special distric t an d are a charges , and villag e commissions and othe r simila r commissions. The balanc e of the debt charges , except fo r education, are no t allocated . •'Includes per capita hospita l tax. "Includes costs o f ordinary public education, payments t o school s for th e blin d an d deaf , an d payment s fo r vocationa l schools . Provincial contributions to municipalities for education costs are not shown in the table. For costs other tha n debt charges, they were (in thousand s o f dollars): cities , 889; towns , 2,425 ; rural municipalities, 8,673; total , 11,987 . For deb t charges , they were : cities, 7; towns, 203; rura l municipalities, 841; total, 1,041. Total provincial contributions were: cities, 896; towns, 2,628; rura l municipalities, 9,514; total, 13,038. *Of whic h $2,065,000 is debt charges , $34,000 unclassifie d expenditures . 2Y . The formul a wa s propose d b y Rowa t a s a mean s o f makin g th e burden for the service s in question the sam e in all municipalities, with the provinc e makin g up th e differenc e betwee n th e revenue s calcu lated o n the basi s of this uniform burden , and th e "require d expendi tures." Bu t ther e i s nothin g i n th e formul a tha t ensure s tha t th e municipalities would be abl e t o provide a satisfactor y level o f educa22/feid., p . 123 . Th e symbols , D, E, an d F wer e no t use d b y Rowat . The y ar e used her e t o simplif y th e explanatio n o f th e formula . Rowat proposed usin g onl y taxable assessmen t o f rea l property , becaus e o f th e grea t variation s i n th e base s for assessmen t of personal property (p . 125). 23/foid., p. 123 . 2 *Ibid. The symbols , L, M, and P' wer e not used by Rowat. 25

where f = the weighted populatio n o f the municipality, P = th e actua l popula tion o f th e municipality , C = th e numbe r o f childre n unde r th e ag e o f 1 5 pe r 100 of population i n th e municipality , C' = provincia l averag e correspondin g to C, A = th e numbe r o f peopl e ove r th e ag e o f 5 9 pe r 10 0 o f populatio n i n th e municipality, A ' = provincia l averag e correspondin g t o A, R = numbe r o f miles of roa d pe r 10 0 persons in municipality, an d R' = provincia l averag e correspond ing t o R . Th e us e o f th e weightin g facto r o f on e fo r childre n unde r 1 5 an d o f one-third fo r ol d peopl e ove r 5 9 wa s base d upo n th e fac t tha t o f th e municipa l expenditures fo r educatio n an d socia l service s abou t thre e time s a s muc h wa s spent o n childre n a s o n ol d people . Th e choic e o f th e facto r o f one-twentiet h for populatio n densit y wa s base d o n a roug h gues s i n th e absenc e o f information a s t o th e relativ e fisca l capacit y o f urba n an d rura l area s an d i n vie w o f "the tremendou s variation s i n th e densitie s o f th e rura l populations. " (Ibid., p . 127.) wibid., p. 123 .

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tíonal and socia l service s wit h th e provincia l gran t plu s th e revenue s raised a t th e unifor m rate , sinc e th e tota l "require d expenditures " would b e equa l roughl y t o "present " expenditure s plu s "present " grants. I f th e "require d expenditures " wer e onl y sufficien t fo r sub standard services , then a wealthy municipalit y woul d b e able to rais e the level of its services to a satisfactory standard with a smaller burden on its taxpayers than in a poor municipality. A further deviation o f th e formula fro m th e principl e o f fiscal equity arise s fro m usin g D/ F a s the uniform rate of burden, for D/F i s really a weighted average of the ratios o f present expenditure s to equalize d assessment s for al l municipalities. Therefore, raising the municipalities ' share s of their "expendi ture requirement" would result in a heavier burden in the municipalities with lo w pe r capit a assessmen t tha n i n thos e wit h hig h pe r capit a assessment. Nevertheless, under the condition s prevailing when Rowat was writing, the formul a woul d have increased th e exten t of equaliza tion an d i t woul d hav e take n som e account o f th e variatio n i n loca l costs o f services. The metho d suggested wa s crud e but i t woul d hav e operated i n the right direction . If L wer e raise d unti l expenditure s wer e sufficien t t o maintai n a satisfactory leve l o f services , an d i f D/ F wer e adjuste d s o tha t th e municipal shar e was just enoug h o n the averag e to equa l th e amoun t required i n th e five municipalities wit h th e leas t nee d fo r aid, 27 th e results woul d b e simila r t o thos e o f th e modifie d Pettie r formul a suggested i n th e firs t section . Determinin g th e desirabl e leve l o f L , however, woul d require a carefu l calculatio n o f the cost s o f maintaining the service s i n question, s o careful that th e cost s for eac h munici pality coul d b e determine d directl y i n th e proces s o f calculation. Th e results would be more precise than those obtained by the use of Rowat's rather crudel y weighted population index. It would stil l be possible to make block grant s for the service s to b e aided, withou t stipulatin g ho w the grant s were to be spent ; bu t ther e would b e greate r inter-municipa l variatio n o f service s tha n wit h mandatory foundatio n programmes . Requirin g th e municipalitie s t o provide foundatio n programme s woul d b e mor e i n accor d wit h th e principle of fiscal equity as well as being a legitimate us e of the powe r of th e provincia l governmen t t o promot e wha t i t deem s t o b e th e general provincial interest. Rowat mad e his recommendations in 1949 . Sinc e then th e Founda tion Program for education and an equalized assessment on a municipal unit basis have been established as a result of the Pottier Report o f 1954 . 27 If thi s wer e done , "D/F" woul d hav e a different meaning . I t woul d ceas e to be the weighted average just described above.

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The problems o f defining a foundation programme and settin g up th e administration fo r i t hav e no w bee n largel y overcom e fo r th e mos t important o f th e genera l service s fo r whic h th e municipalitie s ar e responsible an d the on e for which the problem s are most complicated. The setting up o f foundation programmes for the othe r general services would be a relatively eas y if not a simple matter . Whethe r th e grant s are earmarke d fo r particula r service s o r not , th e us e o f foundation programmes a s th e basi s fo r th e grant s i s superio r t o th e crude r indices which Rowat proposed. The position taken and already argue d in this study is that it is desirable, or at least appropriate , that the provision o f th e foundatio n programme b e mandator y fo r eac h genera l service. In additio n t o hi s recommendatio n for bloc k grants , Rowa t recommended "that the Province pay the cos t of urban streets forming part s of provincia l highways " an d tha t "th e Provinc e mak e a specia l gran t to citie s and town s for the genera l suppor t o f streets, th e amoun t to a particular uni t bein g determine d o n a n equalize d basis." 28 Hi s pro posed gran t fo r street s ha s alread y bee n referre d t o above . H e sug gested a tota l gran t fo r thi s purpos e o f $200,000, 29 whic h wa s abou t 20 per cen t o f the expenditure s o f towns and citie s o n street s a t tha t time. He also recommended that if the towns and cities were permitte d to lev y a n amusemen t tax, the gran t shoul d be reduce d accordingly . His only reference to the method of distributing th e gran t wa s that i t "should b e mad e o n a n equalize d basi s varyin g inversel y wit h tota l assessments."30 It i s not clear what he means by "equalized basis" and there i s n o reaso n why suc h grant s should var y inversel y wit h tota l assessments. Why shoul d municipality A with $ 3 million in assessment necessarily ge t mor e tha n B wit h $ 4 million ? Municipalit y B migh t have twice the populatio n of A or twic e a s many miles of streets . The suggestio n that som e of th e cost s o f maintaining urban street s should b e born e by the user s of vehicles that rid e o n them ha s merit , especially i n Nov a Scoti a wher e th e provincia l governmen t assumes responsibility fo r al l road s i n th e rura l municipalities . Th e recentl y instituted annua l grant o f $20 0 per mil e o f city streets i s a concession to this view, although a provincial grant-in-aid to urban municipalities 2S

Ibid., p . 63 . Rowa t also made recommendations relatin g t o th e refor m o f th e real an d persona l propert y taxes , the pol l tax , and exemptio n from propert y taxes , which will not be discussed here. 29 This figure happens to be identica l wit h th e amoun t budgeted fo r the purpos e by th e provinc e fo r fisca l yea r 1961-2 . Th e metho d o f allocatio n is , o f course , quite differen t fro m th e on e Rowat proposed. soRowat, Reorganization of Provincial-Municipal Relations, p. 62 .

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equal to a given percentage o f the cost s of streets, taking local require ments into account in terms of types of street as well as miles of street, might be a more appropriate wa y of helping thes e localities. 81 Suc h a grant woul d b e i n th e natur e o f a share d revenu e an d shoul d b e extended to all towns and cities without regard to equalization. Equaliza tion grant s accordin g t o th e principl e o f fiscal equity coul d b e give n for th e balanc e of the cost s as part of unconditional equalizatio n grant s for loca l purposes. An alternative would be for the urban municipalitie s themselves t o lev y a moto r vehicl e use r ta x a s wa s suggeste d i n th e report o f th e commissio n on taxation in Halifax. 32 On e difficult y wit h this alternativ e i s that , especiall y i n th e large r urba n areas , man y of the regula r user s of streets ar e fro m outsid e of the limit s o f the cit y o r town and are therefore difficult t o tax. Grants for Local Services Many writer s o n th e subjec t o f provincial-municipa l o r state-loca l fiscal relations favou r grants-in-ai d t o municipalitie s t o hel p pa y fo r general services . Ther e i s less suppor t fo r grant s fo r loca l services . A typical vie w is that expresse d in a memorandum of a Ne w Yor k Stat e Tax Commissio n in 1936 . Strongl y i n favou r o f grant s fo r genera l services, the Commission asserts : "It seems axiomatic that loca l governments should bear th e expens e of purely loca l governmental functions, and that the state should contribute only to those governmental services in which the state has an immediate interest."33 It ha s already been show n that th e ful l implementatio n o f the prin ciple o f fisca l equity call s fo r equalizatio n grant s fo r loca l a s wel l a s for genera l services. It ha s also been argue d that smalle r grants shoul d be give n t o rura l tha n t o urba n municipalitie s becaus e th e rang e of local service s appropriat e t o rura l area s i s smalle r an d thei r leve l lower. As Table XXXVIII shows, local service s are far mor e important in the towns and citie s tha n in the rura l municipalities. Finally, i t ha s been argue d tha t grant s for local services should b e unconditional . Finding a satisfactor y formul a fo r unconditiona l grant s fo r loca l services i s mor e difficul t tha n findin g on e fo r conditiona l grant s fo r general services . Pe r capit a equalize d valuatio n i s a reasonabl y satis 31

Compare Roge r Carswell , Taxes and Traffic: A Study of Highway Financing (Canadian Ta x Papers , No . 8 ; Toronto : Canadia n Ta x Foundation , 1955), espe cially pp. 123-6. 32 City o f Halifax, Report of the Commission to Investigate the Taxation System in the City of Halifax (Halifax , 1957) , p. 75 . 33 State o f Ne w York , Report of the New fork State Commission on State Aid to Municipal Subdivisions (Legislativ e Documen t No . 58 , memorandu m sub mitted by the State Tax Commission; Albany, 1936), p. 352.

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factory inde x o f relativ e fisca l capacity , bu t th e problem s remai n o f (1) determinin g ho w muc h large r grant s shoul d b e fo r urba n tha n for rura l municipalities an d (2 ) determinin g th e expenditur e require ments o f th e differen t municipalitie s withi n eac h o f th e tw o mai n groupings. A n additiona l proble m i s tha t o f ho w t o trea t th e villag e commissions an d othe r simila r commission s which provid e on e or tw o local services . Th e presen t syste m of unconditional grant s has alread y been criticize d o n tw o grounds : tha t th e distributio n betwee n th e types of municipalities i s not soundly based and that per capit a grants , by their nature, do not provide th e degre e o f equalization require d b y the principle o f fiscal equity. A possible approach is to base the grant s on foundation programmes for loca l services bu t t o leave the municipalities fre e t o use the grant s as the y wish . Bu t t o determin e th e grant s i n thi s wa y woul d ad d greatly to the cost of administering the programme of grants and would be mor e difficul t tha n i n th e cas e o f th e genera l service s becaus e o f legitimately wide r variation s in the level s an d type s o f services among the municipalities. Perhaps th e bes t solutio n woul d b e t o determin e th e averag e pe r capita cost s o f providin g loca l service s fo r al l municipalitie s o f eac h type, fo r th e lates t yea r fo r whic h statistic s ar e available , an d t o multiply this figure by the population o f each municipality . Th e resul t could b e calle d th e "standar d expenditure." 34 Fro m ther e th e grant s could b e determine d o n the sam e basis a s that propose d fo r th e con ditional grants . The unifor m burde n woul d the n b e th e averag e rate necessary to raise th e standar d expenditure s in the three 35 municipali ties o f eac h typ e fo r whic h th e ratio s o f thes e expenditure s t o thei r equalized valuation s woul d b e lowest . Th e grant s t o th e res t o f th e municipalities woul d b e equa l t o thei r standar d expenditure s minu s the averag e rat e o f burden multiplie d b y thei r equalize d assessments . The village commission s and othe r commission s could b e treate d a s a separate clas s of municipality. Populatio n figure s ar e no t availabl e fo r these localities , bu t th e numbe r o f properties o n th e assessmen t roll s 8 *The use of an averag e to determin e the "standar d expenditure " was objected to i n th e cas e o f Rowat' s propose d gran t fo r socia l an d educationa l services , because i t wa s regarde d a s a n inadequat e measur e o f th e desirabl e leve l o f general services. However, such an averag e is quite appropriat e fo r loca l services, since th e municipalitie s themselves are th e bes t judge s o f th e desirabl e leve l of these services. 38 Three ar e suggeste d instead of five , a s i n th e cas e o f th e conditiona l grants, because o f th e divisio n o f th e municipalitie s into smalle r groups . I t woul d not , however, b e necessar y to us e th e sam e numbe r for al l group s in calculatin g th e uniform burden .

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could perhaps b e used instead. A n alternative woul d be to lump their expenditures i n wit h thos e o f th e rura l municipalities , mak e grant s only t o th e rura l municipalitie s an d leav e i t u p t o the m t o decid e whether an d o n wha t basi s t o pas s som e o f th e grant s o n t o th e commissions. It might b e advisable to make a division among the towns, since the larger town s generall y provid e a wide r rang e o f service s tha n th e smaller ones . Perhaps the y should be divide d int o three groups : small towns of under 3,000 population, medium towns of 3,000 to 9,999 , an d large towns of 10,000 and over. The large towns could then be groupe d with th e thre e citie s i n calculatin g th e grants . Usin g these classifica tions an d th e 195 6 population s ther e woul d b e 2 1 smal l towns , 1 4 medium towns , and 4 large town s (groupe d wit h th e 3 cities). This schem e of grants would a t on e and th e sam e time take car e of the tw o problem s raise d earlie r i n thi s section , an d th e grant s woul d be reasonabl y simple to calculat e an d woul d b e easil y understood by municipal officials an d th e genera l public . Th e schem e would be i n as close conformit y wit h th e principl e o f fiscal equity a s an y practicable scheme coul d b e expecte d t o be . I f th e provinc e wishe d t o giv e flatrate unconditiona l grant s t o al l municipalities , i t coul d d o s o and a t the sam e time erec t th e propose d equalizatio n structur e o n to p o f it . If, o n the othe r hand , i t fel t tha t i t coul d no t eve n affor d t o pu t th e equalization schem e full y int o operation , i t coul d implemen t som e given percentag e o f th e ful l equalizatio n formula . Th e lowe r th e percentage i t chose , however , th e greate r th e departur e fro m fisca l equity would be. The grants would be very similar in all these respects, as wel l a s i n th e mod e o f calculation , t o th e propose d conditiona l grants. If n o flat-rat e gran t wer e made , i t woul d mea n tha t a fe w o f th e municipalities woul d ge t n o grants . However , i f th e town s and citie s were given special grant s as a share of the moto r vehicle an d gasolin e taxes t o hel p cove r th e cost s o f street s i n th e wa y suggeste d i n th e previous section , all o f th e urba n municipalitie s woul d receiv e som e aid o n a fai r basis . Suc h grant s for street s shoul d be subtracte d fro m the expenditure s fo r loca l service s i n calculatin g th e unconditiona l grants. A Suggested System of Grants to Implement the Principle of Fiscal Equity A syste m o f grant s whic h woul d implemen t th e principl e o f fisca l equity with respect t o both general and local services i s implicit i n th e

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discussion i n th e precedin g sections . There ar e thre e element s t o it . (1) Conditiona l grant s fo r genera l services , determine d b y th e following formula : Gc = F — rA, where G c = th e gran t for a give n service pai d t o a give n municipality, F = th e cos t o f the foundation programme for the servic e in the municipality , A = equalize d valua tion o f taxabl e propert y i n th e municipality , an d r = unifor m rat e (burden) determine d b y takin g th e averag e o f th e ratio s o f F/ A i n the five municipalities fo r which the ratio s are lowest . (2) Unconditiona l grant s fo r loca l services , determine d b y th e following formula: Gu =L — rA, where Gu = th e unconditional grant paid t o a give n municipality o f a give n type, L = populatio n o f the municipality X averag e per capit a cos t of local services in al l municipalities o f its type, A = equalize d valuatio n of the municipality , an d r = uniform rat e (burden ) determine d b y takin g th e averag e o f the ratios o f L/ A i n th e thre e municipalities o f the give n type fo r whic h the ratio s ar e lowest , except for th e rura l municipalitie s fo r whic h a n average for five municipalities is suggested. (3) Grant s i n lie u o f moto r vehicl e revenue s t o town s an d citie s towards th e cos t o f thei r streets . Thes e shoul d b e base d o n mileag e and on the types of streets. Perhaps the simples t basis would be to pay some give n percentage , sa y 5 0 pe r cent , o f th e cost s o f th e streets , based upon standard costs for different type s of surfaces and an y othe r relevant characteristics , suc h standar d cost s to b e determine d b y th e Department o f Highways. These grant s woul d b e deducte d fro m th e cost o f loca l service s i n calculatin g th e unconditiona l grants . Suc h a grant i s favoured ove r municipa l taxe s on moto r vehicles o r gasoline , because o f th e greate r administrativ e efficienc y o f havin g provincia l collection o f thes e revenue s an d becaus e o f th e difficult y o f taxin g out-of-town user s o f a municipality' s streets . Suc h grant s woul d giv e some propert y ta x relie f t o al l urba n municipalities ; th e othe r grant s would no t d o this unles s they include d flat-rat e payments . Th e prin ciple of fiscal equity would not b e violated b y thes e special grant s fo r streets, fo r i t woul d b e applie d wit h regar d t o th e balanc e o f loca l expenditures fo r street s alon g wit h th e othe r expenditure s fo r loca l purposes. Since a foundatio n programm e ha s alread y bee n draw n u p fo r education, the implementatio n of the schem e of grants suggested her e would no t b e difficul t administratively . Th e standard s alread y draw n up fo r mental hospitals an d fo r indoo r an d outdoo r relie f coul d serv e as th e basi s fo r foundatio n programme s fo r thes e services . Ther e i s already, i n effect , a foundatio n programm e fo r chil d welfar e i n th e

Programme for Fiscal Adjustment in Nova Scotia 24

3

form o f minimu m payments pe r chil d fo r th e variou s type s o f chil d care provided. Instead o f applying the formula for conditional grant s to the portio n of highway s passing through towns and citie s for whic h thes e munici palities ar e responsible , i t woul d b e simpler , an d appropriate , t o consider th e towns ' an d cities ' share s o f thes e road s a s par t o f thei r local expenditures in calculating the unconditional grants. The unconditional grant s woul d b e quit e simpl e to calculate . Eve n the allocatio n o f deb t charge s betwee n loca l an d genera l service s should no t pos e ver y difficul t problems . I f th e provincia l governmen t wished t o discourag e municipa l borrowing , i t coul d scal e dow n it s grants b y deductin g a certai n portio n o f eac h municipality' s deb t charges fro m it s grant , i n orde r t o encourag e th e loca l government s to finance their expenditure s as far a s possible out o f current revenues . To d o thi s woul d mea n som e departur e fro m th e principl e o f fiscal equity. Bu t the departure nee d no t b e grea t an d i f th e "penalty " resulted in faster debt retirement and therefore lower debt charges , there would graduall y b e a movemen t toward s ful l implementatio n o f th e principle of fiscal equity. If th e municipalitie s continu e t o be charge d wit h the responsibilit y for buildin g an d maintaining local general hospitals, the cost s incurre d by municipalitie s fo r thes e purpose s coul d b e include d i n calculatin g the unconditional grants. FISCAL ADJUSTMENT BY MEANS OF A BEDISTHIBUTION OF FUNCTIONS OR REVENUES

It woul d not be feasibl e t o effec t adjustmen t accordin g t o th e prin ciple o f fiscal equity b y a redistribution o f functions o r revenues. Th e inequalities i n fisca l capacit y o f th e municipalitie s ar e considerabl e whether measure d by per capit a equalize d valuatio n or by per capit a net incom e of payers o f personal income tax. Makin g additional taxa tion bases availabl e t o the municipalitie s woul d increas e thei r genera l revenue-raising capacity , bu t woul d no t eliminat e thes e inequalities . The burden of raising a given amount of revenue would still be heavie r in som e localities tha n i n others. Furthermore, suc h taxes as might b e made available—th e retai l sale s ta x an d moto r vehicl e use r taxe s ar e examples—can be much more effectively administere d by the provinc e than by the municipalities, especiall y the small municipalities. The use of shared taxes is also unsatisfactory from th e poin t of view of equaliza tion an d littl e bette r wit h respec t t o administrativ e efficiency , o r fo r

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that matte r wit h respec t t o financia l responsibility , an d i n additio n poses difficul t problem s wit h respec t t o determinin g satisfactor y principles of allocation.36 Even a redistributio n o f functions, wit h th e provinc e assumin g th e responsibility fo r som e municipa l services , woul d leav e th e munici palities wit h unequa l burden s i n payin g fo r th e balanc e o f their ser vices. Nevertheless , th e greate r th e assumptio n o f function s b y th e provincial governmen t th e greate r th e exten t t o whic h equalizatio n according t o th e principl e o f fisca l equit y i s implemented . Th e province coul d conceivabl y tak e complet e financia l responsibilit y fo r all o f th e genera l service s an d mak e unconditiona l grant s fo r loca l services a s well a s grant s for streets ; an d th e municipalitie s coul d b e left wit h prime responsibility fo r local services. If th e provinc e did so , the municipalities coul d continue to be charged with the administration of th e genera l service s the y presentl y provide . I t i s unlikely tha t suc h an arrangemen t woul d b e satisfactory . Th e complet e divorc e o f financial responsibilit y an d administrativ e responsibilit y woul d likel y either seriousl y reduc e loca l incentiv e fo r efficien t administratio n o r require suc h clos e provincia l supervisio n o f loca l administratio n tha t the advantages tha t ideally stem from i t would be lost. Though prefer able t o loca l administratio n wit h n o financia l responsibility , i t i s als o questionable whethe r th e complet e administratio n b y th e provinc e o f the genera l services , eve n accompanie d b y som e decentralization int o regions an d b y th e settin g u p o f locally electe d advisor y boards, i s a good substitute , i n th e case s of education an d relie f a t least , fo r loca l administration alon g wit h som e local financia l responsibility . Moreover, th e assumptio n of complet e financia l an d administrativ e responsibility fo r general services by the provinc e woul d spel l th e en d of loca l governmen t i n rura l Nov a Scotia . Ther e woul d the n b e n o point in merging th e rura l an d urba n municipalities , sinc e th e peopl e in th e rura l municipalitie s woul d hav e n o interes t i n suc h a n amal gamated unit . Whethe r thes e consequence s ar e deeme d t o matte r o r not depend s upo n how muc h importanc e i s attache d t o loca l govern ment i n thes e areas , wher e i n an y cas e nearl y al l o f th e service s performed ar e mandatory. A more promising approach woul d be to consider complet e assump tion of responsibility for certain general services b y the province . Tw o 36 Compare Report of the New York State Commission on State Aid to Municipal Subdivisions, p . 10 . "The objection s t o share d taxe s i n genera l ar e tha t (1 ) they ar e difficul t t o adap t t o loca l need s becaus e o f th e unifor m rate , (2 ) the y fluctuate s o greatly i n yiel d tha t the y ar e no t dependabl e source s of income , an d (3) thei r use is not readily controlled. "

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in particular whic h it would seem appropriate fo r the province to take over ar e menta l hospital s an d chil d care . A s alread y suggested , th e eventual provincial assumptio n of care for th e mentall y ill appears t o be inevitable i n view of the fac t that all other provinces have taken on this responsibilit y an d i n vie w o f th e province' s commitment s wit h respect t o hospita l care . I n th e cas e o f chil d care , th e municipalitie s themselves tak e n o activ e par t i n th e administratio n o f child-carin g facilities; the y simply pay a share of the cost s as laid dow n by statute . Nothing substantia l woul d b e los t i n term s o f loca l autonom y i f th e province assume d the municipalities' share of the payments. 37 It i s not suggested tha t th e Children' s Ai d Societies, which ar e private welfar e agencies, should be abolished , fo r they ar e a good way o f maintaining local interes t i n chil d welfare . T o th e contrary , i t i s urge d tha t th e municipalities shoul d giv e them mor e financial suppor t tha n the y d o and tha t th e provinc e should continu e its suppor t o f them . It appear s tha t th e municipalitie s wil l soo n b e relieve d o f th e responsibility for prisoners serving sentences of three month s or more, but the y will still bear th e cost s for the large r numbe r servin g shorter sentences an d for those awaiting trial o r sentence. The provinc e coul d assume the cost s for the prisoner s in this latte r grou p who are servin g sentences fo r provincia l offence s an d i t coul d als o wel l assum e th e costs o f the administratio n o f justice a t presen t born e b y th e munici palities, withou t an y significan t los s o f decision-makin g at th e loca l level, sinc e her e again , i n bot h cases , th e municipalitie s hav e littl e administrative discretion.38 Relieving th e municipalitie s o f th e responsibilit y fo r thes e fou r 37 Compare Crawford, Canadian Municipal Government (Toronto : Universit y of Toront o Press , 1954) , p . 360 . "I n considerin g whic h o f th e presen t municipa l functions migh t b e transferre d t o th e provinces , ther e ar e som e respectin g whic h there would appea r to be little argument. Suc h woul d b e thos e i n which discretio n on th e par t o f local authoritie s i s not a factor , bu t i n whic h th e loca l authorit y i s merely a bill-payin g agency . . . . The . . . situatio n applie s wher e childre n are taken int o car e b y a Children' s Ai d Society . Wher e th e Societ y i s a voluntar y statutory agenc y th e municipalit y merel y pay s a bil l fo r maintenanc e o f ward s which unde r th e legislatio n ar e it s responsibility. " Crawfor d wa s talkin g abou t Canadian municipalitie s i n general , bu t hi s remark s ar e applicabl e t o Nov a Scotia. 88 Compare Crawford : "Considerin g th e exten t t o whic h th e official s involve d are appointe d b y th e province s an d th e exten t t o whic h th e administratio n i s controlled b y detaile d provincia l rule s an d regulations , abou t th e onl y loca l discretion involve d i s th e decisio n a s t o wh o shal l suppl y th e fue l t o hea t th e buildings involved , o r who shall ge t the manua l labou r jobs . . .. S o slight i s the local discretio n an d s o obviousl y i s th e administratio n o f justic e a servic e t o ou r society a s a whole, tha t it would see m to be a logical servic e t o transfe r entirel y to provincial administration an d financing." (Ibid., p . 361.)

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services (menta l hospitals , chil d care , mos t o f th e jails , an d th e administration o f justice ) woul d giv e considerabl e financia l relie f t o them, thus easing the burde n o n property or freeing fund s t o improve other services , or , mor e likely , resultin g i n a combinatio n o f both . Such a shif t i n responsibilit y woul d b e wholl y i n accor d wit h th e principle o f fiscal equity an d woul d mea n littl e rea l los s i n loca l ad ministrative responsibility , excep t possibl y i n th e cas e o f th e menta l hospitals fo r whic h a shif t i n responsibilit y seem s t o b e likel y i n an y case. DIFFEBENTIAL PROVINCIAL TAXATION AS AN ADJUSTMENT DEVICE

Buchanan argue d tha t theoreticall y th e mos t effectiv e mean s o f implementing a federal policy o f fiscal equity woul d be by discriminatory federa l taxatio n o f personal incom e from provinc e t o province. 39 His argumen t nee d no t b e examine d i n detai l here . Th e us e o f thi s device wa s preclude d a s lon g a s th e provinc e surrendere d it s righ t to levy personal income taxes t o the federa l government in return fo r tax rental payments . While it s use at th e federal-provincia l leve l is no longer preclude d b y the ne w federal-provincial fiscal arrangements, i t is probably precluded o n political an d administrative grounds. Furthermore, the us e of differential persona l income taxation as an adjustment device at the provincial-municipal level would require tha t the municipalities ge t a larg e shar e o f thei r revenue s fro m a loca l incom e tax . Such a tax can b e ruled ou t o n grounds o f administrative efficiency . Differential provincia l taxatio n o f propert y i n th e municipalitie s could b e use d a s a n equalizatio n device , combine d perhap s wit h a redistribution o f the revenues to the municipalities. Bu t such a measure would mee t with strong resistance fro m th e municipalitie s (especiall y the wealthier ones ) which would resent direct provincial encroachmen t on wha t ha s becom e traditionall y a n exclusivel y municipa l ta x base . It i s also th e onl y major municipa l ta x base . Th e positio n take n her e is that th e property ta x base should continu e t o be lef t entirel y t o th e municipalities. There is one "tax" which might appropriately b e applie d discrimina tively in Nova Scotia. In making its per capit a lev y on the municipalities t o hel p pa y fo r th e capita l cost s o f loca l genera l hospitals , th e 89 J. M. Buchanan, "Federalism and Fiscal Equity," American Economic Review, XL (September , 1950), pp. 595-6. He argued in terms of equalizing fiscal residua. The criticis m of using fiscal residua suggests that the precisio n with which differen tial persona l incom e taxation could equaliz e fisca l pressure o n similarl y situate d individuals is less than Buchanan thought.

Programme for Fiscal Adjustment in Nova Scotia 24

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provincial governmen t coul d tak e th e unequa l fisca l capacit y o f th e municipalities int o accoun t b y makin g th e lev y proportiona l t o pe r capita equalize d assessment . The burden woul d the n b e uniform in all municipalities an d th e lev y would b e consisten t wit h th e principl e of fiscal equity. Fo r example , the pe r capit a lev y on a municipality wit h a per capit a equalized valuatio n of $2,000 would b e twic e a s great a s on a municipality with a per capit a equalize d valuatio n of $1,000. This method o f imposition i s an alternativ e t o th e simple r suggestio n mad e earlier tha t th e provincia l lev y b e mad e a t a unifor m rat e o n th e equalized assessmen t of all of the municipalities . THE BECOMMENDED PROGRAMME OF FISCAL ADJUSTMENT

The recommende d programme of fiscal adjustment is a combinatio n of provincia l assumptio n o f som e municipa l functions , provincia l grants, an d a differentia l pe r capit a levy . Specifically , i t i s recom mended: (1) Tha t th e provinc e assum e full financia l an d administrativ e re sponsibility fo r menta l hospitals , chil d care , th e administratio n o f justice, an d prisoner s jaile d fo r othe r tha n loca l offences ; (2) Tha t th e system s of conditiona l an d unconditiona l grant s sug gested earlie r i n thi s chapte r b e implemente d fo r th e othe r service s not covered i n (1), above ; (3) Tha t the per capit a lev y to help cove r the capita l cost s of local hospitals b e mad e proportiona l t o pe r capit a equalize d valuatio n o r be imposed at a uniform rat e o n equalized valuation . This shoul d no t be include d amon g expenditure s fo r loca l purpose s i n makin g th e unconditional grants, because th e levy itself would be made according to the principle o f fiscal equity; (4) Tha t th e provinc e adop t a polic y o f givin g grant s i n lie u o f taxation on its property, an d o n the property o f its Crown corporations, equal t o what would be pai d i f such property wer e taxe d a t th e sam e rates a s other property i n the municipalities in which it is located. Th e implementation o f thi s recommendatio n woul d b e o f particula r valu e to th e Cit y o f Halifa x i n helpin g t o overcom e it s peculia r financia l difficulties, an d i t woul d b e i n accord wit h th e practic e no w followed by the federal governmen t with respec t t o its property. 40 4 °As alread y pointe d ou t th e polic y i s no t followe d full y b y federa l Crow n corporations. I t i s strang e tha t i t i s not, i n vie w of thei r commercia l nature. Th e grounds for it being followed b y them are even stronger than for it being followe d by the federal government itself.

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Since ful l adjustmen t accordin g t o th e principl e o f fisca l equit y could be accomplished a t a lower cost to the provincial governmen t by implementing recommendation s (2 ) an d (3) , i t ma y b e tha t thes e should hav e priorit y ove r (I). 41 The n th e provinc e coul d graduall y assume a larger an d larger share of the cos t of the service s in ( 1) unti l eventually it took them over entirely. If th e propose d programm e o f fisca l adjustmen t wer e full y imple mented, no t onl y would al l municipalities b e abl e to finance approximately equivalen t service s wit h approximatel y equivalen t burdens , but i n additio n al l municipalitie s woul d ge t considerabl e financia l relief fro m th e provinc e undertakin g responsibilit y fo r th e genera l services in recommendation ( 1 ). One result would be to transfer much of th e tax burden fro m th e highly regressive property taxes to the les s regressive revenu e source s o f th e provincia l governmen t and , a t th e same time, make the economi c conditions under whic h busines s firms operate in the province more favourable by reducing fixed costs. Since the programm e has bee n designe d t o pu t al l o f the municipalitie s i n the positio n o f providing equivalen t benefit s wit h equivalen t burdens , it i s very much in accor d wit h th e doctrin e o f financial responsibility. The taxpayers in any given municipality would suffer fro m an y wasteful administration in that municipalit y and would react i n much the sam e way a s if wast e occurred whe n a lower leve l o f services was finance d to a greater extent by the municipality. To a very great extent , the succes s of the programm e of adjustment in achievin g th e objective s relatin g t o th e principl e o f fisca l equit y both withi n an d betwee n municipalitie s depend s upo n th e equalize d valuations o f propert y bein g accurat e an d upo n unifor m assessmen t practices bein g followe d within an d betwee n municipalities . Th e importance o f thorough an d accurat e assessmen t an d frequen t revision s of assessmen t canno t b e over-emphasized . Ther e i s muc h t o b e said , in the interes t of achieving a soundly based programm e of adjustment, for havin g al l assessmen t under provincia l control . I f suc h contro l is considered to o grea t interferenc e i n th e affair s o f th e municipalities , the provinc e coul d a t leas t establis h procedure s o f assessmen t whic h all municipalities would be required t o follow. This requirement woul d help t o establis h uniformit y withi n municipalitie s an d t o increas e th e accuracy of equalized valuations made on a unit basis. 41 The propose d gran t fo r street s include d i n (2 ) i s not i n itsel f connecte d wit h the principl e o f fisca l equity , bu t i s recommende d rathe r a s a n additiona l sourc e of revenu e for towns and citie s i n lieu of municipal motor user taxes . The fac t tha t the balance of the cos t of streets is taken care of by th e unconditiona l grant assures that the principle of fiscal equity is implemented with respect to streets.

Programme for Fiscal Adjustment in Nova Scotia 24

9

Special consideratio n shoul d b e give n t o th e assessmen t an d taxa tion o f industria l an d commercia l property . Accurat e an d equitabl e assessment o f such property i s difficul t t o achiev e eve n i n larg e urba n units wher e i t i s generally easie r t o estimat e marke t value s tha n i t i s in small towns and rura l areas . No t onl y is the accurat e assessmen t of such propertie s i n smal l town s an d rura l municipalitie s a tas k ofte n beyond the abilitie s o f local assessors, but ther e is a strong temptatio n to assess such property, especially tha t o f firms in one-fir m municipali ties, a t relatively highe r values than othe r property an d s o to impose a disproportionately grea t burde n o f taxation o n suc h property. Suc h a burden add s to the fixed costs of a business and may retard it s growth , force i t t o close dow n o r move elsewhere, an d discourag e ne w indus tries from movin g in. This practice i s likely to have particularly seriou s effects i n a province lik e Nova Scoti a that lack s the genera l economi c buoyancy o f the centra l an d wester n provinces . I f assessmen t of suc h property i s to remai n in th e hand s o f local assessors , there shoul d b e provision fo r appea l b y a compan y that consider s it s propert y t o b e assessed inequitabl y t o a provincially constituted boar d o f well-quali fied assessors. An alternative, on e that has been considere d i n Alberta, would be t o have all or certain types of industrial propert y i n the provinc e assesse d and taxe d a t a unifor m rat e b y th e provincia l government . The pro ceeds coul d b e distribute d amon g th e municipalitie s i n th e for m o f unconditional o r conditiona l grant s i n accordanc e wit h th e principl e of fiscal equity. Suc h a method woul d make it easier t o assur e that th e burden o f taxation was the sam e on a given type o f industrial propert y throughout the province and that the burden was not heavier than that generally prevailing in other provinces. The possibilit y o f abandonin g th e taxatio n o f persona l propert y should b e thoroughl y investigated , a s personal propert y i s eve n mor e difficult t o asses s accuratel y tha n rea l property . Th e transfe r o f th e personal propert y burde n t o rea l propert y woul d likel y hav e smal l effect o n th e tota l burde n o n particula r taxpayer s an d woul d resul t in a mor e equitabl e an d a mor e efficientl y administere d tax . More over, with the easing of the burden o n property tha t would result fro m the implementatio n o f th e adjustmen t programme , th e persona l property ta x could be eliminated wit h very little addition, and perhap s in some cases no addition, to the taxes on real property. Another importan t wa y i n whic h assessmen t coul d b e improve d is by makin g sure that al l taxable property i s in fac t assessed . Thi s i s especially importan t whe n adjustmen t i s base d upo n equalize d

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valuation, fo r unassesse d propert y escape s inclusio n i n th e equalize d valuation.42 I t i s als o importan t o f cours e fro m th e poin t o f vie w o f equality o f treatmen t o f individual s withi n eac h municipality . Th e discovery of unassessed property is so important that if the municipali ties retai n th e responsibilit y fo r assessmen t th e provinc e woul d b e justified i n levyin g a penalty , deductabl e fro m th e municipality' s grants, on any municipality for unassessed property which is discovered after, say , a two-yea r period . A suitable penalt y woul d b e on e equal to twic e th e amoun t o f ta x revenu e los t afte r th e two-yea r warnin g period. It migh t als o be advisable , fo r the purpos e o f promoting improve d administration, t o introduc e a penalt y fo r municipalitie s tha t fai l t o collect all of the taxe s which ar e due to them, possibly a deduction of such taxes or at least a large portion of them from the grants. 43 There would n o doubt b e som e effect o n real property value s fro m the programm e of fiscal adjustment proposed here , a s there woul d b e from an y programme of equalization. Grant s to a municipality would in themselve s ten d t o rais e real propert y value s there becaus e o f th e higher leve l o f service s mad e possibl e b y them , wit h a resultin g second orde r effec t o f increasin g loca l propert y ta x revenue s an d s o reducing th e amoun t of grants required t o implement the principl e of fiscal equity. But the over-al l effect o f the programm e on real property values i s more complex where a municipalit y i n meetin g th e require ment o f imposing a unifor m burde n i s forced to increas e its propert y tax rate , fo r suc h a n increas e woul d i n itsel f ten d t o depres s rea l property values . I t i s importan t a t leas t t o tak e cognizanc e o f th e possible effect o f the programme on real property values and to observe that the programme itself woul d automatically adjust t o suc h changes, in that provincial grants would change inversely with change s in thes e values in each municipality. A reade r o f a preliminar y draf t o f thi s stud y criticize d th e basin g of th e propose d scheme in part o n equal burden s o n property, o n th e ground tha t ownershi p o f property i s no t a very goo d measure of a n individual's abilit y to pay. Admittedly, it is quite possible , even likely, that peopl e i n som e low-incom e localit y wil l i n genera l ow n mor e valuable homes than those in some other high-income locality. In suc h 42 See 43

Pettier Report, p. 26. In 195 9 tota l collections a s a percentag e of th e curren t tax rol l varie d fro m 77.1 t o 108. 4 fo r towns an d cities , and 72. 3 to 104. 3 for rural municipalities; and arrears a s a percentag e of th e curren t tax rol l varied fro m . 1 to 225. 4 for towns and citie s an d 10. 8 t o 196. 3 fo r rura l municipalities. (D.B.S. , Annual Report of Municipal Statistics, 1959 (Ottawa: Queen's Printer), pp. 5, 14.)

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a case , th e low-incom e localit y wil l ge t smalle r grant s tha n th e high income locality, eve n though the peopl e wit h hig h income s can affor d to pa y highe r taxe s o n propert y tha n peopl e wit h lo w incomes . Thi s criticism misse s th e point . Th e propose d programm e i s designe d t o provide approximately the sam e level o f services and impos e approximately th e sam e tax burden s o n a n individua l whereve r h e ma y liv e in th e province . T o achiev e thi s end , a n individua l wh o own s a home of given value in either locality must pay abou t the sam e amount of ta x o n it a s he woul d if h e owne d it i n th e othe r locality . Ther e i s therefore n o injustice in this scheme , whatever injustic e there may b e in propert y taxatio n itself, fo r similarl y situate d propert y owner s wil l be treate d similarly . Furthermore , whil e th e tw o localitie s ma y diffe r in a genera l wa y i n th e practice s o f thei r citizen s regardin g hom e ownership, there will in fact be a wide range of such practices, perhap s even approximatel y th e sam e rang e i n bot h localities , jus t a s ther e will be wid e ranges in othe r ta x bases, suc h a s other form s o f wealth , income, an d expenditure . I t i s th e treatmen t o f individual s whic h i s relevant, not the treatment of localities as such. There ar e alternativ e way s o f implementin g th e principl e o f fiscal equity. Th e on e proposed i s conservativ e in character , an d therefor e politically attractive , i n tha t i t i s designe d t o accor d wit h existin g institutions an d t o distur b presen t practice s a s littl e a s possible . A neater an d perhap s ultimatel y mor e satisfactor y wa y o f providin g conditional grant s i n accordanc e wit h th e principl e o f fisca l equit y is that recentl y adopte d i n Albert a for primary an d secondar y educa tion. I n tha t province , th e governmen t impose s a ta x fo r schoo l purposes o n al l municipalitie s a t a unifor m rat e o n equalize d assess ments an d pays to eac h school board th e amoun t necessary to provid e a foundatio n programme measure d a t standar d costs , th e additiona l revenues require d fo r thi s purpos e bein g provide d fro m genera l pro vincial revenues . A schoo l boar d ma y supplemen t th e foundatio n programme b y obtainin g th e mone y directl y fro m it s municipa l collecting body.44 THE COST OF THE PROPOSED PROGRAMME TO THE PROVINCE

No attemp t i s mad e here t o obtai n detaile d o r precise estimate s of the cos t t o th e provincia l governmen t of th e propose d programm e of fiscal adjustment . Th e governmen t coul d mak e suc h estimate s an y 44

Speech b y A . O . Alberg , Ministe r o f Education , Provinc e o f Alberta , "Foundation Program of Public School Finance," March 24, 1961.

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time i t chose . Thi s stud y i s mor e concerne d wit h formulatin g th e principles fo r provincial-municipa l fisca l adjustmen t i n Nov a Scoti a than wit h producin g a detaile d blueprin t fo r it . Moreover , th e cos t would depen d o n whe n th e schem e wa s implemented , o n whethe r flat-rate grant s wer e given , an d o n th e leve l o f th e foundatio n pro grammes draw n u p fo r indoo r an d outdoo r relie f an d suc h othe r general service s besides educatio n not wholly assumed by the province. It was roughly estimated o n the basi s of 1956 dat a tha t th e total additional cos t o f full y implementin g th e programm e woul d b e abou t $10 million . Th e cos t ha s n o doub t rise n somewha t i n subsequen t years. It shoul d b e born e i n min d tha t t o th e exten t th e maladjustments in the use of the province' s resource s are corrected , th e fisca l capacit y of th e province wil l be increased. Provincia l ta x revenues will increas e without an y increase s i n ta x rates . Th e propose d fisca l programm e should not only stimulate improved use of resources (i n addition t o its other virtues , particularl y th e ethica l on e o f giving equa l fisca l treat ment to equals ) but shoul d also generate a t least some of the increase d provincial expenditures required to finance it. Although the immediate implementation of the complet e programme of adjustmen t ma y no t b e feasibl e withou t furthe r transfer s fro m th e federal government , th e provincia l governmen t coul d implemen t par t of i t b y increase s i n income , sales , gasoline , an d moto r vehicl e taxes . Such increases woul d be objectionabl e i n that th e rate s o f these taxe s are already a s high a s or higher tha n th e rate s i n other provinces; bu t they coul d be justified i n part by the concomitan t reduction i n the ta x burden o n property an d b y th e improve d services , a s wel l a s by th e ethical and economi c advantages stresse d i n this study . The reductio n of the property tax burden may be of particular importanc e to industry since propert y taxe s constitut e a fixe d charg e o n industr y an d ma y have a particularly discouraging effect i n a region lagging in economic growth. I n suc h a region , retai l sale s taxe s (includin g th e genera l retail sale s tax , the gasolin e tax, and liquo r revenues ) probabl y hav e the leas t discouragin g effects o n industrial development , with persona l and corporat e incom e taxes coming somewhere i n betwee n the m an d property taxes. It i s not recommende d tha t ne w type s o f tax be levied . Th e majo r revenue raisers a t the disposa l of the provinc e are alread y in use. One of th e virtue s o f Nova Scotia's fiscal system at presen t i s the simplicit y of it s ta x structure . U p t o a point , diversit y i n th e ta x structur e i s desirable i n tha t i t prevent s th e escap e o f person s wit h taxpayin g

Programme for Fiscal Adjustment in Nova Scotia 25

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ability fro m payin g thei r shar e o f taxes. Bu t refinin g th e mes h i n th e taxgatherer's net soon ceases to be worthwhile. Even i f no large part o f the programm e is implemented i n th e nea r future, th e programm e can stil l serv e a s a guid e fo r provincial polic y whenever the provincial governmen t feels tha t it can take some step in the directio n o f fisca l adjustment . Th e governmen t coul d implemen t the programm e i n stages an d coul d nam e a targe t dat e b y whic h th e programme would be fully implemented . It should be emphasized that the proposals made in this study , along with th e argumen t develope d i n suppor t o f them , ar e no t intende d as mer e "academic " exercises . The y ar e mad e wit h th e vie w t o thei r becoming the basis for public policy in the are a of provincial-municipal fiscal relations . Fisca l adjustmen t i n Nov a Scoti a accordin g t o th e principle o f fisca l equit y ha s th e paramoun t virtue s o f bein g bot h fiscally just t o th e resident s o f th e province , an d o f bein g conduciv e to the optimum allocation of the province's resources. At the sam e time it provides a rational basis for easing the fiscal burden associate d wit h the painfu l economi c adjustment s whic h mus t inevitabl y b e mad e in some of the municipalities from tim e to time. It i s worth repeatin g tha t th e propose d programm e is not intende d to preclud e improvement s i n administratio n whic h ma y resul t fro m amalgamation o f municipa l units . No r i s i t intende d t o preclud e th e use o f othe r instrument s o f publi c polic y t o improv e th e us e o f th e province's resources .

X

A Brie f Summar y o f Results, an d Conclusion s

FIVE MAIN QUESTIONS HAVE BEEN DISCUSSED IN THIS STUDY.

( 1 ) Wh y is Nova Scotia a low-income province? (2) Wha t type s o f economi c adjustmen t ar e necessar y t o bring about best use of the province's resources? (3) Wha t patter n o f provincial-municipa l fisca l relation s i s mos t conducive to the best use of the province's resources? (4) Wha t fisca l adjustment s shoul d b e mad e t o tak e accoun t of increases i n th e scop e and cos t o f services traditionally performe d b y municipalities in view of the heav y pressure on the limite d municipa l tax base—property—an d i n vie w o f th e fac t tha t som e of th e service s are of far broader than local interest? ( 5 ) Ca n answers be found to ( 3 ) and ( 4 ) which are compatible? In brief, the answers arrived at are the following. (1) Nov a Scoti a i s a low-incom e province mainl y becaus e o f it s relative paucity of resources and its unfavourable location with respec t to markets and because there is considerable maladjustment in the us e of th e resource s it doe s have, particularl y wit h regar d t o th e primar y industries and the tourist industry. Even with considerable emigration , there will likely continue to be a substantial chroni c surplus of labour unless primar y processin g an d secondar y manufacturin g industrie s expand. (2) Suggestion s have been mad e about how the province's resources could be use d more effectively. I n particular , th e type s o f adjustments required i n the primar y industries and th e touris t industry have bee n indicated. Developmen t o f secondar y manufacturin g industr y wil l

Summary and Conclusions

255

probably hav e to be based primaril y o n markets in the Atlantic region , although i n som e case s market s i n othe r part s o f Canad a an d i n foreign countries will no doubt also be developed. Refractory sociologica l factor s wil l likel y continu e t o imped e economic improvemen t a s the y hav e i n th e past . A s a result , th e prescribed adjustment s ar e not likely to be made quickly. It ma y even be necessar y to thin k i n term s o f accomplishing the m full y onl y ove r the nex t generation . Certainly , on e wa y o f acceleratin g adjustmen t would b e b y direc t attempt s t o overcom e thes e sociologica l impedi ments. Economic improvement depends i n very large par t upo n the knowledge, skill , an d adaptabilit y o f th e people , particularl y sinc e th e resource bas e i s narrow. A particularly hig h priorit y shoul d therefor e be give n b y th e provincia l governmen t t o achievin g excellenc e i n education a t al l level s an d i n technica l an d vocationa l training . Th e results woul d b e three-fold . Th e peopl e woul d b e mor e productive . They woul d be mor e aware of economi c opportunities elsewher e an d of opportunitie s t o mak e bette r us e o f th e resource s withi n th e pro vince, an d would be better prepared t o move abou t t o take advantag e of them . Th e provinc e woul d b e mor e attractiv e t o ne w firm s tha t might conside r locating i n i t especiall y i f th e programm e of technica l training wa s geared ver y closely to the need s o f industries locating or expanding there. (3) I t ha s bee n argue d tha t th e applicatio n o f a modifie d versio n of th e principl e o f fisca l equit y develope d b y Buchana n ha s grea t virtue fro m th e poin t o f vie w o f effectin g provincial-municipa l fiscal adjustment tha t i s conductiv e t o optimu m allocatio n o f resources . This principl e i s als o attractiv e fro m th e ethica l poin t o f view , requiring as it doe s equal treatment o f "equals." It wa s argued that, i n Nova Scotia a t least , raising the level s of services in th e poo r municipalities woul d itsel f o n balanc e hav e favourabl e effect s o n allocatio n of resources , contrar y t o th e genera l contention s made b y Scott . No t the leas t favourabl e o f th e effect s woul d b e th e tendency , especiall y in the cas e of education, t o overcom e some of the sociologica l impedi ments to economic adjustment, alread y referred to above. On the other hand Scott' s theory appear s applicabl e an d Buchanan's inapplicable, with respect to the types o f economic adjustment that ar e appropriate t o Nova Scotia vis-a-vis the res t o f the country . It i s likely that ther e i s a tendenc y fo r bot h labou r an d capita l t o hav e highe r marginal productivitie s i n othe r part s o f th e countr y an d therefor e likely tha t ther e wil l b e a continue d emigratio n o f bot h factor s fro m

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the province . Th e interna l adjustment s required i n th e provinc e ar e more complicated. I n the cas e of towns suffering fro m th e los s of basic industry, wit h n o soun d alternatives , outwar d movement s o f bot h labour an d capita l ar e required. These movement s are th e typ e Scot t said might be desirabl e i n some cases. For th e rural areas , rationalization of primary operations in farming, fishing, and forestr y is called for, a prescriptio n fo r adjustmen t simila r t o bu t no t identica l wit h Buchanan's. (4) Wit h regar d t o questions (4 ) an d (5) , it was found tha t many adjustments i n municipa l function s an d revenues , i n th e latte r b y means of provincial grants, can be mad e in ways which ar e consistent with the principle of fiscal equity. The adjustment programme actually proposed woul d implement the principl e wit h respec t t o both genera l and loca l services an d woul d giv e som e financial relief t o al l municipalities, but greate r relie f t o the municipalities with low fiscal capacities relativ e t o foundatio n or standar d level s o f expenditure . A t th e same time the municipalities would be left wit h considerable flexibility in determinin g th e actua l level s o f thei r service s i n tha t the y woul d be fre e t o supplement any o f them they wished , by taxin g themselves more heavily, by applyin g thei r unconditiona l grant s fo r th e purpose , or by doing both. Within th e framewor k o f th e analysi s an d proposal s i n chapte r i x there i s considerabl e choic e ope n t o th e provinc e a s t o ho w fiscal adjustment accordin g to the principl e o f fiscal equity could b e accom plished. A t one extreme, the provinc e could tak e over th e administration and financing of general services entirely. At the othe r extreme , it would b e possibl e t o implement the principl e quit e full y b y th e pro vince making unconditional grants for both local and genera l services . It woul d b e possible , fo r example , to increas e th e powe r presentl y in loca l hand s b y th e provincia l governmen t ceasin g t o mak e th e Foundation Progra m fo r educatio n mandatory , bu t continuin g t o make unconditiona l grant s base d upo n th e Foundatio n Program . No doub t thos e wh o woul d condem n an y reductio n i n loca l powers , because the y believe a wid e are a o f local governmen t i s essentia l i n order t o sustai n a democrati c for m o f governmen t throughou t a country, would favour the latter alternative. One doe s no t hav e t o loo k fa r t o fin d stron g expression s o f th e view tha t a wid e rang e o f loca l governmen t i s th e cornerston e of democracy. The following are some examples. Democratic proces s is a n inventio n of local bodies. I t ha s bee n extended

Summary and Conclusions 25

7

upward an d ma y b e extende d graduall y towar d worl d organization . I n any case , moder n democrac y rest s upo n free , responsibl e loca l governmen t and wil l neve r b e stronge r tha n thi s foundation . Free , responsibl e loca l bodies correspond , i n th e politica l system , t o free , responsibl e individual s or familie s an d voluntar y associations in th e goo d society . A people wisel y conserving it s libertie s wil l see k eve r t o enlarg e th e rang e an d degre e o f local freedom an d responsibility . In doin g so, it ma y sacrific e possibl e proxi mate achievements. Doing specifi c goo d things by centralizatio n wil l alway s be alluring. It may always seem easier to impose 'progress " on localities tha n to wai t fo r the m t o effec t i t fo r themselves—provide d on e i s no t solicitou s about the basis or sources of progress.1 The municipa l leve l o f governmen t offer s th e bes t opportunit y fo r th e ordinary citize n t o participat e directl y i n publi c affairs , an d t o develo p a n insight int o the processe s of provincial and federa l government as well. Th e latter, bein g carrie d o n a t a grea t distanc e fro m th e direc t observatio n of the averag e citizen , ten d t o b e obscured . Bu t th e service s rendere d b y hi s local authorities , who m h e elect s an d who m h e ofte n know s personally , touch hi m a t a thousan d points . The y ar e almos t a s pervasiv e a s th e ai r he breathes. Th e citize n wh o keeps his eye s an d hi s mind open ca n observ e the operatio n o f these service s fro m da y t o day , an d ha s thu s th e materia l and th e opportunit y t o think abou t publi c affairs , t o for m judgment s and t o act thereon . . . . I n thi s sens e loca l institution s ar e th e laboratorie s o f democracy.2 To hav e service s performe d a t th e municipa l leve l i s a n essentia l feature o f a democracy . Suc h a n arrangemen t make s governmen t mor e responsive t o loca l need s an d allow s th e citize n a n activ e participatio n i n the affair s o f th e community . I t develop s leadershi p an d prepare s loca l talent fo r wor k i n a wide r field . If , therefore , th e mai n socia l function s o f government shoul d fo r th e sak e o f efficienc y b e transferre d t o a highe r level, a valuabl e trainin g groun d fo r democrati c governmen t woul d b e lost.3 It i s not difficul t to visualize an impairment of democracy by admin strative decisions whic h woul d enhanc e economi c welfar e i n a highl y centralized superio r jurisdiction , lik e a provinc e o r nation . I t ma y b e that i n suc h a political uni t som e sacrific e o f administrativ e efficienc y is a price which must be paid to maintain democracy. The fac t tha t th e programm e o f adjustmen t favoure d her e woul d 1 Henry C . Simons , "Introduction : A Politica l Credo, " Economic Policy for a Free Society (Chicago : Universit y o f Chicago Press : 1948) , p. 13. 2 Horace L . Brittain , Local Government in Canada (Toronto : Ryerso n Press , 1951), pp. v-vi. 3 D. C . Rowat , The Reorganization of Provincial-Municipal Relations in Nova Scotia ( A report prepared for th e Governmen t o f Nov a Scoti a b y th e Nov a Scoti a Municipal Bureau , Institut e o f Publi c Affairs , Dalhousi e University ; Halifax , 1949 ), p. ix.

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mean increase d provincia l influenc e ove r th e localitie s i n thei r pro vision of general services , and eve n the complet e provincia l assumptio n of som e o f thes e services , indicate s a measur e o f disagreemen t wit h the view s quoted. I t i s certainly agreed , providin g th e qualit y o f loca l government i s high , tha t considerabl e responsibilitie s shoul d b e lef t with the municipalities , but no t on the groun d of safeguarding democracy at the expens e of administrative efficiency ; rather , on the opposit e ground tha t ther e wil l b e greate r administrativ e efficienc y i f th e responsibility fo r certai n o f th e genera l service s an d fo r th e loca l services rest s with th e municipalities. Th e localities ar e bes t abl e bot h to determin e th e leve l o f loca l service s an d t o administe r them . An d where th e localitie s ar e responsibl e fo r genera l service s fo r whic h minimum standards are prescribed b y the province, there i s the adde d advantage that they ar e then fre e t o supplemen t thes e service s if the y wish. If it were found tha t in fact the quality o f local government adminis tration wa s generally poor, the provincial governmen t should conside r taking ove r th e responsibilit y fo r administerin g al l genera l services . If i t wer e t o d o this , i t woul d mea n th e eliminatio n o f th e rura l municipalities a s units of local government, and therefor e o f municipal councils, unles s thes e council s wer e reconstitute d a s simpl y advisory bodies. Village s an d commission s could continu e t o provid e loca l ser vices i n built-u p areas . Th e provinc e woul d the n hav e t o asses s such property a s was to b e taxe d t o suppor t the genera l service s an d lev y its ow n taxes upon it . Suc h a mov e would b e entirel y i n accordanc e with the principle of fiscal equity. The generalizatio n that a large amount of local governmen t is necessary fo r a health y democrac y i s frequentl y repeate d withou t bein g convincingly demonstrated. 4 I t i s ofte n regarded , withou t sufficien t justification, a s bein g a maxi m an d whe n s o regarde d i t stultifie s thought. Th e trut h o r falsit y o f th e contentio n i s no t a matte r o f unvarying law but i s an empirical matter. Even if it were proven to b e valid fo r any particular plac e and time, it does not follow that it would also b e vali d fo r othe r place s o r times . I t woul d stil l hav e t o b e demonstrated that it was valid fo r Nova Scotia. The relevan t question , therefore, is: what actually is the case in Nova Scotia? Eighty year s ago , peopl e i n th e scattere d localitie s o f Nov a Scoti a were more isolated than toda y from th e mai n streams of events a t th e 4 For a thoughtfu l discussio n bearin g on som e o f th e question s raise d her e se e Hugh Whalen, "Democracy and Loca l Government," Canadian Public Administration, III (March , 1960), pp. 1-13 .

Summary and Conclusions 25

9

higher level s o f government , an d publi c administratio n coul d no t b e as effectivel y decentralize d a s today , althoug h governmen t a t thes e levels was then simpler and less extensive than now. Even at that time, interest i n question s o f loca l governmen t wa s no t particularl y great . Since then , improvement s i n transportatio n an d communicatio n hav e made people les s remote from provincia l political lif e wit h respec t t o time an d space . Anothe r kind o f remoteness , mor e seriou s i n natur e than remotenes s o f tim e an d space , i s tha t stemmin g fro m a greate r range an d complexit y o f governmenta l activitie s an d thei r greate r interdependence, wit h th e growt h o f the welfar e state , whic h make s understanding o f th e governmenta l processes mor e difficult . I n Nov a Scotia a t least , thi s kin d o f remotenes s ha s no t i n fac t becom e ver y great. Mos t provincia l governmenta l activities ar e stil l simpl e enoug h to be quite wel l understood, at least in broad outline , by the ordinar y citizen, althoug h ther e ar e certainl y exceptions , suc h a s programmes for economi c development an d som e aspects o f urban planning . Some services, like education, health, an d social welfare, once mainly of loca l concern , ar e no w o f genera l provincia l o r eve n nationa l concern. It is therefore desirable that citizens should transfer som e of their interest i n thes e matter s fro m th e loca l t o th e provincia l sphere . A t the sam e time , provincia l administratio n ca n b e decentralize d i n a small provinc e lik e Nov a Scoti a t o permi t loca l participatio n i n decision-making. It i s not a bad thin g for democracy if people come to consider wha t wer e onc e regarded a s local matter s i n a broader con text an d becom e les s parochia l i n th e process ; an d no t a goo d thin g if thei r attentio n i s focuse d undul y o n loca l matter s tha t ar e ofte n relatively trivial in nature. As wa s pointe d ou t i n chapte r rv , loca l governmen t develope d i n Nova Scotia , especiall y i n th e rura l areas , no t becaus e o f popula r demand fo r it, bu t becaus e i t wa s imposed b y th e provincia l govern ment. I n thes e area s a t least , an d perhap s i n th e town s an d citie s a s well, i t i s doubtfu l tha t Nov a Scoti a ha s eve r ha d th e vigorou s kind of loca l governmen t visualized b y thos e wh o regar d i t a s the corner stone of democracy. A democratic edific e dependen t o n it woul d have crumbled lon g ago . The ver y opportunit y fo r intimat e contac t o f th e citizens wit h provincia l politic s ha s probabl y mad e loca l governmen t a less vital force i n Nova Scotia than it might otherwis e have become . It appear s tha t there is wide latitude i n Nova Scoti a for adjustments in loca l function s o n ground s o f administrativ e efficienc y o r o f bein g conducive to the mor e general interests o f the citizen s of the province , without an y essentia l impairmen t o f democracy . I n an y case , th e

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recommended adjustments would leave the municipalities wit h enough responsibility to foster local interest in their affairs . Fa r fro m impairin g local autonomy , fiscal transfers mad e accordin g t o th e principl e o f fiscal equity giv e positive conten t to thi s autonomy , for autonom y in carrying out their responsibilities i s of little importanc e to th e poore r localities unles s they are provided with sufficient financia l resource s t o provide services at levels comparable to those in the wealthier localitie s without imposing inordinate burdens of taxation on their residents.

Selected Bibliograph y WORKS CITED

1. Books and Pamphlets Beck, J . Murray . The Government of Nova Scotia. Toronto: Universit y of Toronto Press, 1957 . Birch, A. H. Federalism, Finance and Social Legislation in Canada, Australia and the United States. Oxford: A t the Clarendo n Press , 1955 . Brittain, Horac e L . Local Government in Canada. Toronto : Ryerso n Press , 1951. Brown, George W., ed. Canada. (Unite d Nation s Series, edited b y Rober t J. Kerner.) Berkele y an d Lo s Angeles : Universit y o f Californi a Press , 1950. Cairncross, A . K . Economic Development and the Atlantic Provinces. Fredericton: Atlantic Provinces Research Board, 1961 . Carswell, Roger . Taxes and Traffic: A Study of Highway Financing. ( Canadian Tax Papers, No . 8.) Toronto : Canadian Ta x Foundation, 1955 . Clark, R. M. The Municipal Business Tax. in Canada. (Canadian Tax Papers , No. 5.) Toronto : Canadia n Tax Foundation, 1952 . Crawford, Kennet h Grant. Canadian Municipal Government. Toronto: Uni versity of Toronto Press, 1954 . Currie, A . W . Economic Geography of Canada. Toronto : Th e Macmilla n Company of Canada Limited , 1945 . Dawson, R . MacGregor . The Government of Canada. 3r d edition , revised . Toronto: University of Toronto Press, 1957 . Due, Joh n F . Provincial Sales Taxes. (Canadia n Ta x Papers , No . 7. ) Toronto: Canadia n Tax Foundation, 1953 . Easterbrook, W . T. , an d Aitken , Hug h G . J . Canadian Economic History. Toronto: The Macmillan Company of Canada Limited, 1956 . Innis, H . A . The Cod Fisheries: The History of an International Economy. Revised edition . Toronto : Universit y o f Toronto Press , 1954 . Keirstead, B . S . The Theory of Economic Change. Toronto: Th e Macmilla n Company of Canada Limited , 1948 . Levitt, Kari . Population Movements in the Atlantic Provinces. Halifax an d Fredericton: Commissione d by Atlanti c Province s Researc h Boar d an d prepared b y Atlanti c Province s Economi c Council , 1960 . (Mimeo graphed.) Lounsbury, F . E . Financing Industrial Development in the Atlantic Provinces. Halifa x an d Fredericton : Commissione d b y Atlanti c Province s Research Boar d and prepared b y Atlantic Provinces Economi c Council , 1960. (Mimeographed. ) de Marco , Antoni o d e Viti . First Principles of Public Finance. (Translate d by E. P. Marget.) Ne w York: Harcourt Brace and Co., 1936 .

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Maxwell, J. A. Federal Subsidies to the Provincial Governments in Canada. Cambridge: Harvar d Universit y Press, 1937 . The Fiscal Impact of Federalism in the United States. Cambridge : Harvard University Press, 1946 . Meade, J . E . The Theory of International Economic Policy. II. Trade and Welfare. London : Oxfor d Universit y Press, 1955 . Mill, J. S . Principles of Political Economy. Moffatt, H . P . Educational Finance in Canada. (Th e Quanc e Lecture s i n Canadian Education , 1957.) Toronto : W . J. Gage Limited , 1957 . Moore, A . Milton . Forestry Tenures and Taxes in Canada. (Ta x Papers , No. 11. ) Toronto : Canadia n Tax Foundation, 1957 . Moore, A . Milton , an d Perry , J . Harvey . Financing Canadian Federation. (Tax Papers , No . 6.) Toronto : Canadia n Ta x Foundation, 1953 . Parks, Arthu r C . Beef and Beef Possibilities in the Atlantic Provinces. Halifax: Atlanti c Province s Economi c Council , 1957 . (Mimeographed. ) The Economy of the Atlantic Provinces, 1940-1958. Halifax: Atlanti c Provinces Economic Council, 1960 . (Mimeographed. ) Perry, J . Harvey . Taxation in Canada. 2n d edition . Toronto : Universit y o f Toronto Press, 1953 . Taxes, Tariffs, and Subsidies. 2 vols . Toronto : Universit y o f Toront o Press, 1955 . Pigou, A . C . A Study in Public Finance. 3r d edition , revised . London : Macmillan and Company Limited, 1949 . Reid, E . P. , an d Fitzpatrick , J . M . Atlantic Provinces Agriculture. Ottawa: Department of Agriculture, 1957. (Mimeographed. ) Rowat, Donal d C . The Reorganization of Provincial-Municipal Relations in Nova Scotia. ( A repor t prepare d fo r th e Governmen t o f Nov a Scoti a by th e Nov a Scoti a Municipa l Bureau , Institut e o f Publi c Affairs , Dalhousie University.) Halifax , 1949 . Saunders, S. A. Studies in the Economy of the Maritime Provinces. Toronto: The Macmillan Company of Canada Limited, 1939 . Economic History of the Maritime Provinces. (A research stud y pre pared fo r th e Roya l Commissio n o n Dominion-Provincia l Relations. ) Ottawa: King's Printer, 1940 . Shultz, Willia m J. , an d Harriss , C . Lowell . American Public Finance. 6t h edition. Englewoo d Cliffs , N.J. : Prentice-Hall, Inc. , 1954 . Wheare, K . C. Federal Government. 2nd edition. London : Oxfor d University Press, 1951 . 2. Articles and Periodicals Beck, J. M . "New Loo k in Finance," Queen's Quarterly, LXIII, 2 (summer , 1956). Buchanan, J . M . "Th e Pur e Theor y o f Governmen t Finance : A Suggeste d Approach," Journal of Political Economy, XLVI I (December , 1949) . "Federalism an d Fisca l Equity, " American Economic Review, X L (September, 1950) . "Federal Grant s an d Resourc e Allocation, " Journal of Political Economy, LX (June , 1952) .

Selected Bibliography 26

3

"A Reply," Journal of Political Economy, LX (December , 1952) . "Comment o n Musgrave' s an d Tiebout' s Papers, " Public Finances: Needs, Sources, and Utilization. Papers: Apri l 1 0 and 11 , 1959 . Ne w York: National Bureau of Economic Research, 1959 . Burt, A . L . "Th e Britis h Nort h America n Colonies, " Canada, edite d b y George W . Brown . Berkeley an d Lo s Angeles: Universit y o f California Press, 1950 . Canadian Fiscal Facts. (Principa l Statistic s o f Canadia n Publi c Finance , 1957.) Toronto : Canadian Tax Foundation, 1957 . Canadian Fiscal Facts: 1958 Supplement. Toronto : Canadia n Ta x Founda tion, 1958 . Carswell, Roger . "Municipa l Moto r Vehicl e Use r Taxes, " Canadian Tax Journal, VI (November-December , 1958). Gordon, H. Scott . "Th e Economi c Theory o f a Common Property Resource : The Fishery, " Journal of Political Economy, LXI I (April , 1954) . Graham, Joh n F . "Th e Specia l Atlanti c Province s Adjustmen t Grants : A Critique," Canadian Tax Journal, VII I (January-February , 1960) . Hashey, L. F. "Municipal Motor Vehicle User Taxes," Canadian Tax Journal, VII (January-February , 1959) . Heer, C . "The Propert y Ta x a s a Measur e of Ability," Property Taxes. Ne w York: Tax Policy League, 1940 . Kendrick, M . Slade . "Th e Abilit y t o Pa y Theor y o f Taxation, " American Economic Review, XXIX (March , 1939). Lipsey, R . G. , an d Lancaster , R . K. "Th e Genera l Theor y o f Secon d Best, " Review of Economic Studies, XXIV, No. 1 (1956-7). Maxwell, J . A . "Report s o n Loca l Government, " Canadian Journal of Economics and Political Science, XVII (August , 1951). The National Finances. Various issues 1956-5 7 to 1961-62 . Toronto: Cana dian Tax Foundation. Pettier, V . J. "Backgroun d o f Schoo l Financ e i n Nov a Scotia, " Proceedings of the Golden Anniversary Convention of the Nova Scotia Union of Municipalities ( 1955 ). Proceedings of the Annual Conventions of the Union of Nova Scotia Municipalities. Proskie, John . "Operation s o f Moder n Longliner s an d Dragger s Atlanti c Seaboard 1952-1957, " Primary Industry Studies, no. 1 , vol. 7 , par t 1 . Economics Service , Departmen t o f Fisherie s o f Canada ; Ottawa : Queen's Printer, 1959 . "An Appraisa l o f th e Atlanti c Fishin g Craf t Modernizatio n Pro gramme an d th e Otte r Trawlin g Fleet, " Ottawa , 1960 . (Mimeo graphed.) Scott, A . D . " A Not e o n Grant s i n Federa l Countries, " Económica, XVII (November, 1950). "The Evaluatio n o f Federa l Grants, " Económica, XI X (November , 1952). "Federal Grant s an d Resourc e Allocation, " Journal of Political Economy, LX (December, 1952) . Simons, Henr y C . "Introduction : A Politica l Credo, " Economic Policy for a Free Society. Chicago: University of Chicago Press, 1948 .

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Spengler, Edwar d H . "Th e Propert y Ta x as a Benefi t Tax, " Property Taxes. New York: Tax Policy League, 1940 . Watson, Jame s Wreford . "Th e Geography, " Canada, edited b y Georg e W . Brown. Berkele y an d Lo s Angeles : Universit y o f Californi a Press , 1950. Whalen, Hugh . "Democrac y an d Loca l Government, " Canadian Public Administration, III (March , 1960) . 3. Publications of the Government of Canada Davis, John . Minin g and Mineral Processing in Canada. ( A stud y fo r th e Royal Commissio n on Canada's Economi c Prospects.) Ottawa : Queen' s Printer, 1957 . Davis, John , et al. The Outlook for the Canadian Forest Industries. ( A study fo r th e Roya l Commissio n o n Canada' s Economi c Prospects. ) Ottawa: Queen' s Printer , 1957 . Department o f Agriculture, Fee d Grain s Administration . Statistical Information Relating to the Freight Assistance Policy for Eastern Canada and British Columbia, compiled o n basi s o f figures available u p t o Novem ber 30, 1958. Ottawa , 1958 . (Mimeographed. ) Department o f Fisheries o f Canad a an d th e Fisherie s Researc h Board . The Commercial Fisheries of Canada. ( A stud y fo r th e Roya l Commissio n on Canada' s Economi c Prospects.) Ottawa : Queen' s Printer , 1958 . Department o f Nationa l Revenue . Taxation Statistics, 1957 an d Taxation Statistics, 1960. Ottawa: Queen's Printer . Department of Trade an d Commerce , Dominion Bureau of Statistics. Canada Year Book, various issues. Ottawa: Queen's Printer . Census of Canada 1956. Ottawa: Queen's Printer, 1958 . Comparative Statistics of Public Finance 1956 to 1960. Ottawa : Queen's Printer , 1960 . The Control and Sale of Alcoholic Beverages in Canada, fisca l yea r ended Marc h 31, 1959. Ottawa : Queen' s Printer, 1960 . Financial Statistics of Provincial Governments, 1957, Funde d Debt — Direct and Indirect, Interim . Ottawa : Queen' s Printer, 1958 . Financial Statistics of Provincial Governments, 1955, Revenu e an d Expenditure, Actual . Ottawa: Queen' s Printer , 1957 . Financial Statistics of Provincial Governments, 1958, Summar y o f Estimates, Revenu e an d Expenditures , Firs t Analysis . Ottawa : Queen' s Printer, 1958 . Fisheries Statistics of Canada, 1955. Ottawa : Queen' s Printer , 1958 . Fisheries Statistics of Canada, 1958. Ottawa : Queen' s Printer , 1960 . Fisheries Statistics of Canada, 1956, Nova Scotia. Ottawa : Queen' s Printer, 1958 . General Review of the Manufacturing Industries of Canada, 1958. Ottawa: Queen' s Printer , 1961 . Handbook of Agricultural Statistics. Part II . Farm Income—1926-57. Revised edition. Ottawa: Queen' s Printer , 1958 . Highway Statistics, 1956. Ottawa: Queen' s Printer , 1958 . Hospital Statistics. Vols. 1 and 2. Ottawa: Queen's Printer , 1958 . List of Canadian Hospitals, 1959. Memorandum . Ottawa : Queen' s Printer, 1958 .

Selected Bibliography

265

The Labour Force, November 1945—July 1958. Reference Paper No . 58. 1958 revision . Ottawa: Queen's Printer, 1958 . The Lumber Industry, 1959. Ottawa: Queen's Printer, 1961 . The Manufacturing Industries of Canada, 1958. Sectio n B . Atlantic Provinces. Ottawa: Queen's Printer, 1960 . The Motor Vehicle, 1959. Ottawa: Queen's Printer, 1960 . National Accounts, Income and Expenditure, 1926-1956. Ottawa : Queen's Printer, 1958 . National Accounts, Income and Expenditure, 1955—57. Ottawa : Queen's Printer, 1958 . National Accounts, Income and Expenditure, 1959. Ottawa: Queen' s Printer, 1960 . National Accounts, Income and Expenditure, 1960. Ottawa: Queen' s Printer, 1961 . Ninth Census of Canada, 1951. Ottawa: Queen's Printer, 1956 . Preliminary Report on Mineral Production, 1960. Ottawa : Queen' s Printer, 1961 . Prices and Price Indexes, May 1958 . Ottawa : Queen' s Printer , 1958 . Review of Employment and Payrolls, 1959. Ottawa: Queen' s Printer , 1960. Survey of Production, 1951-1955; 1954-8. Ottawa: Queen' s Printer , 1958. Dominion-Provincial Conference 1945. (Dominio n an d provincia l sub missions an d plenar y conferenc e discussions. ) Ottawa : King' s Printer , 1946. Dominion-Provincial Conference 1957. Ottawa : Queen' s Printer , 1958 . Drummond, W . M. , Mackenzie , W., et al. Progress and Prospects of Canadian Agriculture. ( A stud y fo r th e Roya l Commissio n o n Canada' s Economic Prospects.) Ottawa: Queen's Printer, 1957 . Fullerton, D . H. , an d Hampson, H. A . Canadian Secondary Manufacturing Industry. ( A stud y fo r th e Roya l Commissio n on Canada' s Economi c Prospects.) Ottawa : Queen's Printer, 1957 . House of Commons, Debates. 1947, 1958 . Ottawa : Queen's Printer . Rowland, R. D. Some Regional Aspects of Canada's Economic Development. (A stud y for the Roya l Commission on Canada' s Economi c Prospects. ) Ottawa: Queen's Printer, 1958 . Report of the Committee to Inquire into the Principles and Procedures Followed in the Remission Service of the Department of Justice of Canada. Ottawa: Queen's Printer, 1956 . Report of the Royal Commission on Canada's Economic Prospects. (Final. ) Ottawa: Queen's Printer, 1958 . Report of the Royal Commission on Coal. Ottawa: Queen' s Printer , 1960 . Report of the Royal Commission on Dominion-Provincial Relations. 3 vols . Ottawa: King's Printer, 1940 . Report of the Royal Commission on Financial Arrangements between the Dominion and the Maritime Provinces. Ottawa : King' s Printer , 1935 . Report of the Royal Commission on Maritime Claims. Ottawa : King' s Printer, 1926 . Report of the Royal Commission on Transportation. Vols . I an d II . Ottawa : Queen's Printer, 1961 .

266

Fiscal Adjustment and Economic Development

Statutes of Canada. Various years . Urwick, Curri e Limited . The Nova Scotia Coal Industry. ( A stud y fo r th e Royal Commissio n o n Canada's Economi c Prospects. ) Ottawa : Queen' s Printer, 1957 . 4. Publications of the Government of Nova Scotia Annual Report s o f th e Department s o f Agricultur e an d Marketing , Educa tion, Highways , Land s an d Forests , Mines , Municipa l Affair s (Munici pal Statistics) , Publi c Health , an d Publi c Welfare ; an d o f th e Nov a Scotia Liquo r Commissio n an d th e Nov a Scoti a Powe r Commission . Also annual reports o n Humane Institutions an d Penal Institutions . Department o f Land s an d Forests . The Forest Resources of Nova Scotia. 1958. Department o f Trad e an d Industry . Directory of Manufactures, 1960. Halifax, 1960 . Education Office . The Education Act and Related Acts. (Bulleti n No . 1 , 1956-7.) Halifax , 1956 . Johnson, Iren e E. Tourist Survey of Nova Scotia, 1960. Nov a Scoti a Trave l Bureau. Halifax , Department o f Trade an d Industry , 1960 . Legislature. 196 1 Session , Estimates, Halifax : Queen' s Printer , 1961 . Little, Arthu r D. , Inc . A Statistical Analysis of Tourists Visiting Nova Scotia in 1956. ( A repor t t o th e Departmen t o f Trad e an d Industry , Government o f Nova Scotia.) 1957 . (Mimeographed. ) Public Accounts, fo r the fiscal year ende d Marc h 31 , 1957 . Halifax : Queen' s Printer, 1958 . Public Accounts, for the fiscal year ende d Marc h 31 , 1960 . Halifax : Queen' s Printer, 1960 . "Report o f th e Commissio n o n th e Large r Unit, " Journals of the House of Assembly, 1940 , Appendi x 8. Report of the Revaluation Commission for the Province of Nova Scotia, 1958. (Mimeographed. ) Report of the Royal Commission: Provincial Economic Inquiry. (Includin g "Complementary Repor t o f Dr . Harol d A . Innis." ) 2 vols . Halifax : King's Printer, 1934 . Report of the Royal Commission on Public School Finance. Halifax: Queen' s Printer, 1954 . Report of the Royal Commission on Rural Credit. Halifax, 1957 . Stanfield, Premie r Rober t L . Speech on Second Reading: Hospital Tax Act. April 29,1958. Halifax, 1958 . Statutes of Nova Scotia. Various years. A Submission on Dominion-Provincial Relations and the Fiscal Disabilities of Nova Scotia within the Canadian Confederation. ( A brief submitte d by Norman McL. Rogers to the Royal Commission: Provincia l Economi c Inquiry.) [Halifax : King's Printer], 1934 . 5. Other Government Publications City o f Halifax . Report of the Commission to Investigate the Taxation System in the City of Halifax. 1957 . (Mimeographed. ) State of New York . Report of the New York State Commission on State Aid

Selected Bibliography 26

7

to Municipal Subdivisions. Legislative Documen t No . 58, memorandu m submitted by the State Tax Commission. Albany, 1936 . 6. Unpublished Material Alberg, A . O. , Ministe r o f Education , Provinc e o f Alberta . "Foundatio n Program o f Public Schoo l Finance." Speech, Marc h 24, 1961 . (Mimeo graphed.) Bird, R . M . "Growt h an d Structur e o f Nov a Scotia' s Economy " ( A memorandum prepare d fo r th e Nov a Scoti a Departmen t o f Trad e an d Industry). Halifax, 1958. (Typewritten. ) Forsyth, L . A . "Memorandu m i n Connectio n wit h th e Primar y Iro n an d Steel Industr y o f Nov a Scotia " ( A submissio n t o th e Commissio n o n Canada's Economi c Prospects; Halifax , 1955) . (Mimeographed. ) Government of New Brunswick. "The Cas e for National Adjustment Grants." Fredericton, undated . (Mimeographed. ) "Memorandum o n Behal f o f th e Municipalitie s o f Nov a Scoti a t o th e Government o f th e Provinc e o f Nov a Scoti a Respectin g th e Allocatio n of Powers, Duties and Revenues. " 1947. (Mimeographed. ) Morse, Norma n H. "Furthe r Observation s on the Econom y of Nov a Scotia." (A repor t fo r th e Nov a Scotia Researc h Foundation. ) Wolfville , 1956 . (Typewritten.) "Preliminary Result s o f Researc h o n th e Econom y o f Nov a Scotia. " (A repor t fo r th e Nov a Scotia Research Foundation. ) Wolfville , 1954 . (Typewritten.) Morse, N . H. , an d Watson , R. E. L . " A Report o n a Preliminar y Surve y of Rural Condition s in Hant s County , Nov a Scotia." (Wit h specia l refer ence t o farme r organization s i n th e County. ) Acadi a Universit y Institute, 1957 . (Mimeographed. ) "Summary: Foundatio n Progra m Percentag e Proportions, " base d o n Aca demic Schoo l Year, 1957-1958. Supplied b y Departmen t o f Education , Province of Nova Scotia. 7. Other Sources Halifax Chronicle-Herald. Various issues. Information supplie d directl y b y federa l an d provincia l governmen t depart ments and by the Canadia n Tax Foundation. Interviews, mostly confidential. Labour Gazette, various issues. SOME OTHER RELEVANT WOBKS NOT CITED

1. Books and Pamphlets Adarkar, B . P . The Principles and Problems of Federal Finance. London : P. S. King and Sons , 1933 . Benson, G . C . S . The New Centralization. New York : Farra r an d Rinehart , 1941. Borts, George , an d Stoltz , Merto n P . A Theoretical Framework for the Analysis of Regional Economic Problems with Applications to Rhode Island as an Example of a Mature Regional Economy. (Mimeographed. )

268

Fiscal Adjustment and Economic Development

Buck, A . E. Financing Canadian Government. Chicago : Publi c Administra tion Service , 1949 . Clark, Jane P . The Rise of a Neto Federalism. New York : Columbia Univer sity Press, 1938 . Crawford, K . Grant . Provincial School Grants 1941-1961. (Canadia n Ta x Papers, No. 26.) Toronto : Canadia n Ta x Foundation, 1962 . Gettys, Luella. The Administration of Canadian Conditional Grants. Chicago: Public Administration Service, 1938 . Goldenberg, H . C . Municipal Finance in Canada. ( A study prepare d fo r th e Royal Commission on Dominion-Provincial Relations. ) Ottawa : Queen' s Printer, 1939 . Hanson, Eric . Local Government in Alberta. McClellan d an d Stewar t Limited, 1956 . Attstralian Commonwealth Grants Commission, a Quarter Century of Fiscal Judgement. (Ta x Papers , No . 20. ) Toronto : Canadia n Ta x Foundation, 1960 . Fiscal Needs of the Canadian Provinces. Toronto : Canadia n Ta x Foundation, 1961 . Hicks, Ursul a K. , et al. Federalism and Economic Growth in Underdeveloped Countries: a Symposium. London : Alle n an d Unwin , 1961 . Innis, Mar y Quayle . A n Economic History of Canada. Toronto : Ryerso n Press, 1935 . Keirstead, B. S . Economic Effects of the War on the Maritime Provinces of Canada. Halifax : Institut e o f Publi c Affairs , Dalhousi e University , 1944. (Mimeographed. ) Lougheed, W. F., and MacKenzie , W. C. Provincial Public Finance in Nova Scotia: An Introduction. (Bulleti n No . X of th e Dalhousi e Institut e o f Public Affairs. ) Toronto : Thomas Nelson and Sons , 1940 . Phillips, Charle s E . The Development of Education in Canada. Toronto : W. J. Gage Limited, 1957 . Saunders, S . A. The Economic Welfare of the Maritime Provinces. Wolfville, 1932. Wolfe, J . N . Taxation and Development in the Maritimes. (Canadia n Ta x Papers, No . 16.) Toronto : Canadia n Tax Foundation, 1959 . Wright, Frederic k (edito r o f th e Municipal Review of Canada). Studies in Municipal Government. (Symposiu m of article s appearin g fro m 191 5 to 1940.) Montreal , 1940 . 2. Articles and Periodicals Brown, H. P. "Som e Aspect s o f Federal-State Financia l Relations, " Federalism, An Australian Jubilee Study, edite d b y Geoffre y Sawer . Mel bourne: F . W. Cheshire (fo r the Australia n Nationa l University) , 1952 . Carrothers, W. A . "Problems o f the Canadia n Federation, " Canadian Journal of Economics and Political Science, I (February , 1935) . Curtis, C . A . "Th e Changin g For m o f Municipa l Government. " Canadian Tax Journal, VI (September-October , 1958). "Municipal Financ e an d Provincial-Federa l Relations, " Canadian Journal of Economics and Political Science, XVII (August , 1951) . Dehem, R. , an d Wolfe , J . N . "Th e Principle s o f Federa l Financ e an d th e

Selected Bibliography 26

9

Canadian Case, " Canadian Journal of Economics and Political Science, XXI (February , 1955) . Goldenberg, H . Carl . "Municipa l Finance s an d Taxation, " Report of Proceedings of the Eleventh Annual Tax Conference: convene d b y th e Canadian Ta x Foundation . Toronto : Canadia n Ta x Foundation , 1958 . Gordon, H . S . "A n Economi c Approac h t o th e Optimu m Utilizatio n o f Fishery Resources, " Journal of the Fisheries Research Board of Canada, X (1953) . Graham, Joh n F . "Th e Applicatio n o f th e Fisca l Equit y Principl e t o Provincial-Municipal Relations, " Canadian Public Administration, II I (March, 1960). "Economic Developmen t o f th e Atlanti c Province s i n a Nationa l Perspective," Dalhousie Review, 40 (spring , 1960). Hardy, Eric . "Provincial-Municipa l Relations : wit h Emphasi s o n th e Finan cial Relation s betwee n Province s an d Loca l Governments, " Canadian Public Administration, III (March , 1960). Leland, S . E . "Th e Relation s o f Federal , State , an d Loca l Finance, " Proceedings, National Tax Association, XXIII (1930) . MacAIlister, G . A . "Developmen t o f Loca l Governmen t i n Nov a Scotia, " Public Affairs (autumn , 1943). Mackintosh, W . A . "Federa l Finance, " Federalism, an Australian Jubilee Study, edite d b y Geoffre y Sawer . Melbourne: F . W . Cheshir e (fo r the Australian National University), 1952 . Mallory, J. R . "Th e Compac t Theor y o f Confederation, " Dalhousie Review, XXI (October , 1941) . Maxwell, J . A . "The Adjustmen t of Federal-Provincia l Financia l Relations, " Canadian Journal of Economics and Political Science, I I (August , 1936). North, Dougla s Cecil . "Locatio n Theor y an d Regiona l Economi c Growth, " Journal of Political Economy, LXII I (June , 1955). Rowat, D . C . Remark s in discussio n o f papers o n provincial-municipa l rela tions. Institut e o f Public Administratio n of Canada . Proceedings of the Eleventh Annual Conference, 1959 . Toronto . Samuelson, P . A . "Th e Pur e Theor y o f Publi c Expenditures, " Review of Economics and Statistics (November, 1954). "Diagrammatic Expositio n o f a Pur e Theor y o f Public Expenditure, " Review of Economics and Statistics (November, 1955). Somers, H . M . "Governmen t Expenditure s an d Economi c Welfare." Revue de Science et de Législation Financères, XLIII ( 1951). Tiebout, C . M . " A Pure Theor y o f Loca l Expenditures, " Journal of Political Economy, LXI V (October , 1956). Waines, W . J . "Problem s o f Municipa l Financ e i n th e Prairi e Provinces, " Canadian Journal of Economics and Political Science, II I (August , 1937). Whalen, Hugh . "Th e Foundation s o f Loca l Self-Government, " Canadian Journal of Economics and Political Science, XXVI (August , 1960). 3. Government Publications Commission o n Intergovernmenta l Relations . Report to the President. Washington, D.C.: U.S. Government Printing Office , 1955 .

270

Fiscal Adjustment and Economic Development

Government o f Canada . Report of the Royal Commission on Coal. Ottawa: King's Printer, 1946. Department o f Trade an d Commerce , Dominio n Bureau o f Statistics. The Maritime Provinces in Their Relation to the National Economy of Canada: a statistica l stud y o f thei r socia l an d economi c condition . Ottawa: King's Printer, 1948. Government o f Ne w Brunswick . Report of the Royal Commission on the Financing of Schools in New Brunswick. Fredericton . 1955. Government o f Nov a Scotia . Report of the Royal Commission on Provincial Development and Rehabilitation. 2 vols. Halifax : King' s Printer , 1944. A Submission of its Claims with Respect to Maritime Disabilities within Confederation: a s presented t o th e Roya l Commission o n Mari time Claims. Halifax: King's Printer, 1926. Department of Trade and Industry . Nova Scotia, an Economic Profile, 1959. Johnson, Byro n L . The Principle of Equalization Applied to the Allocation of Grants-in-Aid. (Burea u o f Researc h an d Statistic s Memorandu m No. 66.) Washington : Socia l Security Administration, 1947. Phillipson, Si r Sydney , an d Hicks , J . R . Report of the Commission on Revenue Allocation [in Nigeria]. Lagos: Government Printer, 1951. State o f Ne w York . Report of the Commission on Municipal Revenues and Reductions of Real Estate Taxes. Albany, 1946. Report of the New York State Commission for the Revision of the Tax Laws. (Legislativ e Document No . 77.) February , 1932. Studenski, Paul . Measurement of Variations in State Economic and Fiscal Capacity. (Federa l Securit y Agency , Socia l Securit y Board , Burea u of Researc h an d Statistics , Memorandu m No . 50. ) Washington, 1943 . United States , Senate . Federal, State and Local Government Fiscal Relations. Sen . Doc. 69, 78t h Cong. , 1s t Sess . Washington : Governmen t Printing Office , 1943. 4. Unpublished Material Bird, W . R . "Histor y o f th e Highway s o f Nov a Scotia, " 1945 . (Mimeo graphed.) Government o f Nova Scotia, Departmen t o f Trade an d Industry . "Economi c surveys o f th e communitie s o f Glac e Bay , Kentvill e an d Antigonish. " (Typewritten.) Maxwell, J . A . " A Financia l Histor y o f Nov a Scotia , 1848-1899. " Un published Ph.D . dissertatio n fo r Harvard University . Morse, Norma n H . " A Surve y o f Trend s i n th e Econom y o f Nov a Scotia. " 2 vols. Acadia University, 1953 . (Typewritten.)

Index* ADMINISTRATION, LOCAL : improvemen t 199-200, 206 ; personal property , 212-14; nee d fo r improvemen t in , in, 253 214n, 248-50 ; centralizatio n of , Administrative efficiency , 242 ; doctrine 248; industria l an d commercial , of, 208 , 224 ; an d democracy , 249 257-9 passim Agricultural Rehabilitatio n an d De - Atlantic Province s Adjustmen t Grants , 39, 40, 43, 98 velopment Act, 142n Agriculture: earl y histor y of , 14 , 15 ; and competitio n fro m west , 17 ; BARYTES, 9 8 and appl e production , 18 , 118 ; Better terms , agitatio n o f Maritim e low income s in , 26 , 114 ; natur e Provinces for, 34 of, 94-5 ; descriptio n o f an d pre- British North America Act, 31 scription for, 113-19, 126-7; small- Brittain, Horace L., 257 ness o f farm s in , 114 ; and emigra - Buchanan, J . M. : develope d principl e tion fro m farms , 114 ; subsistenc e of fisca l equity , 5-6 ; hi s debat e fanning in , 114-16 , 124 , 150-1 ; with Scott , 153-7 0 passim ; o n and woodlots , 115 ; an d bee f proprinciple o f fisca l equity , 171-80 ; duction, 117-18 ; an d tobacc o proon conditiona l vs. unconditiona l duction, 118-19. grants, 190-3 ; o n discriminator y Alberta: foundatio n programm e fo r taxation a s adjustment device, 246; education, 251 a summar y o f assessmen t o f hi s Allocation o f resources , 93-142 passim; theory, 255-6 influence o f fisca l adjustmen t on , Budget, pe r capit a i n Nov a Scotia ; 4-5; fiscal adjustment and , 6; effec t compared wit h othe r provinces , of federa l transfer s on , 33—4 , 35 ; 49-50 and emigration , 149-50; and Scott - Burden o f taxation , uniform , 236, 240 , Buchanan debate , 153-7 0 passim ; 250-1 and publi c services , 159-70 ; effec t Business tax in Halifax City , 215-16 of road s on, 159-61 ; effec t o f education on , 161-5 ; effec t o f healt h services on , 165-6 ; effec t o f socia l CAIRNCROSS, A . K., Ill, 113n, 140-1 welfare service s on , 166-9 ; fisca l Capital: mobilit y an d expor t of , 110 ; availability of , 110-13 ; drai n o f pressure and , 173; condition s fo r from Maritimes , 155 ; flo w o f an d optimum, 180-2 ; an d fisca l trans economic adjustment , 157-9 . See fers, 187-9 ; an d fiscal equity, 252. also investment See also economic adjustment; economic development ; fisca l adjust - Child care : foundatio n programm e for, 242-3; responsibilit y for , 245-6 , ment; fiscal equity 247 Amalgamation o f loca l government , Children's Ai d Societies , 86-7 , 167 , 231-3 204, 24 5 Assessment: lac k o f uniformit y in , 56 ; competitive under- , 56 ; equaliza - Civil War, American : stimulu s t o Mari time economy, 15 tion of , 71 ; equalized , 71-2 , 76 , 240, 248 , 250; effect o f far m con- Clark, Robert M., 216n solidation an d abandonmen t on , Climate, Nov a Scotian: 9 ; a n economic asset, 9 9 151; variation s in and fiscal equity, "The reade r wil l find it helpfu l t o us e th e analytica l tabl e o f content s an d th e list o f table s i n conjunctio n with thi s index , since , i n accordanc e wit h th e usua l practice, items already listed there ar e not listed in die index, with a few exceptions .

272

Index

Coal industry: loss of American markets, 18; subventions , 18-19 , 127 , 131; dependence o f province on , 19-20, 147; dominate s minin g i n Nov a Scotia, 97-8 ; pligh t of , 126-32 ; closures, 128-3 1 passim; subven tions propose d b y Roya l Commission, 129 ; criticism of public polic y towards, 130-2 ; specia l problem s of unemploymen t in , 138 ; declin e of, 147-8 . See also Roya l Commission on Coal Commission t o Investigat e th e Taxatio n System i n th e Cit y o f Halifax , 215-17 Conditional grants : résum é o f federal , 41-2; vs. unconditiona l grants , 189-94; i n province' s programme , 201-4; an d fisca l equit y criterion , 205; formul a fo r genera l services , 242-3 Confederation: blame d fo r economi c decline, 16 , 20 ; a benefi t t o Nov a Scotia, 21-2; distributio n o f powers in, 31-3 Cossor (Canada ) Limited , 15 2 County Incorporation Act , 51, 54 Crawford, K. G., 245n Cunard steamships , 17

internal, 157—9 ; i n primar y indus tries, 158 ; an d publi c services , 159-70; an d differentia l fisca l pressure, 181 ; unde r imperfec t competition, 181-2 ; proposal s for, 254-6. See also allocatio n o f re sources; economic development Economic decline, analysis of, 16-22 Economic development : relianc e o n interviews concerning , 6 ; regiona l disparities in , 33 ; possibl e avenues of, 139-42 ; likel y t o b e slow , 141-2; importanc e o f education to , 255. See also allocatio n o f re sources; economi c adjustmen t Economic growt h o f Nov a Scoti a compared wit h Canada, 22-30 Economic geograph y o f Nov a Scotia , 8-13 Economic history of Nova Scotia, 13-2 2 Education: genera l service , 57 ; pro vincial grant s for , 60; histor y o f finance of , 66-76 ; Commissio n on the Large r Unit , 67 ; an d Regional and Rura l Hig h Schools , 69 , 72 ; School Loa n Fund , 69 ; increas e i n uniform ta x burde n for , 75-6n ; revision o f equalize d valuation , 76 ; of labou r force , 108 ; an d alloca tion o f resources , 161-5 ; i n muni cipal budgets , 208 ; and economi c DEBT, NOV A SCOTTAN : interes t on , 4 4 improvement, 255 Defence: importanc e t o Halifa x area , Foundation Program , 70-6 , 91-2 , 11, 151-3 ; importanc e t o Nov a 204, 206-8 , 224-3 1 passim, 237, Scotia, 2 8 256; adjustment s in, 75-6 Democracy, importanc e o f stron g loca l See also Pettier Commission government i n maintaining , 256 Education Acts : o f 1864 , 1865 , an d 60 passim 1866, 66 ; o f 1955 , 74 Department o f Finance an d Economics : its programm e o f voluntar y eco- Egalitarian postulate: explained , 183-7 ; degree satisfie d i n Nov a Scotia , nomic planning, 14I n 219-22 Differential fisca l pressure : i n economi c Electric power, 9 8 adjustment, 18 1 Dominion-Provincial Conference (1945) , Emigration: an d populatio n growth , 22-3; fro m farms , 114 ; an d eco36n nomic adjustment, 143—4, 149; and Dominion Stee l an d Coa l Compan y educational level , 155n ; it s smal l (Dosco), 19 , 127-3 1 passim, 134, effect o n resource use, 15 8 136, 15 6 Duncan Commission . See Roya l Com - Equalized assessment , 234, 237, 242 Equalization: an d fiscal equity, 200-ln ; mission on Maritime Claims in provincia l policies , 201—4 ; ECONOMIC ADJUSTMENT : emigratio n and, Rowat and , 235; for loca l services , 143-4, 149 ; sociologica l impedi 241; a s i t relate s t o individuals , ments to, 143-6, 255; and declining 250-1. See also education ; fisca l communities, 146-9 ; in coa l indus adjustment; fisca l equity ; Pottie r try, 148 ; an d Scott-Buchana n de formula; Rowat , D. C. bate, 153-7 0 passim; external an d Equitable treatmen t o f unequals, 183-7

Index FACTOR MOVEMENT : an d publi c ser vices, 159-7 0 Farm Credi t Corporation , 112 Farm Improvemen t Loan s Act , 112 , 113 Farm Loa n Act, 113 Farm Loan Board, 112 Farm Loa n Settlement Board, 112 Federal grants . See conditiona l grants ; federal transfers ; subsidies , federal; unconditional grants Federal transfers : statutor y subsidies , 32-3; effec t o n allocatio n o f re sources, 33—4 ; numerou s revision s of, 32 , 34 ; unconditional , 32-41 ; conditional, 41-2 ; amoun t o f sinc e 1868, 42 ; thei r relativ e importanc e in federa l an d provincia l budgets , 42; thei r inadequac y t o achiev e fiscal equity , 43-4 , 176 ; an d National Healt h Plan , 77 , 78 ; fo r social welfare , 84—5 ; an d fisca l adjustment, 153-4 ; no t handouts , 178-9; redistributiv e effect s of , 221. See also conditiona l grants ; federal-provincial relations ; fisca l adjustment; taxation : collection , rental, sharing ; unconditiona l grants Federal-provincial relations : power s o f federal an d provincia l govern ments, 31-3. See abo federal transfers; fiscal adjustment Feed grai n subsidies, 117 Financial responsibility , doctrin e of , 189, 193 , 224, 248 Fire protection, 63 Fiscal adjustment : federal-provincial , 32-42; form s of , 60-1 ; b y mean s of differentia l taxation , 173n , 246-7; amon g unequals , 183-7 ; Rowat's recommendation s for , 231-9; using grants, 241-3; recom mended programm e of , 247-53 ; effect o n propert y values , 250 ; Alberta schem e of , 251 ; cos t o f programme of , 251-3 ; practica l intent of , 253 ; virtues o f proposal s for, 253 ; alternatives fo r achieving , 256; an d democracy , 256-60 . See also federa l transfers ; fisca l equit y Fiscal capacity : variation s in, 196 , 198, 222; inde x of , 205n , 214 , 239-40; and Rowat' s formula, 233—4; effec t of fisca l adjustment on, 25 2 Fiscal equity : an d traditiona l norm s of

273

public finance , 171n ; an d uncon ditional grants , 208-9 ; an d pol l tax, 219 ; and pe r capit a an d proportional grants , 235 ; an d equali zation, 200-ln Criterion: stated , 194-5 ; degre e me t in Nov a Scotia , 194-22 2 passim; and conditiona l grants , 205 ; de partures from, 211 Principle of : explained , 5-6 ; impor tance o f it s applicatio n a t provin cial-municipal level , 6 ; degre e o f implementation, for Nov a Scotia i n relation t o othe r provinces , 42-6 ; rationale an d implication s of , 171-80; applicabilit y a t provincial municipal level , 177 ; geographi c neutrality of , 180-2; an d imperfec t competition, 181-2 ; an d educa tional programme , 206-8 ; large r federal transfer s neede d t o imple ment, 219 ; an d Pottie r formula , 223-31; an d Rowat' s recommendations, 231-9 ; an d flat-rat e grants , 223-31; an d loca l services , 239 41; an d redistributio n o f functions or revenues, 243-6; implementation by differentia l taxation , 246-7 ; programme o f implementation , 247-51, 256 ; Albert a schem e of , 251; virtue s of , 25 5 Fiscal flexibility : lac k o f i n Nov a Scotia, 218-19 Fiscal relations , provincial-municipal : effect o n allocatio n o f resources , 4—5. See also fisca l adjustment Fiscal residuum : a s define d b y Buchanan, 172 ; redefined , 172 ; advantages of , 172-3 ; criticis m o f use of , 176-80 ; vali d us e of , 179; and redistributiv e effect s o f fisca l system, 184 ; an d fisca l equit y criterion, 195 Fiscal system : redistributiv e effect s of , 183-7, 219-22 ; virtu e o f simpli city of, 252-3 Fiscal transfers : an d allocatio n o f re sources, 187-9 . See also allocatio n of resources ; federa l transfers ; fis cal adjustment Fishing industry : principa l specie s o f fish an d thei r characteristics , 10 ; early economi c base , 13 , 14 ; hur t by competitio n an d othe r forces , 17; natur e of , 96 ; reaso n fo r lo w incomes in , 96n ; compared wit h

274

Index

British Columbia's , 96-7 ; descrip tion o f an d prescriptio n for , 121-7; longliners for , 122-5 passim, 156; draggers for, 122 , 123; rationalization of , 123-7 ; importanc e o f American tariff to , 125-6 Flat-rate grants : an d Pettie r formula , 73, 206 , 207, 223-31; an d fisca l equity, 223-31 ; an d politica l expediency, 231; for loca l services , 241 Forestry: competitio n fro m west , 17 ; nature of , 95-6; descriptio n o f an d prescription for , 119-21, 126-7 Forests: are a an d compositio n of , 9 ; depletion of , 17 Foundation Progra m (fo r educatio n i n Nova Scotia). See education Foundation programmes : fo r genera l services, 224-5 , 237 , 238, 242-3; for loca l services , 240 ; for educa tion in Alberta, 251 Freight rates : an d economi c develop ment, 94 , 99-101 ; horizonta l in creases in , 99-100 , 101 ; subven tions, 99-100 , 101 ; Roya l Commission o n Transportatio n and , 101; an d economi c development , 136-7. See also transportation GASOLINE AN D MOTO R VEHICL E REVE -

NUES: benefit element in , 22 0 General government, 61, 63 General services : distinguishe d fro m local, 56-8 ; an d economi c adjust ment, 146-7 , 149 ; local variation s in, 192-3 ; centralizatio n of , an d fiscal equity , 196 , 204, 208, 258; predominate i n rura l municipali ties, 205 ; foundation programme s for, 224-5 ; conditiona l grant s for, 242-3 "Golden Age," 14 , 20 Gordon, H . Scott : o n lo w income s i n fishing, 96 n Grand Falls, Labrador, 97n Grants: function s of , 194n ; failure o f per capit a an d proportiona l grant s to satisf y fisca l equit y criterion , 235; block , 237; in lieu of taxation, 247. See also fiscal adjustment Federal. See federa l transfers ; subsi dies, federal Provincial: fo r street s an d highways , 65-6; fo r menta l hospitals , 81-2 ;

for socia l welfare , 85; fo r adminis tration o f socia l welfare , 85-6 ; unconditional, histor y of , 87-91 . See also education ; fisca l adjust ment; fisca l equity , principl e of ; Pettier Commission Great Britain : earl y trad e wit h Nov a Scotia, 14 ; Nov a Scoti a concerne d by adoption o f free trad e by, 1 5 Gypsum, 98 HALIFAX CITY : remove d fro m Cunar d schedule, 16-17 ; burde n o f property ta x in , 45 ; publi c healt h programme of , 83 ; postwa r growth, 151 ; a n institutiona l base , 151-2; busines s ta x in , 211 , 21516; taxatio n in , 214-17 ; dua l ta x rate in , 214-17 ; househol d ta x in , 215; restricte d ta x bas e of , 216 17n; valu e o f residentia l propert y in, 217n ; and grant s i n lie u o f taxation, 247 Harriss, C . Lowell . See Shultz , William J. Health: a genera l service , 57 ; munici pal responsibilit y for , 77; an d allo cation of resources, 165-6 Highway poll tax, 91 Highways: sharin g o f cos t o f through towns, 65 ; benefi t elemen t i n financing, 220. See also roads Hospital Capital Fund, 80, 208, 246-7 Hospital care, 165-6 Hospital Insurance Act, 78 Hospital Insuranc e Plan : descriptio n of financin g of , 77, 78-9; and sale s tax, 22 0 Hospitals: constructio n costs , 78-9; pe r capita lev y for , 80 , 208 , 246-7. See also Hospita l Capita l Fund ; mental hospitals Hospital Tax Act, 78-9 Howland, R . D., 95-6 , 100 , 102, 104n , 107-8, 109, 143n, 155n IMMIGRATION: i n eighteent h an d nine teenth centuries , 14 , 15 Income pe r capita : lo w compare d wit h Canadian, 3, 22, 24-5, 27, 115-16; variations in , 33—4 , 182-3 ; reasons for lo w leve l of , 93-14 2 passim, 254; persistenc e o f difference s in , 175 Individualistic vs. organi c theor y o f the state , 171- 2

Index Industrial Development Bank , 111, 113 Industrial Estates Limited, 111-1 2 Industrial Loan Board, 111 Insurance premiums, tax on, 38 Intercolonial Railway : failur e t o pro vide markets , 17 , 18 ; adjustmen t of freigh t rate s t o compensat e fo r uneconomic route of, 99 Investment: Nov a Scotia n compare d with Canadian , 24-5 . See also capital Iron an d stee l industry : developmen t and difficultie s of , 18-20 JAILS AN D LOCK-UPS , 64 . See also prisoners Johnson, R. S., 121n Joint expenditure, 56 Justice, administratio n of, 245-6, 247 LABOUR: mobilit y of , 22 ; surplu s of , 139—41; appropriat e movemen t of , 157-9 force: characteristic s of , 102-9 ; educational leve l of , 108 ; emi gration o f productiv e element s of , 155; weighte d b y unskille d an d semi-skilled, 155 Lancaster, R. K. See Lipsey, R. G. Law enforcement, 63 Levitt, Kari, 105n, 155n, 163-4 Lipsey, R . G . an d Lancaster , R . K. , 182-3n Liquor profits: compare d with othe r provinces, 44-5 ; redistributiv e effects of , 220-1 Local autonomy , effective : an d fisca l transfers, 260 Local government : developmen t an d organization of , 51-6; an d democ racy, 256-60 Local Hospitals Act, 77 Local services : distinguishe d fro m general, 56-8 ; an d industria l de velopment, 99-101 ; unconditiona l grants for , 192-3 , 208-9 , 242-3 ; and benefi t principle , 209-11 ; re lation t o propert y taxation , 210-11; an d fisca l equity , 239-4 1 Location: Dosco , 156 Location theory: Buchana n and, 154-5 Lock-ups. See jails Louisburg: failur e o f fis h plan t ther e to attrac t labou r force , 124 ; an d restoration of fortress, 13 0

275

MANUFACTURING: natur e of , 11 ; divi sion int o primar y an d secondary , 28; smallnes s o f firm s in , 110 ; nature of, 134- 6 secondary: an d emulatio n o f Swit zerland, 102 , 137 , 156 ; prospect s of, 136-42 ; locationa l disadvan tages of, 137- 8 Marginal productivity : o f labou r an d capital, 155- 9 passim, 255-6 principle: implications , 149-50 ; applicability t o Halifax , 152-3 ; and optimu m allocatio n o f re sources, 180-2 Maritime Freigh t Rate s Ac t (1927) , 99, 101 Maxwell, T . A., 41n, 189n, 233n Mental hospitals : described , 80-1 ; responsibility for , 81-2; provincia l grants for , 81-2 , 205 ; effec t o n allocation o f resources , 165-6 ; foundation programm e for , 242; centralization of, 245-6, 247 Mersey Pape r Company : favourabl e situation of , 134 ; sociologica l effects of , 14 5 Mill, Joh n Stuart : definitio n o f direc t tax, 34 Minerals: principal types , 10 Mining: nature of, 97-8 Mobility: impediment s to, 143-6 Moore, A. M., 121n, 212n Morse, Norma n H. : o n benefi t fro m Confederation, 21n ; o n sectora l analysis, 28 Motor vehicle user taxes, 218, 239 Municipal Act, 54, 55 Municipal government : large r unit s recommended by Rowat, 231-3 Municipalities: developmen t an d or ganization of , 51-6 ; creature s o f provincial government , 54 , 192 ; weakness of , 58 ; Hospita l Capita l Fund, 80 , 208 , 246-7 ; flexibilit y of, 25 6 Rural: boundaries of, 51; development of, 51-6 ; far m abandonmen t in , 151; importanc e o f genera l ser vices in , 205 ; an d villag e commissions, 241 ; eliminatio n of , b y centralization, 258 Municipalities' Highwa y Tax , 34n, 56, 91 Municipal proportion, 206-7 Municipal Schoo l Fund, 66, 89

276

Index

Municipal services: variation s in, 195 Municipal units : locatio n an d popula tion, 52-3 NATIONAL HEALT H PLAN, 77, 7 8 National Policy : blame d fo r economi c decline, 16 , 20 ; described , 18 ; effects o n Nov a Scotia n economy , 18-26 Natural resources: taxatio n of, 45; little revenue fro m i n Nov a Scotia , 48 ; paucity of , 93 , 102 , 158; effec t o f inferior, 109 , 110, 113 Newfoundland: earl y trad e with , 14 ; languished when on its own, 22 Nova Scotia Hospital, 80, 91 Nova Scotia Pulp Limited, 147 Nova Scotia Teachers' Union, 75 OCCUPANCY TAX , 213-14

Organic vs. individualisti c theor y o f the state , 171- 2 PAHKS, A. C., 14 0 Per capita comparisons : pitfalls of, 24 Per capit a lev y fo r hospitals , 80 , 208, 246-7 Perry, J. H., 36n, 41n, 42, 212 Personal property : difficul t t o assess , 212-14 Personal propert y tax : suggested aban donment of , 213-14, 249. See also poll tax Pigou, A. C., 4n, 17 2 Point Tupper, pul p mill, 120, 146 Police protection, 63 Poll tax : highway , 91 ; i n lie u o f personal propert y tax , 212, 214; 21718; relative importance of, 217 Poor Relie f Act : based o n Elizabetha n poor law, 84, 92 Population: current , 8; growth of, 22-3 Pettier Commission : appointmen t of , 70; basi s o f recommendation s of , 70; description of proposed Foundation Program , 70-6 ; equalizatio n of assessment , 71; uniform ta x burden, 71-2 , 73 ; allocatio n o f cost s of education , 71-5 ; partnershi p ratio, 72 ; provincia l proportion , 72; municipa l proportion , 72 ; school sections , 73 ; implementa tion o f repor t of , 73-6 ; 2 5 pe r cent minimu m grant , 73 , 206 , 207, 223-31 ; assessmen t o f pro perty, 212-14 . See also educatio n Pettier formula : modified , an d fiat-rat e

grants, 207 , 223-31 ; an d fisca l equity, 223-31 ; unsuitabili y fo r local services , 224 ; modified , fo r general services , 224-5 ; modified , and Rowat' s recommendations, 237 Pettier Report, 212n Prisoners, 245-6 , 247 . See also jail s and lock-ups Productivity: o f labou r force , 102-9 ; opportunities fo r increasing , 142 ; and rationalizatio n o f primar y industries, 156- 7 Property: inadequac y as tax base, 5 Taxation: provincial , 34 , 56 ; Cit y of Halifax, 45 ; an d educationa l fin ance, 66-7 6 passim; elemen t o f benefit in, 209-11, 216; importance of, 211-12 ; redistributiv e effect s of, 221 ; industrial an d commercial , 249; collectio n of , 250 ; impedi ment t o industry , 252 . See also Puttier Commission Values: effec t o f fisca l adjustmen t on, 250 Prosperity: basi s o f early , 14-16 ; waning of, 16-22 Provincial grants. See grants, provincial Provincial-municipal fisca l relations : policy o f province , 200 . See also fiscal adjustment Provincial proportion, 206-7 Public health : responsibilit y for , 83—4; effect o f o n allocatio n of resources , 165-6 Public services : elemen t o f coercio n in , 177n Pulp an d pape r industry : developmen t of, 1 7 RAILWAY CONSTRUCTION : facto r i n pros perity, 1 5 Rationalization o f primar y industries : compared with Buchanan's analysis, 156-7 Real property: assessmen t of, 212 Reciprocity Treat y (1854-66) : a s factor i n prosperity , 15-16 ; abroga tion of, 1 5 Redistributive effect s o f Nov a Scotia n fiscal system, 219-22 Relief: foundatio n programm e for, 242 "Required expenditure" : i n Rowat' s formula, 236-7 Resources: facto r i n economi c retarda tion, 20-1 . See also allocatio n o f resources; economi c adjustment

Index Retail sales : compare d wit h Canadian , 27 Revaluation Commission, 199 Revenue Provincial: source s of , 35 ; compare d with othe r provinces , 43-7 ; possible additiona l sources , 219 Sources: assigne d b y Britis h Nort h America Act, 32-3 See also taxation Rivers: nature of, 9 Roads: provincia l responsibilit y for , 55, 64-5 ; an d allocatio n o f re sources, 159-61 ; an d fisca l equity , 197 Rowat, D . C. , 58n , 212n, 223, 231-9, 257 Royal Canadia n Mounte d Police : an d police protectio n i n municipalities , 63 Royal Commissio n on Canada' s Econo mic Prospects , 115-1 6 Royal Commission on Coal, 128-30 Royal Commissio n o n Dominion-Pro vincial Relations : recommenda tions of, 35-6 Royal Commissio n o n Financia l Ar rangements between th e Dominio n and th e Maritim e Province s (White Commission), 35-6 Royal Commissio n on Maritim e Claims ( Duncan Commission ) , 35-6 Royal Commissio n o n Publi c Schoo l Finance. See Pottie r Commissio n Royal Commissio n o n Rura l Credit , 112, 114-1 5 Royal Commissio n o n Transportation , 101 Rural municipalities. See municipalities , rural SALES TAX : provincial , 34-5 ; Nov a Scotian compare d wit h othe r provinces, 45 ; Premie r Stanflel d on , 78-9, 220n ; an d Hospita l Insur ance Plan, 220 Saunders, S . A. : o n economi c history , 13n; o n Reciprocity, 1 5 Scenery an d climate : economi c asset s of, 9 9 School sections, 54, 73 Shultz, Willia m J. , an d Harriss , C . Lowell, 210n, 21 In, 212n Scott, A . D. : debat e wit h Buchanan , 153-70 passim; fiscal transfers and allocation o f resources , 187-9 ;

277

effects o n provincia l welfar e o f federal conditiona l an d uncon ditional grants , 189-90 ; summar y of assessmen t o f hi s theory , 255- 6 Sectors, economic : Nov a Scotia n compared wit h Canadian, 28-30 Service industries: importance of, 28 Services: separatio n o f loca l an d general, 202-5 . See also genera l services; local services Shared taxes, 243-4 Shipbuilding: importanc e i n nineteent h century, 14 Shipping: rôl e in early prosperity, 1 4 Simons, Henry C., 256-7 Social assistance , 168-9 , 205 . See also welfare Social capital: los s of, 149-50 Social welfar e services : an d allocatio n of resources , 166-9 . See also welfare Sociological impediment s t o economi c improvement, 143-6, 255 Soil, quality of, 9 Spengler, Edwar d H., 210n Springhill: effect s o f min e disaster s on , 128, 14 8 Stabilization payments, 39 "Standard expenditure " fo r loca l ser vices, 240, 242 Stanfield, Premie r R . L. , 78-9 , 81n , 220n Steamships: and economi c decline, 1 6 Streets: lightin g of , 63 ; grant s for , 65, 209, 238-9 Subsidies Federal: development s sinc e Con federation, 35—42 ; argumen t fo r giving t o industry , 139—40 . See also conditiona l grants ; federa l transfers; fisca l adjustment ; uncon ditional grants Provincial: fo r declinin g towns , 146-9 Subventions, freight, 99-100, 101 Switzerland: compariso n with , 102 ; emulation of, 137, 156 TARIFF: effec t o n Nov a Scotia n eco nomy, 20; effec t o f America n tarif f on fishing industry, 125-6 Taxation: federal an d provincial power s of, 32 , 33 ; federal-provincia l shar ing o f majo r field s of , 35 ; o f insurance premiums , 38 ; natur e o f burden of , 44n ; relativ e burden o f

278

Index

in Nov a Scotia , 44-5 ; provincial municipal sharin g of , 90-1 . See also individua l taxes ; revenue , provincial Differential: mean s o f effectin g fisca l adjustment, 173n , 246-7 Municipal: descriptio n of , 173n , 211-14; possibl e ne w base s of , 218, 243; shared bases , 243-4 Tax collectio n arrangement s ( 1962-3 to 1966-7) , 39-41. See also fede ral transfers Tax renta l agreements : (1947- 8 t o 1951-2), 36-7 ; (1952- 3 t o 1956-7), 37 , 41 . See also federa l transfers Tax-sharing arrangement s ( 1957-8 to 1961-2) : descriptio n of , 37-9 , 41; stabilizatio n payments , 38 ; discussion of , 39; degre e o f equalization in , 43 ; implie d principl e of , 43. See also federal transfers. Tidal power, 97n, 98 Topography o f Nova Scotia, 8 Tourist industry : mai n attraction s of , 11; weakness of, 132-3 Towns, declining, 15 8 Towns' Incorporation Act , 51, 54, 55 Transportation: facilities , 11-12 ; a basic problem , 12-13 ; impedi ments to , 21 ; hig h cos t of , 28 ; large expenditur e i n Nov a Scotia , 49; Roya l Commission on, 101. See also freight rates

Treaty o f Paris (1763) , 13 Tuberculosis care, 76, 77, 78, 91 UNCONDITIONAL GRANTS : federal , des cription of , 32-41 ; histor y o f provincial, 87-91 ; «s . conditiona l grants, 189-94 ; type s o f i n Nov a Scotia, 201 ; present basi s indefen sible, 208-9 ; an d loca l services , 208-9, 224 , 239-41 , 242-3 ; fo r streets, 209 ; Rowat i n defenc e of , 234-5n Unemployment Assistance Act, 42, 84-5 Unemployment insurance , 58 , 124 , 145, 167-9 United Empir e Loyalists : effec t o n economic development, 1 4 VARIATIONS IN MUNICIPAL SERVICES , 19 5

Vertical equity, 183- 7 Victoria General Hospital, 76, 83 Village Commissions, 54, 240-1 Village Service Act, 54

WELFARE: a s a genera l service , 57-8 ; responsibility for , 84-6; foundatio n programme for, 242-3. West Indies: early trade with, 14 White Commissio n (Roya l Commissio n on Financia l Arrangement s be tween th e Dominio n an d th e Maritime Provinces), 35-6 Woodlots, 115 Wood-wind-water economy , 14 , 16

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