David Clinton
How would provinces and cities survive if the federal government collapsed?
How Resilient Are Canadian Provinces?
Suppose one fine day the federal government was unable to show up for work. Perhaps it wasn’t feeling well. Or maybe it had borrowed so much money that it maxed out its line of credit, defaulted on its interest payments, and just couldn’t pay its bills. What then?
Let’s say – and I’m just spitballing here – let’s say that exploding, uncontrolled public debt is a bad thing. All the smart people tell us that taking on too much credit card debt won’t end well, right? Well I can’t think of any solid reason that such logic shouldn’t also apply to governments.¹
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As you can see from the graph, our federal public debt climbed from $351 billion in 1990 all the way to $884 billion in 2024. The 50 percent leap between Q4 2019 and Q4 2021 was the generous gift of COVID. Things started to recover in mid-2023, but they’ve since nose dived once again.
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Ah, but that’s just debt you say. It’s someone else’s problem.
Not exactly. You see, even if we’re not paying down the principle on the debt, you can be sure that we’re covering interest payments. Which, it just so happens, have become a lot more expensive ever since massive government borrowing drove up interest rates.
How much more expensive? As of Q1 2024, our annual interest payments totaled $11.7 billion, compared with $6.2 billion back in Q1 2022. Put differently, the interest we pay each year comes to seven percent of our total federal budget.
I’m certainly not going to confidently predict that the federal government will soon default on interest payments, lose access to capital markets, and begin laying off government workers and shutting down services. But I wouldn’t say that it can’t happen either.
Given that possibility, what can provinces and cities do right now to prepare for a sudden (hopefully brief) disruption? First off, though, what exactly is a province?
As defined by the British North America Acts, areas of the exclusive responsibility of the federal government include:
- Public debt and property
- Regulation of trade and commerce
- Criminal law
- Militia, military and naval service, and defense
- Navigation and shipping
- Banking, incorporation of banks, and the issue of paper money
- Bankruptcy and insolvency
- Naturalization and aliens
- Unemployment insurance
Provinces are responsible for:
- Property and civil rights
- Administration of justice (including policing)
- Municipal institutions
- Education
- Health and welfare
- Natural resources
So a short-term federal disruption might not have much of an impact on most Canadians’ day-to-day activities. Federal employees and UI recipients would have to figure out how to survive without their paychecks and border entry points would shut down. But great news! Your criminal prosecution can go ahead on schedule because, while criminal law is controlled by the feds, lower criminal courts are provincial.
On the other hand, consider how federal transfers contribute between around 15 percent (Alberta) and 40 percent (Atlantic provinces) of provincial budgets. And Toronto’s municipal budget, for instance, includes around 15 percent in transfers from the province, and another five percent from the federal government. So it wouldn’t take long before all levels of government begin to feel the heat.
I’m not suggesting we change Canadian federalism (good luck trying). But a province that’s reduced or eliminated its own budget deficit and successfully weaned itself from incoming federal transfers would probably enjoy a smoother trip through a shutdown. Exploring the legality of temporarily taking over the payroll for critical federal roles (like Border Services), for instance, might also pay dividends when push came to shove.
I would suggest that thinking formally about these issues would be an important part of any government’s emergency planning preparedness. Yesterday was the best time to start. But today is the next best option.
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The Empire Statue Building was, for its time, monumental. The New York landmark may not be such a big deal these days, but its construction history in often invoked as a sign that we’ve lost the capacity to do big stuff.
After all, the iconic skyscraper’s builders brought the project to completion $19 million under budget, 12 days ahead of schedule, and in just over a year.
At the height of the depression.
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By contrast, California’s High-Speed Rail project – designed to ultimately link San Diego with Sacramento – was authorized in 2008. Construction on Phase 1 didn’t being until 2015. As of now, $11.2 billion has been spent without a single train having left a single station. The total budget was originally in the $33-40 billion range, although it’s now anticipated to run past $128 billion. And no one’s expecting project completion any time in the next decade.
Closer to home, we can compare the original 7.4 kilometer Yonge Line of Toronto’s subway system (fully-functional by 1954 after just five years’ work) with its grandson, the Eglinton Crosstown LRT. The Eglinton line was announced in 2007, work began in 2011 and, 13 years later, completion is still nowhere in sight. Since I live just a few blocks from what might one day become an LRT station, I’ll be sure to let you know if anything changes.
In the grand scheme of things, North America might not even have it so bad. Lately, everyone (and by “everyone” I mean everyone besides my wife, children, or even a single person I have ever met) has been buzzing about a 17,000-word article called “Foundations: Why Britain Has Stagnated”. I strongly encourage you to read the whole thing have ChatGPT summarize it for you.
The main takeaway from Foundations is that the UK’s excessive regulations, high energy and labour costs, bureaucratic delays, and outdated tax incentives led to an application process requiring 360,000 pages and nearly £300 million for the Lower Thames Crossing project before any work was even approved!
The rot that lies behind Britain’s paralysis has been building since the 1990’s, through both Conservative and Labour governments.
But things might not be so bad here at home. For one thing, we probably don’t have a regulatory bureaucracy that’s quite so extreme as Britain’s. I’m aware of nothing in Canada that’s analogous to the UK’s “nutrient neutrality” requirements.
And while our energy costs are certainly not cheap, they’re a whole lot better here than in the UK. Commercial electricity, for instance, costs an average of USD 0.117 per kWh in Canada, far below the USD 0.485 per kWh they’re paying in the UK. And the cost of natural gas for home heating in Canada (USD 0.038 per kWh) isn’t even close to what they shell out across the pond (USD 0.092 per kWh).
Which might at least partially explain why, despite all the delays, cost overruns, and unexpected service failures involved, some major infrastructure projects have reached a (broadly) happy conclusion.
For every expensive failure (like the Eglinton Crosstown LRT or the Ottawa Confederation Line), there have also been successes (like Confederation Bridge and Vancouver’s Canada Line). Things are far from perfect, but it’s not all doom and gloom either.
The Foundations article ends on a positive note:
We believe that Britain can enjoy such a renewal once more. To do so, it need simply remove the barriers that stop the private sector from doing what it already wants to do: build homes, bridges, tunnels, roads, trams, railways, nuclear power plants, grid connections, prisons, aqueducts, reservoirs, and more.
Removing barriers. Or even better, resisting the erection of new barriers before they’re in place. We can always hope.
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It turns out we move a great deal less than our American neighbors
Government policies have consequences. Among them is the possibility that they might so annoy the locals that people actually get up and head for the exit. Given how parting can be such sweet sorrow (and how it’s a pain to lose out on all that revenue from provincial income, property, and sales tax), legislatures generally prefer to keep their citizens on this side of the door.
Nevertheless, migration happens. And when enough people do it at the same time, they sometimes leave economic and social clues behind waiting to be discovered. This graph represents net migrations since 1971 into and out of the four largest provinces:
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It may just be possible to make out some broad patterns here. Quebec has never had a net inbound migration year (although there’s been plenty of immigration to Quebec from outside of Canada). But nothing matches the mass exodus of anglophones due to concerns over language and separation in the 1970s.
Curiously it seems that Alberta and British Columbia received far more migrants than Ontario around that time – although the actual numbers tell us that they were more likely to have come from Saskatchewan and Ontario than Quebec. By contrast, most disillusioned Quebecers found their way to Ontario. Besides the 70s, Alberta also enjoyed inbound spikes in the mid-90s, mid-00s, and early 10s. And it looks like they’re in the middle of another boom cycle as we speak.
The real value of all this data however, is in using it to test causation hypotheses. In other words, can statistical analysis tell us what it was that caused the migrations? And are some or all of those causes the result of government policy choices? Here are some possibilities we’ll explore:
- Household income trends
- Government debt
- Crime rates
- Healthcare costs
- Housing costs
Right off the top I’ll come clean with you: there’ll be no smoking gun here. I could find no single historical measure that came close to explaining migration patterns. However I was able to confidently discard some theories. That’s a win I guess. And other numbers did hint to intriguing possibilities.
Inter-provincial variations in household income, crime rates (specifically murder rates), healthcare costs (including prescriptions, eye care, and dental care), and even housing affordability had no measurable impact on migration. This was true for both correlation coefficients and lag analysis (where we looked at migration changes in the years following an economic event).
Rising unemployment had, at best, a minimal impact on outbound migration. And even then, it was only noticeable for Alberta and Prince Edward Island.
Of all the metrics I explored, the only one that might have had a serious influence in migration was provincial government budget deficits.
Folks from Alberta, New Brunswick, and Newfoundland all responded to growing government debt by clearing out. Now, I doubt this was their way to telling the government what they really thought about bad fiscal management. Rather, people probably decided to move to greener pastures in response to the ripple-effect consequences of deficits, like higher taxes, reduced social services, and deteriorating infrastructure.
I suspect that part of the reason I wasn’t able to find any strong connections between those metrics and migration patterns is because there really isn’t all that much migration going on in the first place.
Take Ontario’s record net population loss of 31,018 residents back in 2021. That may sound like a lot of people, but it’s actually just a hair over two-tenths of one percent of the total Ontario population. And even Quebec’s epic 1979 loss of 46,429 people was still nowhere near one percent. It was 0.7117456, to be precise. Those aren’t significant numbers.
When so few people choose to move, it’s probably because there’s nothing on the macro level going on that’s pushing them. Those who do go, probably do it primarily for personal reasons that just won’t show up in population-scale data.
There’s also the very real possibility that Canadians are smart enough to realize that things probably won’t be any better over there than they already are right here. Fewer than two-thirds of one percent of Ontarians left for other provinces in 2023, while only around one-third of a percent gave up on Quebec.
By contrast, annual state-to-state migration figures in the U.S. typically range between 1 percent to 5 percent of each state’s population. In 2022, that added up to 8.2 million people, according to the Census Bureau.
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