Coast-to-coast subsidies trap rural Canada

Lawrence Solomon
National Post
June 29, 2001

The average rural resident receives 50% more in welfare, employment insurance, old age security and other government transfers than he pays in taxes, Statistics Canada reports. The gap between taxes paid and cash transfers is even greater for the average resident of small towns – those with populations less than 30,000. But the gap closes fast for the average resident of larger communities. For cities with more than 100,000 people, the gap narrows to about 15%.

These StatsCan findings, startling though they may be, do not begin to measure the extent to which the lifestyles of rural and small town residents are unsustainable. Unlike residents of large cities, who typically pay fully for many of the public services they receive, rural and small town residents tend to be heavily subsidized across a wide array of big-ticket items.

Throughout Canada, small town residents receive water service at a fraction of its full cost, thanks to provincial taxpayers, most of them urbanites, who pay up to 90% of the capital cost of small town water works. In large cities like Toronto and Vancouver, residents pay the full cost of their water service. When urban taxpayers don’t pick up the bill for rural services, urban consumers generally do. Bell Canada and other telephone companies are required by law to overcharge their city customers for the benefit of their rural customers. This year, this hidden overcharge of customers in metropolitan areas amounts to $1-billion. In electricity, provincial laws stipulate that city customers be overcharged to keep prices down for rural residents. So, too, with natural gas pipelines, with cable service, with almost every infrastructure service that’s extended into low-density areas.

In variations on these schemes, the government directs Canada Post to overcharge city customers for the benefit of rural ones, and Air Canada to provide service to unprofitable, small city destinations by allowing it to extract monopoly fares along lucrative routes between big cities.

The enormity of the subsidies propping up rural and small town residents is rivaled only by the enormity of subsidies buttressing businesses in these areas. None of the figures above, for example, include the staggering subsidies provided to farmers, the single biggest drain on the country’s productivity. According to a study released yesterday by Urban Renaissance Institute, for every dollar of profit that farmers earned over the last decade, the federal and provincial governments provided $3.76 in subsidies. Ontario’s agricultural sector received $6.60 in subsidies for every dollar in farm profit, much of it paid by the province’s urban consumers in the form of higher prices for basic foodstuffs such as milk, eggs and cheese. Canada’s other resource-based rural industries – forestry, fishing and mining – are also heavily subsidized drains on the nation’s economy. Industries in the metropolitan areas, on the other hand, tend to be profitable, and provide some of the subsidy money that governments ultimately transfer to the low-density areas.

But most of the cost of carrying our unsustainable rural and small-town economy is borne by the residents of the large urban and suburban centres, whose sizeable middle-class and affluent populations, with their correspondingly high tax brackets, pay a whopping two-and-a-half times as much in taxes as they receive in transfers.

Canada’s rural areas need not be economically unsustainable – they have been turned into welfare dependencies only because of past government policies that artificially overpopulated our hinterlands. The inherently productive farmland close to lucrative urban markets needs no subsidies; not so the country’s marginal agricultural lands, which governments everywhere artificially brought into production at great economic and environmental cost.

Governments squandered the rural areas’ mineral wealth through mining policies that discriminated against high-grading – scooping out the profitable, easy-to-obtain ore and leaving behind the trace elements that typically can only be obtained through low-grade rock-crushing exercises. As a result, the profitability of mining plummeted and the environment is plagued with a vast legacy of mine tailings amid unsustainable mining towns. The government’s bias against high-grading resources also led to the razing of many forests, when any profit-oriented logger would have preferred selective logging – plucking the few valuable species and preserving the rest. There’s money to be made in the rural areas – and even with the government’s counterproductive policies, a remarkable number have been making it – but the land base can only support so many. Cities thrive at high densities; rural areas founder.

Those trapped in rural poverty – many of them elderly, or nearing the end of their working lives – should not be abandoned by governments, but neither should governments trap a new generation on a land base that can’t support them. To stop overpopulating rural areas further, the federal government can start by ceasing unproductive new investments designed to discourage migration to the cities, such as yesterday’s task force proposal for a $4-billion scheme to bring broadband Internet service to low-density communities. And provincial governments can cease trying to defy nature, such as Alberta Premier Ralph Klein’s recently announced $93-million in drought relief designed to maintain unsustainable farming practices in the semi-arid Prairies.

Governments can then finish the task of reviving the rural areas by phasing out existing subsidies to rural industries, putting the rural economy on a sound footing and allowing the rural and small town populations to find their natural level.

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