Nova Scotia, Fracking and Transfer Payments

By: Frank Atkins, Business in Calgary Magazine

Before he became a senator, Mike Duffy was the host of a news television show on the CTV network. I was a guest on that show, and Mr. Duffy asked me a question about equalization. I responded that the system of transfers that we generally refer to as equalization is not consistent with the efficient running of the economy. When Mr. Duffy, asked me why, I responded that equalization was like having your 25-year-old son living in your basement rent-free. There was no incentive to get a job and no incentive to move out and become a productive member of society. Mr. Duffy's reaction was somewhat akin to wondering how someone with so much education could have such weird ideas.

I was reminded of this recently, when the government of Nova Scotia officially banned hydraulic fracturing, commonly known as fracking. A lot of people think of fracking in the same manner that they think of the oilsands, as dangerous, dirty and generally destroying the environment. Fracking has the added problem that it is alleged to contaminate drinking water. The problem is that there is no proof of these claims. Fracking has been around for many, many years and I am not aware of any credible claim that it has harmed drinking water. Given the number of years that fracking has been used, I find it curious that it is only recently that the environment movement has decided fracking is bad.

This sort of rhetoric is typical of the manner in which organizations such as Greenpeace and the World Wildlife Fund view the oil and gas industry. Generally speaking, the environmental movement never lets the facts get in the way of a good argument. Just so that we understand who the players are here, it is worth noting that the Nova Scotia government that banned fracking is a Liberal administration. Next door to Nova Scotia in New Brunswick, there is an election where the Conservatives are running against the Liberals on a pro-fracking platform. Finally, Liberal leader Justin Trudeau's principal adviser is Gerald Butts. Before joining Mr. Trudeau, Mr. Butts wasthe president and CEO of the World Wildlife Fund Canada. We should pay attention to this in the next federal election.

The fact that there is no scientific basis for the claims against fracking is just one of the problems with the Nova Scotia decision. The major issue here is the hypocrisy that is involved in this decision. Nova Scotia is a recipient of a large amount of transfer payments. Nova Scotia has the opportunity to develop industries, and to create jobs and wealth through using fracking and selling natural gas. This would lead to Nova Scotia ending its dependence on transfer payments. Instead, it has chosen to continue to survive by receiving transfer payments. Here is the hypocrisy. These transfer payments generally come from the western provinces, who make money from using fracking techniques. Apparently, it is all right to receive money from other provinces that use fracking, as long as Nova Scotia does not use fracking itself.

It seems to me that Nova Scotia is the 25-year-old son living in the basement. Because of transfer payments, there is no incentive to get out of the basement and become productive members of the Canadian economy.

Frank Atkins is an Associate Professor of Economics at the University of Calgary, a senior fellow at the Frontier Centre for Public Policy, and a member of the Advisory Board of the Institute for Public Sector Accountability. 

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