FLOOD VICTIMS…FOOD FOR THOUGHT
How much does the flood recovery spending estimate of $25 million really cost the province?
Here’s a little math primer you might find of interest….
The Disaster Finance Assistance program is a federal/provincial funding arrangement for cost sharing the cost of disasters. The formula is as follows:
For the first $1.00 per capita the province pays 100% and the feds pay 0%;
For the next $2.00 per capita the province pays 50% and the feds pay 50%;
For the next $2.00 per capita the province pays 25% and the feds pay 75%;
For the remainder, the province pays 10% and the feds pay 90%.
The government estimates the 2012 flooding disaster cost to be $25,000,000. This seems like a lot of money but if you do the math as above and assuming a New Brunswick population of 750,000 people, the actual cost to the province of this program is only $4,000,000…the federal government picks up the rest! Go ahead, check my math. I am quite sure I got this right!
Following through on these calculations, a $50 million program would cost the province a mere $6.5 million (that’s because anything above $3.75 million in program expenditure only costs the province 10 cents on every $1.00 spent…an extra $25 million costs the province an extra $2.5 million).
Doesn’t this seem like an incredibly small amount of money to fix a real tragedy? Remember, it’s your tax dollars at work!
But wait! There is additional net savings…..how will this assistance money be spent? Well, I expect it would be spent on building supplies, appliances, contractors, etc….all goods and services that attract HST. The HST in New Brunswick is 13% of which 5% is the federal GST and 8% is the provincial PST.
So on $25 million the provincial government gets back immediately $2 million in its share of the HST (8% of $25 million) reducing the net cost to the province to $2 million (the $4 million cost less the $2 million in tax collected). On a $50 million program, the net cost to the province would be $2.5 million. And of course at either expenditure level the circulation of that money in the economy creates much more employment, business profits and subsequent tax revenue for the province (refer to the economic theories of John Maynard Keynes and others). In reality, at the end of the day, funding these programs on this federal/provincial cost basis essentially costs the province next to nothing. And remember, what they do spend are our tax dollars!
Why then, are we being nickled and dimed to death? I just don’t get it.
Al McPhail
Chair
Flood Victims Committee
