Lorne Gunter, National Post
As I have argued in this space on several occasions, Canada’s equalization program is a scam — not one perpetrated by the people of have-not provinces (although as voters they do tend to favour politicians who fight for more), but rather one sustained by the governments of have-not provinces and by vote-cadging federal politicians.
While there is no longer any real need for it, each year the equalization pie gets bigger and bigger.
Today, every single have-not province is richer than Alberta was when it achieved “have” status in 1964 — every one. Yet equalization formulas have been so distorted (and detached from real need) that it is all but impossible for a province to be cut off. As well, annual cash deliveries from Ottawa are scheduled to increase no matter how strong regional economies are.
In his 2000 book, Retreat from Growth, researcher Fred McMahon revealed that payments made by Ottawa to have-nots from 1971 onward have been “rare, perhaps unique” for “any region or nation.” No other region in no other country (with the possible exception of Corsica and parts of southern Italy) have received so much for so long from the wealthier parts.
And the effects have been devastating.
The Atlantic economy, for instance, which had been growing faster than the rest of Canada’s through the 1960s, came to a screeching halt in the 1970s when the Trudeau government began transfers, equalization and other subsidies in earnest.
It is also perhaps no coincidence that Quebec is both the most indebted province and the biggest recipient of equalization.
Why wouldn’t Quebec’s provincial government routinely overspend when it knows federal politicians eager to buy votes there can always be counted on to up the annual money shipment?
Now along comes a study showing that equalization is even richer than believed, and more distorting.
Halifax’s Atlantic Institute for Market Studies, says in “Why some provinces are more equal than others,” that on a dollar-for-dollar basis, equalization looks to be working as intended.
It raises the revenue-generating potential of the six have-nots to $6,200 per capita, while leaving the four “haves” — Ontario, Saskatchewan, Alberta and B.C. — with “a small advantage in spending capacity.”
But as Brian Lee Crowley, AIMS irrepressible president points out with extraordinary common sense, “the cost of delivering public services varies from province to province.” So why should equalization seek to raise each have-not to the same dollar level?
A house in Calgary costs 70% of what one in Toronto costs and half of one in Vancouver, but more than double what one goes for in Charlottetown, Moncton or St. John’s. The cost of living on the West Coast and central Ontario is 25% higher than it is in Montreal or Saint John, so why should the equalization scheme treat each dollar it transfers as though it bought the same level of services in each jurisdiction?
Mr. Crowley and co-author Bobby O’Keefe calculate that if equalization is looked at on a purchasing-power basis, only Alberta among the “haves” retains more financial powerful than the “have-nots.”
Ontario becomes only the eighth richest province when differences in what a dollar will buy are considered, down from second place by Ottawa’s tallying.
Quebec becomes the poorest, with B.C. in ninth. P.E.I., New Brunswick, Nova Scotia, Manitoba and Newfoundland become, in order, the second, third, fifth, sixth and seventh strongest provinces in terms of their ability to spend on social programs. Hardly “have-nots.”
The situation will become even worse if Ottawa carries through with the recommendations of the Expert Panel on Equalization that recently released its prescription for fixing the scheme in May.
The panel recommends making equalization richer still. Were that to happen without Ottawa taking into account the disparate cost of providing services across the country, Ontario would be left “with the lowest effective fiscal capacity of all provinces.” Alberta would become an even greater per-capita contributor than it is now, but the proposed formula would leave Ontario with the least ability to pay for its social programs.
This is not an argument in support of Ontario Premier Dalton McGuinty’s complaint that his province receives too little from the feds.
Rather, it is proof positive that equalization pays the have-nots far, far too much, and it is time to scale the program back to a far more sensible level.
The AIMS Commentary Series has attracted the attention of media across the country. Click on the links below to read some of the stories written in response to the Commentaries.
- A high price tag for our civil service – The Guardian
- How have-nots are more equal – Nigel Hannaford in the Calgary Herald.
- Over-equalization: Comparing apples to apples – The Telegraph-Journal.
- Some provinces are more equal than others – The Globe and Mail.
- In the catbird’s seat – The Winnipeg Free Press