Canada’s equalization program is motivated by good intentions. However, it creates perverse incentives for provincial governments to shun sensible economic opportunities.
For example, although natural resource development is an important driver of economic growth in Canada and despite several studies that point towards the economic benefit of shale gas development, provincial governments in New Brunswick and Nova Scotia have implemented moratoriums, or bans, on fracking. This, despite the fact that this technique for extracting shale gas has been used safely for years across North America. One reason that governments are able to make this type of economically harmful choice is that the equalization program cushions the consequences of poor decisions.
Equalization needs to be reformed so that have-not provinces are encouraged to develop their own natural resource base while creating jobs and generating economic growth.