It’s time to get past political posturing and regional protectionism and reform the national equalization payment program
National debates on the federal equalization program have been marked by conflict, obscure technical jargon, little research on the impact of the program and excessive vitriol. But we get no closer to fixing the problem. It’s time for equalization reform.
Many Canadians have tuned out. They can’t deal with discussions that have become inaccessible to them.
That’s tragic because the program negatively affects the lives of all Canadians. And equalization arrangements have also been incorporated into other federal programs that also negatively impact Canadians.
And we can’t forget the federal government’s failure to measure comparability of provincial programming across Canada, the principal stated goal of the program.
Canadians are poorer because of equalization in several ways.
In Atlantic Canada, equalization has enabled excessive expenditures on each province’s public sector that should make political leaders in those provinces blush.
In turn, these excessive public sectors have led to high tax regimes, which means less money in people’s pockets.
They’ve also produced local economies that are no longer competitive. The four Atlantic provinces are at the bottom of the list of all Canadian provinces and American states in terms of growth.
Ontarians are poorer because they’ve spent several hundred billion dollars over the years to support equalization and similar arrangements in other programs.
Yet the people of Ontario are poorer because they have less access to doctors, nurses, hospital beds, nursing homes, community colleges and universities than other Canadians.
Expenditures on equalization and related programs have corroded Ontario’s foundations to the point that the province can’t provide the services that people need at levels provided elsewhere – services provided by the funds that Ontario citizens disproportionately provide.
Albertans are also poorer because provincial taxpayers have been required to provide, for many years, more than $20 billion annually to support programming elsewhere. This is a remarkable burden for a population of 4.3 million people. They are also poorer because equalization is not designed to assist when there are drastic changes in provincial circumstances.
Quebecers have been able to avoid some of the worst effects of federal regional subsidies because these aren’t as large, relative to the economy as a whole, as they are in Atlantic Canada and Manitoba.
However, 50 years of massive subsidies from other Canadians have not helped Quebec compete more effectively. The province is near the bottom of North American jurisdictions in economic growth and its productivity is below the Canadian average.
Equalization and related programs are also profoundly unfair, first of all because they’re capricious.
The federal government has never studied the economic impact of equalization in different provinces. It has never measured the program against its stated goal. And it has never tabulated, in any public document, the full range of regional subsidies it provides.
These measurement problems mean that equalization and related activities aren’t really government programs. Instead, they’re a form of financial gerrymandering that diverts funds, in many cases toward areas that are overrepresented in the House of Commons instead of areas with demonstrated need.
A federal vote in Charlottetown is worth four votes in Toronto. And up to one-third of all income generated on Prince Edward comes from massive net inflows of funds from the federal treasury.
Equalization and related arrangements in other programs are also unfair because the federal government has made offensive distinctions among similarly situated citizens while administering those programs. For example, a program provides Employment Insurance for self-employed fishers but similar support isn’t available for any other group of self-employed people.
There’s no ethical basis for deciding that self-employed fishers merit support when they have employment difficulties but no other group of self-employed people does.
For many years, the problems associated by equalization have been compounded by repeated observations from political leaders that the program is outlined in the Constitution and therefore difficult to change.
However, the Constitution permits almost complete flexibility to change equalization and related programming. All that’s guaranteed in the Constitution is commitment to the principle of equalization, not any funding mechanism nor level of payments. There’s ample scope for reform.
Reform is urgently needed. Canada needs to modernize programs such as equalization that damage national competitiveness at a time when the international marketplace has become particularly aggressive.
The federal government needs to embark now on a proper and thoughtful process of equalization renewal, beginning with legislative hearings.
By David McKinnon
Analyst, Frontier Centre for Public Policy
David McKinnon is an analyst at the Frontier Centre for Public Policy.