AIMS News Release – Good Intentions Gone Wrong

Equalization, Frontier Centre, Uncategorized

Halifax — A report released today by the Ontario Chamber of Commerce provides a sobering but realistic view of the damaging impact of equalization on the nation and on Ontario itself. This major new study would not have been possible, says its author Mr. David MacKinnon, without the research performed over many years by the Atlantic Institute for Market Studies (AIMS).

The report makes extensive use of AIMS’ work analysing equalization’s perverse effects. For years we have been virtually a lone voice on this issuesays AIMS President Brian Lee Crowley, We are extremely pleased to see this major new work build on that foundation and use it to make such an effective case against what is clearly bad public policy. Equalization is a classic policy proving the dictum that good intentions are not enough.

According to Fairness in Confederation; Fiscal Imbalance: Driving Ontario to Have-NotStatus, Ontario is heading for have-notstatus. The fiscal deficitin Ontario that sees money move from Ontario to other regions of Canada in support of equalization and other federal transfers is unsustainable. These transfers are also creating real economic and fiscal problems not only for the recipient provinces, like those in Atlantic Canada, but also in the source provinces, like Ontario.

The OCC report quotes extensively from much of AIMSwork on this issue, including from AIMSseminal book, Retreat from Growth. It was that text which first discussed the many ways in which large scale subsidies can hurt less developed economies. Examples include:

  • Competition between subsidized and unsubsidized business weakens the former and reduces or cancels out positive growth of the latter.
  • Projects become important more because of their political significance than their actual market potential.
  • Large scale transfers from a central government can lead to national wage and price levels in the depressed provinces, factors which prevent market adjustments that would give these jurisdictions a competitive advantage and would create additional employment and ultimately higher wage rates.
  • The new OCC study also draws out another familiar AIMS theme: natural economic convergence, or the lack of it, in Canada.

    Economists who study convergence of depressed regions toward national averages suggest that convergence should take place at about 2% annually, without any subsidization&convergence in Canada has taken place slowly over the past forty years, certainly well below the natural rate.

    The message is quite simple,says Crowley. Without these massive federal transfers we would have already closed most of the gap between the prosperous provinces in Canada and those who are playing economic catch-up. We still have the transfers, and we still have the gap. If major subsidies like equalization were the solution to our problems of regional disparity, those problems would have been solved long ago.

    For further details on the extensive research by AIMS on the issue of equalization and the harm it causes to all parts of the country visit our website at: www.aims.ca.

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    For more information contact:

    Brian Lee Crowley, President, 902-499-1998

    Bruce Winchester, Director of Research Services, 613-276-8830