Let’s Compare the ‘Have-Not’ With the ‘Have’

Equalization, Frontier Centre, Uncategorized, Worth A Look

Le Club Chasse et Pêche is a lovely restaurant in Old Montreal where the main courses start at $30 and, one evening this week, it was packed with diners for whom the price was no barrier.

The irony of this obvious prosperity is that Quebec is officially a “have-not” province.

This means that it needs financial help to provide social programs that are the same as other Canadians receive.

Last year, the province got $4.7-billion in equalization payments and, if recommended changes to the scheme are enacted, it would receive a further $2.7-billion.

Not to pick on Quebec, but such large transfers are absurd, particularly since the bulk of the money comes from next-door Ontario.

It’s evidence that (to borrow the words of a panel appointed by the premiers) the equalization scheme has “drifted from its principles.”

Ontario Premier Dalton McGuinty was criticized by some of his colleagues at a Montreal meeting this week after he resisted the enrichment of the current $10.9-billion equalization plan.

“It is disappointing that Ontario . . . would take this position,” PEI Premier Pat Binns said. Well, he would, wouldn’t he? After all, his province’s equalization cheque is $277-million — about one-quarter of its budget — and it would get a further $50-million if the formula were changed over Mr. McGuinty’s objections.

It would be a pity if the Ontario Premier is isolated because the point needs to be made that the equalization plan has drifted so far that it’s in danger of bumping into the International Space Station. Its intellectual underpinnings are a fiasco and, perhaps worse, no one knows if it is working to do what it was supposed to do.

It was simple enough when it began in 1957 with the aim of reducing the fiscal disparities among the provinces so they could all provide reasonable, comparable levels of public services at reasonable, comparable levels of taxation.

Initially, British Columbia and Ontario were the gold standard for measurement, but later, changes were made to bring poorer provinces up to the average of all 10 provinces. A quarter-century ago, Ontario came close to qualifying for payments, but the rules were changed to prevent this.

At the same time, the national average was dropped and a five-province standard that excludes Alberta and the Atlantic provinces was adopted.

Altogether, the formula was overhauled in 1962, 1967 and 1982 with little tweaks in other years.

There have been three constants in those years: Ontario is the only province never to have received any payments; Quebec, the Atlantic provinces and Manitoba have never got “have” status; and the calculating formula has proved as mutable as Madonna’s marketing image.

Under the current formula, a per capita equalization payment equals the national average tax rate times the five provinces’ per capita tax base minus the recipient province’s own per capita tax base times its population. If you can understand that, you’re in an elite group.

Instead, just compare “have” Ontario and “have-not” Quebec and draw your conclusions.

Both are vibrant jurisdictions with a mix of blessings and challenges. Montreal and Toronto are both dynamic cities that are a counterpoint to distressed rural areas.

Granted that the example of Le Club Chasse et Pêche is facile, but consider this:

The Quebec budget is balanced (and that includes a $1.6-billion scheme to provide child care at $7 a day) and its economy is forecast to grow at 2.5 per cent this year.

Ontario, meanwhile, remains in debt (although this seems to be by choice this year). It doesn’t offer a provincewide, subsidized child-care system and its economy is expected to grow at 2.3 per cent this year. It is, however, on the hook for about 43 per cent of the mandated 3.5-per-cent growth of the equalization scheme.

In other words, its economic growth is slower than the expansion of the redistribution scheme that it largely finances.

All this could be endured in the name of nation-building if there were any proof that it was working, any evidence that Nova Scotians or Manitobans don’t have the same access to social programs as Ontarians or Albertans.

The reality is, however, that we don’t know because there are no measurements of anything. The money comes in, it is spent and no questions are asked.

It’s the Canadian way.

mcampbell@globeandmail.com