Equalization should be Scrapped

Equalization, Frontier Centre, Uncategorized, Worth A Look

In the debate on how best to reform “equalization” — the system by which Ottawa transfers cash from the richer provinces to poorer provinces — nobody is asking the obvious question: Has the time come to scrap it?

Yes, the principle of equalization was, unwisely, embedded in the new Constitution adopted in 1982 but surely that cannot mean we are stuck forever with a program that may have made sense a quarter century ago, but doesn’t now. What was stuck into the Constitution during federal-provincial bargaining can be taken out, and will be at some time.

Equalization payments began in 1957 with the goal of ensuring that Canadians in poorer parts of the country would have access to, roughly, the same level of social services — including education and health — as those in the richer regions. It was a nation-building program, binding together Canadians spread across a vast land.

Back then, there was a national Canadian economy in which trade flowed east and west. The richer regions, principally Ontario, depended on the poorer for raw materials and markets, so it was reasonable to require them to share their wealth. But now the economy is continental, even global. Trade flows north, south and overseas, and is intensely competitive.

Equalization payments are a levy on people in Ontario and Alberta that their competitors to the south and overseas don’t have to pay. In effect, the two wealthy provinces pay for a higher standard of living in the poorer provinces than they could earn for themselves. It may sound like social justice but it’s lousy policy, and unsustainable in the long run because it weakens the strong without strengthening the weak.

Over the past half-century federal money — that is, revenues raised in the richer regions — has been poured into the poorer regions in an alphabet of schemes designed to promote economic development and make them self-supporting. They have succeeded to some extent, but not enough to remove the demand for increasingly higher equalization payments to match, in the poorer regions, rising living standards in the better off.

This is not a criticism of Canadians in the poorer regions in parts of the West, Quebec and the Atlantic provinces whose standard of living depends on equalization payments. They work just as hard as those in Ontario and Alberta — when work is available and they aren’t forced to live on unemployment insurance or some other dole from Ottawa. Their basic problem is that their economies just aren’t sufficiently productive to support the living standards to which they think they are entitled.

Equalization, in fact, may prove to have been a curse rather than a blessing because it has reduced the economic pressure on the poorer regions to adjust to the reality of their situation. “Going down the road” to Ontario and beyond was the best move many Atlantic Canadians ever made, as it was for Prairie people moving to Alberta or B.C. More will have to follow when equalization ends, as inevitably it will. Sad, perhaps, but not a new story: Many original settlers were fleeing harsher economic realities in their homelands.

At least, we now have resources to make the transition easier.

Anthony Westell has been reporting and commenting on Canadian politics for more than 40 years.