The Equitable Solution for Equalization is to Get Rid of It

Commentary, Equalization, Frontier Centre, Worth A Look

Canada’s great federal Equalization debate wrapped up for the summer in Edmonton two weeks ago, with the premiers in a foul mood.

In fact they were hardly speaking.

What a truly Canadian debate this is: ten strangers angrily quarrelling over someone else’s money.

The wrangling is scheduled to resume in the fall. But with the premiers all at each others’ throats, I suspect Prime Minister Harper will cut it short by simply telling them what he has decided, and they can like it or lump it.

It is his money, after all.

Having taken it from us in taxes (roughly $500 per federal taxpayer) Harper decides who gets it.

I say Harper should give us all back our $500.

I don’t expect he will — but suppose he did.

Suppose he just said, “Okay, since you can’t agree, we’ll cancel the whole thing and cut federal taxes by $12 billion. You can collect this amount for yourselves if you want.”

Would our country become (as columnist Don Martin lugubriously warned) “a patchwork of wildly varying provinces where smooth highways, the best schools and exemplary hospitals become dirt roads, one-room schoolhouses and MASH units at the next provincial border”?

Well, no.

The governments of Manitoba, Quebec and the Atlantic provinces would have a big fight with their teachers, doctors, nurses and civil servants — because that is mainly what federal Equalization does. It subsidizes their wages.

Their wages would have to be cut back, the way Alberta did in 1994.

The thing to remember is that citizens in the receiving provinces pay for federal Equalization too. Everyone does. It’s just that most provinces (especially Manitoba, Quebec and the Atlantic four) get back more than their residents pay in. Saskatchewan and B.C. more or less break even. Ontarians and Albertans pay in and get nothing back.

Fiscal Equalization is the way Ottawa “tops up” the provincial tax revenues of weaker provinces. But everyone pays.

While the idea is simple and the principle sounds (to undiscerning minds) fair, the formula Ottawa uses requires a mind-boggling amount of number-crunching.

This complexity makes a province’s entitlement unpredictable. The payments usually go up but nobody knows in advance by how much — and sometimes they go down.

Ottawa’s brilliant solution last year to the unpredictability — automatic annual percentage increases — wrecked the formula. So now nobody knows what to base it on.

Meanwhile, the politics have grown as complicated as the economics.

In happier times the eight receiving provinces would plead in unison for more, while Ontario and Alberta looked on indulgently and smiled. But now there are almost as many positions as there are provinces.

Ontario is angrily demanding no more increases. Equalization siphons money from its weakening economy into the surrounding provinces.

Alberta is half on side with Ontario — but not entirely.

Quebec went home threatening separation if it doesn’t get a billion more.

The Atlantic and western provinces are divided between those with petroleum resources and those without.

In this circumstance Harper could say, “Why don’t you grow up and stand on your own feet? Here’s $12 billion in federal tax reductions. From now on, pay your own bills.”

But he won’t. He’ll give Quebec another billion dollars and call an election.

It’s the Canadian way.

– Link Byfield

Link Byfield is chairman of the Edmonton-based Citizens Centre for Freedom and Democracy, and an Alberta senator-elect.

“Just Between Us” is a feature service of the Citizens Centre for Freedom and Democracy. The purpose of the Citizens Centre is to enhance freedom and democracy by enabling ordinary citizens to become active and effective on important issues outside the normal processes of party politics.