Equalization Payments Equal Unfairness

Equalization, Frontier Centre, Uncategorized, Worth A Look

Poor Ontario. In 2005, the province had 2.8 hospital beds per thousand people.

Manitoba had 3.82. Newfoundland had 4.35.

Ontario had 7.1 nurses per thousand people. Manitoba had 9.6. Newfoundland had 10.7.

The average class size in Ontario was 16.6 pupils. The average class size in Manitoba was 14.9.

The average size in Newfoundland was 13.4.

The number of public sector workers in Ontario, per thousand people, was 81.

The comparative number in Manitoba was 117; the comparative number in Newfoundland was 105.

And, oddly enough, based on population, Ontario has the fewest judges in the country and only half as many as Newfoundland.

You could make a neat board game out of statistics of this kind – perhaps Trivial Pursuit: The Equalization Edition. Did you know that Prince Edward Island has eight hospitals, one for every 16,000 people?

Did you know that, setting aside equalization payments altogether, federal spending on the island is double the level in Ontario?

More importantly, for game pie, did you know that Ontario has the fewest resources for provision of public services (in relation to population) in the entire country? In 2005, Ontario made do with $6,992 tax revenue per capita – while Newfoundland got $7,449, Manitoba got $7,805 – and PEI got $8,764. By the way, did you know that Ontario grows in population every year by the size of PEI’s population?

David MacKinnon is an acknowledged authority on Ontario’s apparent willingness to do without public services even as it provides other provinces with the money that they use to provide the best-funded services in the country. He has studied the phenomenon for years. A native of PEI himself and a graduate from Dalhousie University in Halifax, he held senior positions with the Nova Scotia government, the Ontario government and Bank of Montreal.

For the better part of a decade, he ran the Ontario Hospital Association (retiring in 2003).
He now campaigns for radical reform of the country’s equalization program. Two weeks ago, for example, he spoke to the Empire Club in Toronto – at which time he suggested that Ontario needs “the modern equivalent of a Boston tea party” in Toronto Harbour to arouse the complacent province from its long lethargy.

“Why is it,” he asked, “that so much of the crime is in Ontario – but the judges are disproportionately in Newfoundland?

“Why is it that Manitoba can subsidize its electricity prices by $1.2-billion [a year] even as it collects $1.8-billion in equalization?

“Why is it that the old in Ontario and the very young in Ontario will experience greater challenges in accessing hospitals and teachers than in most other provinces?”

This last question is one that Mr. MacKinnon has asked for a long time. In the 1990s, he gave speeches in which he observed that Ontario’s expenditures on hospitals lagged the national average by 6 per cent every year, that Ontario’s expenditures on university education lagged the national average by 20 per cent every year.

Canadians love the mythology of equalization, Mr. MacKinnon says – “the myth that we are all equal, that we all have equal access [to services].” None of the mythology, he says, is true. In his Empire Club address, for example, he concluded that public services are more accessible in the provinces that get equalization payments than they are in the provinces (Ontario and Alberta) that “pay the freight.”

The consequences, Mr. MacKinnon says, have been evident for years. Inexorably, Ontario grows less competitive: “Like any manufacturing jurisdiction, Ontario now has to compete with China and India. [At the same time] its per capita income has been falling [relative to the Canadian average] for 15 years. It is about to fall below the Canadian average. It would be far better for the rest of Canada if Ontario did not have to pay for government programs in six or seven of the other provinces.”

“Sadly, if Ontario falls into recession today and its output declines, its citizens will still have to come up with nearly half of the annual increases guaranteed for equalization payments in coming years,” he says. “Equalization is now largely decoupled from Ontario’s economic performance.” Equalization, in other words, requires that Ontario keeps paying – whether it is rich or poor.

Mr. MacKinnon’s analysis is perceptive, his proposed reforms sensible. Let the federal government give the GST to the provinces, he says, in exchange for an end to federal transfers. Alternatively, let the federal government assume the provinces’ debt in exchange for an end to these transfers. Neither of these reforms is apt to happen. Canadian mythology won’t permit it.