Conrad Black On Equalization: McGuinty Is Right To Demand Its End

Commentary, Equalization, Frontier Centre, Role of Government, Worth A Look

As a guest of the great American people, I hear less of Canada than I would wish, but even at this distance, I can celebrate some news items.

Dalton McGuinty is absolutely correct to demand the end of equalization as we know it. The idea was instituted in 1954 after Quebec’s long-serving premier, Maurice Duplessis, announced a provincial income tax under the concurrent provincial jurisdiction over income taxes. He said that if the federal Liberal government of Louis St. Laurent did not allow the deductibility of the provincial tax in computing Quebecers’ federal income taxes, the Liberal party would pay the political price in Quebec for an income tax increase and double taxation.

After a great deal of huffing and puffing about Duplessis’s trouble-making and lack of patriotism, the federal government conceded the provinces’ right to tax incomes and produced equalization and stabilization payments to be distributed to formula-defined have-not provinces. (When Lester Pearson caved to far more aggressive claims from Quebec premier Jean Lesage a few years later, the two Liberals were claimed to be saving Canada.)

Contrary to widespread mythology, Quebec in the Fifties was gaining on Ontario by most economic yardsticks, in consequence of Duplessis’s low-tax, pro-private sector policies. It was assumed in 1954 that the chief beneficiaries of the new federal payments would be the Atlantic and Prairie provinces.

With the death in office of Duplessis and his two chosen successors, Paul Sauvé and Daniel Johnson, Sr. (governing Quebec is not a tranquilizing experience), the clerical personnel who had staffed Quebec’s schools and hospitals — at minimal cost to the taxpayers — largely left their orders, became public-service union members and performed essentially the same services at 10 times the cost to the province (and with ceaseless union militance and frequent work stoppages.)
Quebec had long been a priest-ridden society that required reform, but secularization came at great cost. Despite the celebratory narcissism of the Quiet Revolution, Quebec settled ever more steadfastly into the provincial have-not category, though the province’s new bureaucratic elites took very good care of themselves.

As independentist sentiment rose in Quebec, equalization and other transfer payments became, in the Trudeau, Mulroney, and Chrétien eras, a mighty and extravagant vote-buying exercise for federalism in Quebec. All three of those governments declined to publicize the cost of these incentives — officially because they objected to the crassness of stating the cost of institutional national unity. In fact, they were concerned about a backlash in other provinces at the deluge of money directed to Quebec. This was an understandable concern, but it enabled the separatist leaders to peddle the canard in Quebec that Canada made money from Quebec rather than the other way round.

Ultimately, the people of Quebec knew better. The separatist crisis passed. It was always based on a trick question of Quebec continuing to enjoy the benefits of Canada while exchanging embassies with the world.

Newfoundland and Saskatchewan are now becoming prosperous, and the entire vast, amorphous, federal money-transferring apparatus has become an elephantine anachronism. It is also an unjust taxation on Ontario, which as the only province that was ever a real success at manufacturing, is paying a heavy price for the rise of the Canadian dollar and the migration of secondary industry to cheap-labour countries.

Dalton McGuinty is right. And to the limited extent that regional economic inequalities should be addressed other than by market forces, it should be from the general revenues of the federal government. Some provinces should not have to pay Danegeld to others, with Ottawa, collecting, redistributing and taking perennial credit for national self-preservation.