This policy study analyzes Canada’s equalization program to compare government services in the have and have-not provinces to discover if the residents in recipient provinces end up with more-generous public services than those who pay part of the bill, i.e., those in the have provinces whose tax transfers subsidize the former.
For the purposes of a longer-term look at equalization, Ontario is treated as a have province in this analysis despite the fact that it is receiving equalization payments in 2009-2010. This study considers it a have province because these payments are small relative to population and, taken together with other transfers, Ontario still contributes substantially more money to the federation than it receives in transfers and federal services.
Similarly, while Newfoundland has technically not received any equalization payments since the 2007-2008 budget year, it receives payments akin to equalization under a 1985 accord that will total $465-million in the current fiscal year (2009-2010). In broad terms, over the last three decades, British Columbia, Alberta and Ontario have been the main contributors to equalization (with a further qualification that British Columbia briefly received equalization early in this century). The other provinces have been the recipients.
How the have provinces lose out under equalization
The evidence presented in this paper strongly suggests that, in many important areas, levels of government service in the traditional and largest have provinces such as British Columbia, Alberta and Ontario are significantly below those that exist in most recipient provinces. Specifically, the data suggest that large transfers allow recipient provinces to spend more freely on a range of government services including health and education.
A comparison between British Columbia, Alberta and Ontario on the one hand and Quebec on the other in terms of government service levels helps to illustrate this point. Quebec is the largest recipient of equalization money; it will receive almost $8.4-billion in 2009-2010 out of a total equalization budget of $14.2-billion for the six receiving provinces, or 59 per cent of all equalization transfers. The billions of dollars in equalization transfers received by Quebec each year from taxpayers in British Columbia, Alberta and Ontario (and as of late, Saskatchewan and Newfoundland) are used to provide service levels far beyond what is provided in the paying provinces.
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