How Equalization Hammers Ontario, Alberta and British Columbia: Have provinces suffer because of transfer programs

-- (historic), Commentary, Equalization, Uncategorized

 

Canadians have long been told it is our duty as compassionate citizens to transfer money from the so-called “have” provinces to the have-nots. So they might be surprised to discover the ostensibly worse-off provinces in fact receive more lavish public services. Have-nots can staff their hospitals better, give students cut-rate tuition and fund more daycare among other disparities in comparison to “have” provinces.
 
Simply put, the have-nots have unfocused and large social programs, bigger governments and do so at the expense of taxpaying families and businesses in the have provinces. It’s the unfortunate but predictable consequence of federal transfer programs which prop up poor policy in have-nots and hammer the traditional have provinces of Ontario, Alberta and British Columbia.
 
There are plenty of ways in which taxpayer cash is shifted from taxpayers in one province to those in another but  the most explicit example is found in the federal equalization program. It’s where poorer provinces receive money from taxpayers in richer provinces via the federal government. It’s akin to ten people chipping money into a common pot with a few taking the resulting spoils.
 
To clarify an anomaly, in the current year, even the biggest province in Confederation is also now, technically, an equalization recipient though not by much. Out of the $14.2 billion equalization program, Ontario will receive an Ottawa equalization cheque of $347 million or $29 per person. In comparison, Prince Edward Island’s government will take in $340 million, just under what Ontario receives. But PEI receives the most on a per capita basis at $2,429 per person. Quebec gets the biggest overall cheque at almost $8.4 billion which amounts to $1,107 per capita.
 
The interesting thing about Ontario is that this year is an exception; it has never before received equalization payments. Still, when all the other federal transfer programs are included in calculations Ontario, along with Alberta and British Columbia, still pay much more into the federal treasury than any of them get out.
 
So it makes sense to ask if equalization’s goal—“reasonably comparable levels of public services”—as the relevant constitutional section describes it, is in fact happening. The answer is no and it is to the detriment of the have provinces.
 
For example, the average university tuition is $5,040 in B.C., $5,361 in Alberta, $5,643 in Ontario—and just $2,167 in Quebec.  
 
On health care, consider this comparison: per 100,000 people, B.C., Alberta, and Ontario have the fewest number of nurses and residential-care beds—dead last behind the other seven provinces which benefit from the overall transfer of wealth from the three “have” provinces.
 
On physician ratios, B.C. is 4th highest in the country but behind better-staffed Nova Scotia, Quebec and Newfoundland (Alberta is 5th and Ontario 8th). In most other categories, similar patterns emerge: at least some or all net recipients of federal dollars do better than the “have” provinces which foot part of the bill for the have-nots.  
 
It’s an unjustifiable transfer of wealth. The so-called “have” provinces are in fact the most expensive ones in which to live. That fact means families and businesses should keep more of their money, not send it elsewhere through a flawed federal transfer system. Also, those three provinces are the ones to which migration flows are the largest. But even though BC, Alberta and Ontario have massive influxes of people every year, a reality which necessitates more hospitals, schools, the staff to go with them and other new infrastructure, an ever-larger larger chunk of taxpayer cash from those same provinces is instead recycled through Ottawa to support provincial governments in status quo provinces, and often where poor policy is the reason for their static state. 
 
There are remedies and it’s important to note the constitutional provision on equalization commits governments to the principle of equalization, not to a particular level of funding or a specific framework.
 
In the short-term, Ottawa should freeze equalization and other transfer payments—or better yet, cut them. In the longer term, the federal government should negotiate away equivalent tax room to the provinces on the condition that federal transfers cease. (That’s the only way to end transfers without political screams from the have-not provinces. Also, it could only happen in the context of a federal budget in surplus.)
 
In general, transfer payments drag down all of Canada by rewarding low productivity provinces with “free” federal money transferred from high productivity provinces. More specifically, it is the residents in expensive “have” provinces who suffer by subsidizing big government and generous levels of services in the have-nots.
 
In the mythology of modern Canada where announced compassion has become a substitute for actual compassionate policy, nothing better demonstrates the preference for public preening over results than the federal transfer program that is equalization.