Ted Morton: Counterpoint — Putting Equalization on the Table

Worth A Look, Equalization, Frontier Centre


The National Post editorial board seems to be backtracking on its position that the federal equalization program needs to be reformed. In a 2008 editorial titled “Equalization is past its due date,” the newspaper praised Ontario Premier Dalton McGuinty for his comments about the need for change. How strange that this week, the Post published an editorial (“The buffet closes down tomorrow,” Jan. 18) dismissing similar suggestions from Alberta as a political stunt aimed at provoking a confrontation with central Canada.
Far from “demonizing” the concept of equalization, Alberta is simply hoping to initiate a constructive dialogue aimed at improving the program in a way that benefits provinces across Canada, not just Alberta.
It is true that Alberta is the single largest per-capita contributor to Confederation — more than $5,700 from every Albertan man, woman and child; for a whopping total of over $21-billion last year alone. However, Ontario contributes just as much (in total), even though, in some respects, it is worse off than not just Alberta, but some of the so-called “have-not” provinces. On a per-capita basis, Ontario has fewer doctors, nurses and hospital beds than Prince Edward Island, Nova Scotia or New Brunswick.
This is why, in 2008, Premier McGuinty told the Ontario Chamber of Commerce that the current equalization structure has outlived its usefulness, and called for a dramatic down-sizing (not termination) of the program.
But equalization is not just an Alberta and Ontario issue. It is a pan-Canadian issue. The flaws in the system contribute to Canada not keeping pace with the productivity increases achieved by other G8 countries. Provinces that receive equalization transfers may have a disincentive to reduce tax rates because the benefits that would come from lower taxes are partially offset by decreases in equalization. Higher taxes drive out investment and kill jobs. So the tax base shrinks, fiscal capacity declines, triggering further increases in equalization transfers. The vicious circle starts all over again.
Also, for some provinces, equalization transfers are a significant portion of their revenue, helping to raise their provincial credit rating. This can lead to lower borrowing costs for the province, making borrowing more attractive, which in turn can lead to higher debt and, once again, higher taxes and the start of the vicious cycle.  
Given that British Columbia, Saskatchewan and Newfoundland and Labrador are also now non-receiving equalization provinces, why not put reform on the table for discussion? Doesn’t the government of Canada want to start reducing its current $56-billion deficit by cutting expenditures in the next budget? Why not start with equalization?
Why not go further, and re-examine the question of how much Ottawa collects — and the whole system of federal transfers?
There are many possibilities, so maybe it’s time to talk.