Time to Overhaul Equalization

Equalization, Frontier Centre, Media Appearances, Uncategorized

With Ontario clamouring for change to Canada’s equalization payment system and even beneficiaries in Atlantic Canada questioning its worth, the time is ripe for an overhaul of what has become an antiquated model of fiscal federalism, which rewards failure and punishes success.

Alberta, of course, has been complaining about equalization for decades.

Now that Ontario has joined the parade, perhaps Ottawa will finally hear the message. With two of equalization’s major programs – the Canada Health Transfer and the Canada Social Transfer – up for negotiation within the next three years, the time for change is now.

The Ontario Chamber of Commerce (OCC), in a report this week titled Dollars and Sense: A Case for Modernizing Canada’s Transfer Agreements, says the system of regional transfers is damaging Canada’s economy by punishing productivity and rewarding inefficiency. Critics argue that the system allows recipient provinces such as Quebec to spend much more on social programs and health, and offer deeply subsidized day care, hydro and low tuition fees that contributing provinces cannot match.

Unlike recipient provinces such as Quebec, Ontario is near the bottom of per capita funding of education, health care and justice programs, according to the OCC report.

It has the second-highest average undergraduate tuition, second-lowest number of nurses per 100,000 people and among the lowest number of regulated child care spaces in the country.

"From birth to death, Ontario citizens are the most disadvantaged Canadians when it comes to public services like education, health care and child care," the OCC’s CEO, Len Crispino, said in releasing the chamber’s report.

While it is true that Ontario is the largest net contributor to equalization, Albertans get an even worse deal from Ottawa on a per-capita basis.

While each Ontarian contributes about $1,800 more per year to Confederation than they receive, Albertans contribute nearly $3,800 more than they get back.

In the last six years alone, Alberta has contributed a net $102 billion to the federal treasury. Quebecers, meanwhile, received $12.3 billion more from Ottawa than they sent back in 2008 alone, according to the province’s latest economic accounts.

Some recipient provinces are realizing the folly of the program. The Atlantic Institute for Market Studies refers to equalization and transfers as "help that hurts." In ­November, University of New Brunswick chancellor Richard Currie called New Brunswick a "failing province" for its ongoing reliance on federal transfer payments.

Even the architect of the federal equalization system, Nobel Prize-winning economist James Buchanan, went on record a decade ago saying the system had fallen victim to political vote buying.

Ontario Premier Dalton McGuinty once called the system "perverse" and urged an overhaul. David MacKinnon, author of the OCC report, says regional subsidies are "the root cause of low Canadian productivity." Stuart Johnston, the chamber’s vice-president of policy and government relations, says that "Canada has over-equalized . . . with particularly tragic consequences for the people of Ontario."

We feel their pain.

With the chorus growing louder, will Ottawa finally have the nerve to listen?