Equalization Corrodes Belgium

Blog, Equalization, Peter Holle

An occasional topic at Frontier is equalization, a very time worn federal transfer program that flows vast sums of money, no-strings-attached, to the so-called “have-not” provinces. While certainly well-intended, several think tanks have documented the program’s policy downsides including the “fly paper” effect (where funds are absorbed into a larger public sector),  creating incentives for higher tax rates, and a Frontier favourite – rewarding provinces for under pricing their domestic electricity prices.  No kidding. . . a very “un-green” thing to do. In our earlier years, Frontier published several backgrounders examining the international experience with similar equalization type transfer systems, including those in Sweden, Belgium, Italy and Australia.   Several themes emerged from them.  Transfers remove pressure to rethink and reform public sector delivery systems (Sweden). Transfers are wasted/captured by highly organized interested groups – (Italian Mafia). Equalization transfers encourage jurisdictions to have anti-investment, highly regulatory policy models (Tasmania in Australia).   Finally, equalization transfers promote divisive regional strife between  funding and recipient regions (Belgium). With Belgium equalization in mind, I am on the mailing of a political party there that promotes separate countries for the Dutch and French regions.  The Dutch region is the funder of the transfers while the French one is the recipient of the transfers.  With that in mind, I reprint a few paragraphs from the the January-February-March 2013 newsletter “The Flemish Republic” to illustrate the corrosive nature of the Belgian equalization system –

“There is no coordinated effort between these different struggles, but the fact that they are on the rise at the same time is probably not a coincidence.  The euro crisis and the economic crisis in general tend to encourage people to reassess and rethink the relation of their nation with their country and the rest of the European Union. Many voters start to question the financial transfers to other parts of the country.

In Flanders, for instance, every inhabitant hands out a yearly sum of more than 2,000 euros to Wallonia. For a family of four, this means 8,000 euros per year, the equivalent of a new mid-range car every two years. If this huge money drain would actually be helpful to the Walloons, some people might see a logic to it.   But it isn’t  The unemployment rate is about three times higher in Wallonia than in Flanders.  The money extracted from Flanders is not used to build up the Walloon economy, it is merely used to keep a corrupt socialist system in place where more than 60% of the “active” population lives from welfare or is government-employed.”

If the Canadian population was more informed about the many problems with our own equalization system we would see more such similar thoughts in our popular media.