The Government of Newfoundland and Labrador has recently announced its intention to mount a constitutional challenge relating to equalization. This decision has been justified by arguments that are not accurate and displays a lack of understanding of the constitutional provision relating to equalization.
The government’s decision also reflects a profound misunderstanding of public opinion and economic developments in other parts of Canada and of the competitive situation of the whole country.
In his television comments relating to the challenge, the Premier argues that the province merits greater funding because of its dispersed and rural population which makes the delivery of government services expensive.
This simply isn’t true. More than half of Newfoundland and Labrador’s people live in the compact Avalon Peninsula. This should permit efficiencies in the delivery of services that would largely offset the delivery challenges experienced elsewhere in the province.
Even if they were true, the premier’s geographical arguments would not resonate elsewhere because most other provinces must support program delivery to dispersed populations living outside major cities.
The area of Ontario’s north is 802,000 square kilometers, almost seven times the area of the island of Newfoundland. Quebec is in a similar position: the area of the Nord-du-Quebec region is 839,000 square kilometers.
The northern regions of both provinces include some of the most challenging terrain and climatic conditions found anywhere and this makes program delivery in these areas expensive.
Taxpayers in those provinces would certainly object to providing disproportionate funding for one province through equalization because of a problem that they share with Newfoundland and that is as serious in their jurisdictions as it is in Newfoundland.
The Newfoundland Government Should Better Understand Equalization
There are serious misunderstandings relative to equalization in the province’s announcement of its legal challenge.
For many years, the people of Newfoundland and Labrador and the other Atlantic Provinces have been told that there is a provision in the constitution that the federal government has an obligation to provide payments to ensure comparable programming of programming in all provinces at comparable levels of taxation.
This mantra, which underpins the Newfoundland Government announcement of its challenge, has been repeated so often that most of the province’s population believes it. It is not true.
The constitutional provision does not say that the federal government must make equalization payments at all. It says that the parties involved in the constitutional negotiations are “committed to the principle” of making equalization payments.
This means that any court hearing the province’s arguments must consider the meaning of the phrase “committed to the principle” and it is not clear how a court would interpret these words.
The many people concerned about the equalization program will argue that providing a program with much lower levels of funding than the current program is entirely constitutional because it would still demonstrate a substantial commitment to the principle of equalization.
They might also argue that if the framers of the constitution intended that the federal government had an unambiguous obligation to provide substantial funding, they would have said so. They didn’t.
The third of the many misconceptions in the government’s announcement is its intention to challenge the current equalization formula because it is unconstitutional. This is inappropriate for two reasons.
First, equalization is a federal government program. It would be nonsensical and have dramatic impacts on all government programming if it became accepted wisdom that different levels of government could not devise formulas and other arrangements relating to the funding associated with their programming.
Second, equalization formulas are not mentioned in the constitutional provision relating to equalization. It is difficult to see how the provincial government can argue, as it intends to do in this case, that anything related to a program is unconstitutional when the constitution doesn’t deal with the matter at all.
Newfoundlanders Need to Understand other Canadians Better
The third reason for concern about the government’s decision is the lack of understanding of other parts of Canada demonstrated by it.
Alberta taxpayers are by far the largest source of funding for the equalization program and by a substantial majority in a recent referendum they decided that they do not want the program.
Ontario taxpayers are the second largest source of funding for equalization and their situation, and the overall situation of their province, is deeply troubling.
Ontario has the least accessible public services of all provinces. It has fewer nurses, doctors and judges per capita than Newfoundland and the same is true across the board in Ontario’s public sector. The province is the largest non sovereign borrower in the world.
Canada’s national unity is not served by the constant efforts of Newfoundland governments and governments in the rest of Atlantic Canada to secure additional funding from taxpayers, most living elsewhere, for equalization. These people either don’t want the program or have little reason and little capacity to provide funding for it.
Context Matters
The decision to mount a constitutional challenge to equalization ignores contextual issues that are important.
Each citizen of Newfoundland and Labrador is subsidized by other Canadians by about $4,000 annually, according to a recent report by the Fraser Institute.
The figure for Atlantic Canada is about $7,000 per person per year. These subsidies, with few exceptions, have been evident for decades and they have absorbed an unsustainable portion of Ontario’s output for that entire period.
Aside from supporting local consumption, these subsidies have done little. The economy of the whole region, including Newfoundland, is dramatically underperforming.
Only two companies of the 425 listed in the Globe and Mail’s 2023 list of Canada’s fastest growing companies were in Atlantic Canada and neither of them were in Newfoundland. If these companies had been present in relation to Canada’s population, about twenty-five should be from the region.
The scale of subsidies to Atlantic Canada is a principal cause of Canada’s deficit problem. If federal spending and revenues in the region had been balanced in 2019, the last pre-covid year, Canada would not have had a national deficit at all.
This is a major cause of Canada’s poor productivity, a widely recognized problem. Massive subsidies to Atlantic Canada and Manitoba are hurting all Canadians. The per capita subsidy to Quebec is much smaller but is also significant.
The Newfoundland and Labrador Government should look in different directions to solve the province’s financial problems and it should begin with Dame Moya Greene’s report on the province’s financial situation. Her recommendations should be implemented immediately.
David MacKinnon is a Senior Fellow at the Frontier Centre for Public Policy
