To grasp why Canada’s equalization program is such a public policy disaster, some myths need to be busted about the $14.8-billion annual transfer of federal tax dollars to the provinces through equalization — and the $46-billion in other inter-governmental transfers. So, let’s some consider some inconvenient facts.
Equalization
Getting Us Out of the Welfare Trap
The stated goal of Canada’s equalization program is to ensure that Canadians, regardless of their province of residence, have access to public services that are reasonably comparable, at reasonably comparable levels of taxation. This year, the program will distribute over $15-billion to the relatively poorer provinces (typically known as “have-not” provinces in equalization-speak).
Transfer Disease?: One energy industry contributes to equalization and one energy industry taketh away
A quirk in the equalization formula allows Quebec (and Manitoba) to massively subsidize their local markets without penalty. Effectively, Quebec’s massive dam infrastructure is being subsidized by equalization of which a major wealth generator and contributor to equalization is the Oil Sands.
Pay People, Not Provinces
The Occupy movement, like the ongoing street protests in Quebec, demonstrates that our current efforts at income redistribution have proven unsatisfactory to many Canadians: Although we have improved mobility between income levels in recent decades, the income gap between rich and poor actually has gotten wider.
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Ontario Can’t Be Canada’s ATM
The government has generally acted in a haphazard way. In 50 years, it has not conducted a public study of the economic impact of the Canadian system of regional subsidies and transfers on Ontario or any other region. This is rather like the ATM user who never checks the balance but hopes that something remains in the account.
Ontario Joins ‘Have-Nots’, Gets First Equalization Payment
“The situation is so serious that (Ontario, Alberta and B.C.) are expected to provide enough funding to effectively insulate these jurisdictions from the impact of the economic crisis,” said MacKinnon, a former CEO for the Ontario Hospital Association. He noted 40 per cent of Manitoba’s budget is funded by federal transfers while its public sector is 50 per cent bigger than Ontario’s on a per-capita basis.
A Great Time to Kill Equalization
Ontario has sunk to have-not status, holed by the collapse of the auto industry and the deterioration of the manufacturing base that sustained it for so long. Premier Dalton McGuinty’s frequent demands for a better deal from Ottawa have been temporarily quieted by billions of dollars in federal spending to offset the recession and encourage adoption of a harmonized sales tax, but the road back to its previous level of prosperity will be long and difficult.
Pink Mausoleum Blues – What Hurts Ontario Hurts Canada
Starting imperceptibly several decades ago, however, Ontario’s economy began to lose steam. Now it’s come to a stop. The consequences for province and country are immense. All of which means that, after years of focused attention on Ottawa and Quebec City, the government that really counts today sits in the Pink Mausoleum at Queen’s Park.
Senator Duffy is Right
‘I don’t know Mr. Duffy’s actual views. If, however, he was warning that excessive dependency on subsidies is dangerous, that Islanders are not entitled to treatment by governments that is not available to others and that there are risks in offending public opinion in contributing provinces by constantly seeking more money from them, then he is proving his merit as a senator and deserves recognition for his courage.”
End Equalization Squabbling
Ottawa and the provinces need to get out of each other’s fiscal hair—this to make government clearly responsible for its own taxation and spending policies.
It’s Time to Wake Up from Equalization Nightmare
The dream of comparable services for all Canadians has turned into the nightmare of entrenched disparity and dependence. Canada is not made fairer by a system that rewards bad and irresponsible behaviour.
Equalization A Journey Into The Bizarre
However, most of the provinces receiving equalization don’t need the money. The only reason they still receive it is that they have become dependent on it and every time someone suggests cutting them off, their politicians squawk until Ottawa backs down.
How To Get Ottawa To Take Ontario Seriously
We are fortunate that we don’t have a housing bubble that is nearly as serious as in Western Europe and the United States. However, we now better understand the nature of financial “bubbles” driven by excess and it is increasingly evident that we have our own. They are called Manitoba, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and to a lesser extent, Quebec.