Time to cancel/reform the Federal Equalization Program?

Al Czervic
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Time to cancel/reform the Federal Equalization Program?

Post by Al Czervic »

Here is an article I think every taxpaying Canadian should read....




Poor provinces have better services than rich ones, study finds - Vancouver Sun

Canada's equalization program is running amok, with poor provinces touting public services that make the country's richer provinces look like poor cousins.

That's the conclusion of a new study from the Winnipegbased Frontier Centre for Public Policy, which is calling for an immediate freeze on equalization payments and ultimately a phase-out of the 53-year old federal program.

Authors Ben Meisen, a policy analyst, and research director Mark Milke assert the program has created "generous programs and large governments in have-not provinces."

"Simply put, taxpayers in the traditional have-provinces subsidize substantially more generous public services in the recipient provinces."

Their revelation confirms a long-held suspicion that few have given voice to. That's because, as the study notes, the feds have never formally measured, monitored or reported on relative public service levels in the provinces.

The Frontier Centre report is bound to give new ammunition to Alberta's Stelmach government, which lately has expressed frustration with a program that transfers billions out of the western province even as eastern have-nots criticize the environmentally damaging nature of the oilsands, a significant revenue generator in Wild Rose Country.

The study authors found that B.C., Alberta and Ontario generally have inferior levels of services when compared with the have-nots.

While Ontario now receives a small equalization payment, Eisen and Milke took "a long view" of the program to more accurately study its impact over time, viewing Queen's Park as a have government.

Among their findings:
- Quebec, which this year will collect $8.4 billion of the $14.2 billion program, spends $2,342 per capita on social services. B.C. spends $1,702; Alberta, $1,592; Ontario $1,398.
- Quebec boasts 217 doctors per capita, compared with 199 in B.C., 197 in Alberta and 176 in Ontario.
- Same disparity on the nurses front: 717 per capita in Quebec; 619 in B.C., 715 in Alberta and 633 in Ontario.
- Average university tuition in Quebec is $2,167. In B.C. it's $5,040, Alberta, $5,361, Ontario $5,643.
- Elementary-level student-teacher ratios tell the same story across the provinces.
The study notes that equalization was meant only to level the playing field for services in the poorer provinces.

The 1982 Constitution Act states it ensures "that provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation."

The study urges those provinces positioned in coming years to do the heavy lifting on equalization to start tapping on the shoulders of both Ottawa and the cash-receiving provinces.
The authors assert the large transfers to have-nots are counterproductive, enabling them to rest on their laurels rather than innovating to improve their productivity and revenues.
That said, justification for an equalization program in Canada persists. The fact is, some provinces are bountifully endowed with in-demand resources and are in proximity to big markets, and others aren't.

While it's true the payments inevitably help the have-nots to enrich their public services, the big-spending tendencies may be attributable to other factors.

Some of the poorer provinces simply are more ideologically left-leaning and less fiscally frugal; they choose to run large deficits, Quebec being a good example.

Of course, equalization will always be controversial; it doles out money to some at the direct expense of others.

Ottawa set up an official review of the equalization program as recently as five years ago, striking an expert panel headed by former Alberta treasurer Al O'Brien.

It's not likely to want to revisit it for awhile. If the Frontier Centre's latest findings become problematic, Ottawa would be smart to refer the matter to the Council of the Federation, a club that brings premiers together for gabfests. And let those in the henhouse deal with the fox.

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Re: Time to cancel/reform the Federal Equalization Program?

Post by NAB »

Not that I can claim to have much knowledge of the current equalization formula Al, I do agree that it needs to be fully addressed, at least fine tuned if not totally eliminated.

Right or wrong, I always felt that its original purpose was to help standardize some basic services across the land, and access to them, for all Canadians. Health Care and Education as premier examples. But my take now is that it has expanded over the last couple of decades into all sorts of economic "levelling", particularly during the Liberal years (although I cannot identify them as I don't know the detail), ....but if so think that is very dangerous and unfair to the so called "have" provinces and their people.

Edit to add: I may also be wrong about it in one other area... I feel provinces who receive equalization money should be bound to use it only for the purposes intended, and not permitted to use it to offset their own obligations in those areas while diverting their own money earmarked for those budget centres to other areas not important to equalization issues. Put another way, equalization should directly benefit all the people of Canada wherever they may be, not place the benefits of the people of one province above those of provinces from whom their money flows.

Nab
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Re: Time to cancel/reform the Federal Equalization Program?

Post by Homeownertoo »

NAB wrote:Edit to add: I may also be wrong about it in one other area... I feel provinces who receive equalization money should be bound to use it only for the purposes intended, and not permitted to use it to offset their own obligations in those areas while diverting their own money earmarked for those budget centres to other areas not important to equalization issues. Put another way, equalization should directly benefit all the people of Canada wherever they may be, not place the benefits of the people of one province above those of provinces from whom their money flows.

Nab

This would be impossible to monitor or mandate without also having Ottawa dictate the fiscal policies of the provinces. No, the only solution is to phase out equalization completely, over no more than 10 years (or it would never get done). This may lead to interprovincial migration, unfortunate in the short-term for those who feel they need to move but much better in the long run for both the nation and individual citizens.

This dysfunctional policy is, not surprisingly, the product of the usual muddled thinking about equality that permeates our society. It exists alongside a complete absence of understanding of what it actually takes to produce superior social outcomes.
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Al Czervic
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Re: Time to cancel/reform the Federal Equalization Program?

Post by Al Czervic »

NAB wrote:Not that I can claim to have much knowledge of the current equalization formula Al, I do agree that it needs to be fully addressed, at least fine tuned if not totally eliminated.

Right or wrong, I always felt that its original purpose was to help standardize some basic services across the land, and access to them, for all Canadians. Health Care and Education as premier examples. But my take now is that it has expanded over the last couple of decades into all sorts of economic "levelling", particularly during the Liberal years (although I cannot identify them as I don't know the detail), ....but if so think that is very dangerous and unfair to the so called "have" provinces and their people.

Edit to add: I may also be wrong about it in one other area... I feel provinces who receive equalization money should be bound to use it only for the purposes intended, and not permitted to use it to offset their own obligations in those areas while diverting their own money earmarked for those budget centres to other areas not important to equalization issues. Put another way, equalization should directly benefit all the people of Canada wherever they may be, not place the benefits of the people of one province above those of provinces from whom their money flows.

Nab



I agree Nab. The problem of course is that instead of “equalizing” it would appear that the Federal Equalization program is instead “subsidizing” services that the “have” Provinces cannot afford.

It would be interesting to tell Provinces like Quebec how much money they would stand to lose from equalization if the Alberta oil sands were shut down and they had to pay out of their own pockets the difference. I expect the tone might change to a different degree.
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Re: Time to cancel/reform the Federal Equalization Program?

Post by NAB »

Al Czervic wrote:
NAB wrote:Not that I can claim to have much knowledge of the current equalization formula Al, I do agree that it needs to be fully addressed, at least fine tuned if not totally eliminated.

Right or wrong, I always felt that its original purpose was to help standardize some basic services across the land, and access to them, for all Canadians. Health Care and Education as premier examples. But my take now is that it has expanded over the last couple of decades into all sorts of economic "levelling", particularly during the Liberal years (although I cannot identify them as I don't know the detail), ....but if so think that is very dangerous and unfair to the so called "have" provinces and their people.

Edit to add: I may also be wrong about it in one other area... I feel provinces who receive equalization money should be bound to use it only for the purposes intended, and not permitted to use it to offset their own obligations in those areas while diverting their own money earmarked for those budget centres to other areas not important to equalization issues. Put another way, equalization should directly benefit all the people of Canada wherever they may be, not place the benefits of the people of one province above those of provinces from whom their money flows.

Nab



I agree Nab. The problem of course is that instead of “equalizing” it would appear that the Federal Equalization program is instead “subsidizing” services that the “have” Provinces cannot afford.

It would be interesting to tell Provinces like Quebec how much money they would stand to lose from equalization if the Alberta oil sands were shut down and they had to pay out of their own pockets the difference. I expect the tone might change to a different degree.


On that particular point Al, am I incorrect that much of the dispute in the Harper/Danny Williams affair had something to do with offshore oil revenues to Newfoundland and Labrador? I have the sense (albeit perhaps incorrectly?) that Williams wanted certain revenues excluded from transfer calculations so that his province could continue to receive higher "have not province" payments.

...and if so, why should his province get that kind of deal without equal treatment for Alberta taxpayers?

Nab
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Re: Time to cancel/reform the Federal Equalization Program?

Post by Homeownertoo »

I believe it has something to do with how the provinces' resource revenues are differently treated, but I forget the details.

On a distant but related topic, I always thought the euro/EC was a flawed project because it straitjacketed its economically diverse members into a monetary union similar to Canada's but lacked the qualities and programs that make Canada work economically, such as it does.

Specifically, the EU operates under several constraints we don't:
1. It lacks the budget capacity of a federal level of gov't like we have to spread money around the provinces/states;
2. It lacks an equalization program to offset the differing fiscal capacities of its member states.
3. It is handicapped by the stronger cultural/national identities that hinder mobility of its citizenry from economically depressed areas to places where their prospects are better.

What I find interesting is that, while I favour junking the equalization program here, something like it is what the euro/EC probably needs to survive its monetary straitjacket. Realistically, though, I doubt the Germans have sufficient capacity or goodwill to perpetually bale out the PIIGS.
“Certain things cannot be said, certain ideas cannot be expressed, certain policies cannot be proposed.” -- Leftist icon Herbert Marcuse
“Don’t let anybody tell you it’s corporations and businesses create jobs.” -- Hillary Clinton, 25/10/2014

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