Given that this has been one of the "hotter" issues during the provincial Tory leadership race, and cowman's post in another thread, I thought it might be prodent to post the following article, written by Todd Hirsh of the Canada West Foundation:
Equalization must be made fair
The Brandon Sun
August 16, 2005
By Todd Hirsch
The word “fight” actually appeared in the title of a recent press release from the government of Saskatchewan and that says a lot.
The issue of the day, at least for the Saskatchewan government, is the equalization program and Premier Lorne Calvert is quoted in the press release as saying:
“Treatment of Saskatchewan's non-renewable resources continues to be a problem under equalization. It punishes development in the energy sector and exports the financial benefits from our energy resources to other provinces…”
He’s right, of course. The problems plaguing our national system of sharing between provinces — in other words, the equalization program — do result in unfair treatment. Ask enough provinces, however, and the system is thought to be unfair by someone.
The equalization program was set up in the 1950s by the federal government with the laudable goal of attempting to create a system that would ensure the poorer provinces are brought up to some average level of financial resource. The idea is that regardless of the province in which they live, all Canadians should be entitled to roughly equal levels of social services, health care and education for roughly equal levels of taxes paid.
But as with a lot of government programs, what started out as a good idea has resulted in a national pillow fight. It’s certainly not that the concept of sharing between provinces has soured — in fact, Canadians in general support the idea. But what is increasingly seen as unwise is the execution of the program itself.
There are dozens of problems and disagreements surrounding the current program. Should natural resources be included in the formula? Should provinces face clawbacks? Do payments provide a disincentive for a have-not province to develop economically?
These issues are currently being debated before the Expert Panel on Equalization, set up by the federal government, in hearings across the country. The panel is to present its final report to the finance minister by December.
I won’t get into the intricacies of the problems and debate here: they are too numerous to address. But three points in particular bear mentioning:
The first point is a myth that needs to be debunked, the myth that the “have” provinces (usually Alberta and Ontario, but now also Saskatchewan) pay into the equalization pot and the “have not” provinces draw out of it. This isn’t the way it works.
In fact, provinces don’t pay into the equalization pot at all — individuals do. All taxpayers finance the program and Ottawa dishes out cash directly to the governments of the “have not” provinces.
True, the Alberta and Ontario governments do not receive any payments from Ottawa. But it is just plain wrong to believe that these two provinces pay in while the other provinces take out. It may seem like a minor point, but it is an important one to understand as it can powerfully shape the debate.
The second point is that much of the current battle over equalization stems not from the concept of sharing itself but from the numerous side deals that have been struck. This is a political problem, not an economic one.
Too often, the equalization program has become an ace card for the federal government to play in order to appease some particular province.
The equalization formula itself is not all that complex; what makes it complex are all of the side deals, exceptions, amendments, and special concessions that have been tacked on over the years.
The final point is that there is a real danger of the equalization program becoming yet another lightning rod for regional alienation. Alberta is already a “have” province, Saskatchewan became one this year and if recent economic trends are any indication, British Columbia will re-join the rich provinces club soon.
That means three of the four “have” provinces are in the West. If the system is not changed to address some of its more glaring shortcomings — especially around the unfair side deals — it will become increasingly difficult for the “have” provinces in the West to convince themselves that Confederation is a good idea.
The Expert Panel on Equalization has a huge task ahead of it. How do we take an existing program that is based on a good concept and make it workable?
How can we keep it from pitting province against province, region against region?
Let us hope that the panel’s recommendations are bold and — more importantly — that the federal government follows through with some changes.
Equalization must be made fair
The Brandon Sun
August 16, 2005
By Todd Hirsch
The word “fight” actually appeared in the title of a recent press release from the government of Saskatchewan and that says a lot.
The issue of the day, at least for the Saskatchewan government, is the equalization program and Premier Lorne Calvert is quoted in the press release as saying:
“Treatment of Saskatchewan's non-renewable resources continues to be a problem under equalization. It punishes development in the energy sector and exports the financial benefits from our energy resources to other provinces…”
He’s right, of course. The problems plaguing our national system of sharing between provinces — in other words, the equalization program — do result in unfair treatment. Ask enough provinces, however, and the system is thought to be unfair by someone.
The equalization program was set up in the 1950s by the federal government with the laudable goal of attempting to create a system that would ensure the poorer provinces are brought up to some average level of financial resource. The idea is that regardless of the province in which they live, all Canadians should be entitled to roughly equal levels of social services, health care and education for roughly equal levels of taxes paid.
But as with a lot of government programs, what started out as a good idea has resulted in a national pillow fight. It’s certainly not that the concept of sharing between provinces has soured — in fact, Canadians in general support the idea. But what is increasingly seen as unwise is the execution of the program itself.
There are dozens of problems and disagreements surrounding the current program. Should natural resources be included in the formula? Should provinces face clawbacks? Do payments provide a disincentive for a have-not province to develop economically?
These issues are currently being debated before the Expert Panel on Equalization, set up by the federal government, in hearings across the country. The panel is to present its final report to the finance minister by December.
I won’t get into the intricacies of the problems and debate here: they are too numerous to address. But three points in particular bear mentioning:
The first point is a myth that needs to be debunked, the myth that the “have” provinces (usually Alberta and Ontario, but now also Saskatchewan) pay into the equalization pot and the “have not” provinces draw out of it. This isn’t the way it works.
In fact, provinces don’t pay into the equalization pot at all — individuals do. All taxpayers finance the program and Ottawa dishes out cash directly to the governments of the “have not” provinces.
True, the Alberta and Ontario governments do not receive any payments from Ottawa. But it is just plain wrong to believe that these two provinces pay in while the other provinces take out. It may seem like a minor point, but it is an important one to understand as it can powerfully shape the debate.
The second point is that much of the current battle over equalization stems not from the concept of sharing itself but from the numerous side deals that have been struck. This is a political problem, not an economic one.
Too often, the equalization program has become an ace card for the federal government to play in order to appease some particular province.
The equalization formula itself is not all that complex; what makes it complex are all of the side deals, exceptions, amendments, and special concessions that have been tacked on over the years.
The final point is that there is a real danger of the equalization program becoming yet another lightning rod for regional alienation. Alberta is already a “have” province, Saskatchewan became one this year and if recent economic trends are any indication, British Columbia will re-join the rich provinces club soon.
That means three of the four “have” provinces are in the West. If the system is not changed to address some of its more glaring shortcomings — especially around the unfair side deals — it will become increasingly difficult for the “have” provinces in the West to convince themselves that Confederation is a good idea.
The Expert Panel on Equalization has a huge task ahead of it. How do we take an existing program that is based on a good concept and make it workable?
How can we keep it from pitting province against province, region against region?
Let us hope that the panel’s recommendations are bold and — more importantly — that the federal government follows through with some changes.
Comment