Equalization “dysfunctional”: report

Equalization gives best public services to have-not provinces: report

By Lee Greenberg, The Ottawa Citizen

http://www.ottawacitizen.com/story_print.html?id=2607061&sponsor=

February 24, 2010

TORONTO – Canada’s federal government should freeze its dysfunctional equalization program with an eye toward scrapping it altogether, say the authors of a report being released Wednesday.

According to the report, equalization leads to worse public services in the three “have” provinces – Ontario, Alberta and British Columbia — while “have not” provinces maintain gold-plated public services while egging on free-spending governments.

“The evidence presented in this paper strongly suggests that, in many important areas, levels of government services in donor provinces such as Alberta and Ontario are significantly below those that exist in the major recipient provinces,” the authors, Ben Eisen and Mark Milke, write in the report for the Winnipeg-based Frontier Centre for Public Policy.

Those recipient provinces have more public servants, nurses, doctors, teachers and long-term care beds per capita than in the three major contributors to Confederation. Tuition at universities and colleges, in general, is cheaper. Daycare spots are more plentiful per capita, and the have-not provinces have more long-term care beds

Ontario, Alberta and B.C. are ahead in only one of 10 statistical categories analyzed in the report: subsidies for prescription drugs.

Two other categories — social spending per capita and police officers per capita — were inconclusive.

The report is entitled “The Real Have-Nots in Confederation: Ontario, Alberta and British Columbia. How Canada’s equalization program creates generous programs and large governments in have-not provinces.”

Quebec is the largest recipient of equalization; it will receive almost $8.4 billion in 2009-10 out of a total equalization budget of $14.2 billion for the six receiving provinces. Quebec’s share is nearly 59 per cent of all equalization transfers.

Worse yet, according to the authors, Quebec’s equalization payments have grown by 74 per cent in the last four fiscal years, since 2005-06. (Payments to Manitoba have increased 29 per cent during this period while equalization funding to New Brunswick has jumped by 25 per cent).

Beyond producing better-quality services in “have-not” provinces, the authors argue the program also promotes inefficient government spending and a lack of accountability in recipient provinces.

In the Maritime provinces, federal transfers make up about one-third of provincial revenue. By comparison, federal transfers account for between eight and 16 per cent of provincial revenue in the three donor provinces.

“The situation… is a disaster from the point of view of democratic accountability,” the report states. Voters in recipient states find it difficult “to know who to hold accountable when they are unhappy with provincial government services.”

While Ontario received equalization for the first time in history in 2009-10, the authors consider Canada’s most populous a “have” province because it still contributes substantially more than it receives.

Similarly, Newfoundland is considered a recipient province because although it has not received equalization since 2007-08, it receives another large regional subsidy akin to equalization. That payment will equal $465 million in fiscal 2009-10.

Equalization was introduced in 1957 to promote comparable public services in all 10 provinces. The federal program takes federal tax dollars and distributes them to provinces with lower per-capita fiscal capacity. The formula used to measure fiscal capacity takes account of 33 different revenue sources. A province’s fiscal capacity is then measured against the average of five chosen provinces (B.C, Saskatchewan, Manitoba, Ontario and Quebec) and if it is lower, the province will receive equalization.

“The current system is broken,” the report ultimately concludes, “and the equalization program should be abolished or dramatically reformed to reduce the adverse, unintended consequences that the equalization program creates.”

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