Better is possible with equalization
For decades, half of the country has loudly grumbled about Ottawa’s equalization scheme while the other half has remained diligently silent and neither side has done anything. But Saskatchewan Premier Scott Moe is changing that with a proposal to reform the program.
Premier Moe’s proposal is simple: keep paying out half of the money through equalization’s current formula and pay out the rest as a per-capita transfer to each province.
Let’s compare that to the current scheme.
The federal government will hand out $19 billion to so-called have-not provinces through equalization this year, so each Canadian’s per-capita bill is $516.
That’s where the equality in equalization ends. For example, the Quebec government will collect $11.7 billion from equalization and Manitoba will get $2 billion. Prince Edward Island will get $419 million, making it the biggest per capita winner with the provincial government netting about $2,240 per Islander.
Ontario collects some equalization money, but, after accounting for the per-capita shares of the program’s costs, taxpayers there lose about $449 per Ontarian.
Alberta, British Columbia, Newfoundland and Labrador and Saskatchewan will get nothing from equalization.
Premier Moe’s proposal would change that.
For example, the Saskatchewan government would collect $301 million and Ontario’s take would jump by $3.2 billion.
On the other side, Manitoba would lose $674 million and Quebec would lose $3.7 billion.
Premier Moe’s plan has one benefit: taxpayers would have more of their money stay in their own provinces. That’s important for taxpayers from contributing provinces who have been sending $500 each to distant provincial governments with no accountability year after year. Those long-suffering taxpayers will appreciate the change.
The math is interesting, but the politics in other provinces might give this proposal a chance.
“The program has not worked for Alberta, even during the depths of our recession,” said Alberta Finance Minister Joe Ceci. He promised to review Saskatchewan’s proposal. Alberta opposition leader Jason Kenney, who has threatened to hold a referendum on equalization, called Saskatchewan’s plan a “worthwhile discussion.”
More importantly, equalization reform could be a lifeline for newly elected Ontario Premier Doug Ford. Ontario got hit with another credit rating downgrade before the new premier could even hang pictures in his office. Premier Moe’s proposal includes 3.2 billion reasons for Premier Ford to get Ontario on board for equalization reform.
Of course, it’s a sure bet the provinces losing money will fight the proposal. But, even within that opposition, there’s a breeze of change. Last November a Quebec politician called on the province chart a new course.
“What I want to tell Quebecers is that a CAQ government will aim for zero equalization,” said François Legault, the leader of the Coalition Avenir Québec party, which leads in the polls for this fall’s provincial election. “A CAQ government will eliminate the wealth gap with the rest of Canada.”
If Quebecers are strengthening their ambition for economic self-sufficiency, maybe, just maybe, resistance to reforming equalization will soften.
As with all proposals, Premier Moe’s plan isn’t perfect.
First, it leaves half of a failing program in place.
Second, instead of freeing half of the country entrapped in dependency on equalization, per-capita transfers create a risk of entrapping the other half.
Third, it muddies accountability with the federal government collecting billions and provincial governments spending them. It would be better if Ottawa cut equalization in half to cut the GST by one point and the provinces could raise taxes if truly necessary. It’s always better to make the government spending taxpayers’ money responsible for collecting it.
Some will scoff and say it’s impossible to get equalization right and they’re probably correct. But, if perfection is unattainable, better is still a benefit. And instead of a deadlock of grumbling and silence, Premier Moe’s concrete proposal is a place where the path to something better can start.