Ontario loses in wealth-sharing plan

TheStar.com – Ontario -`Poor’ provinces getting better services under equalization, new study concludes
Published On Thu Feb 25 2010.  Les Whittington, Ottawa Bureau

OTTAWA – Canada’s wealth-sharing program is so out of whack that Ontario residents are helping to fund better government services in so-called poor provinces than they enjoy at home, a new study says.

Equalization, under which Ottawa transfers federal tax dollars to “have-not” provinces, has become a “cheque-writing machine” with no way of accounting for fairness or effectiveness, said David MacKinnon of the Frontier Centre for Public Policy.

The centre, an independent western Canadian think-tank, Wednesday released a study of the 53-year-old program, which this year will see $14.2 billion in federal taxpayers’ money transferred to poorer provinces.

In the current 2009-10 fiscal year, recipient provinces include Quebec, Manitoba, New Brunswick, Nova Scotia and Prince Edward Island. Ontario will also receive a small amount as a “have-not” province this year.

But for the purposes of this study, Ontario is considered a “have” province because Ontario’s federal taxpayers have traditionally supplied the lion’s share of cash for equalization.

The centre says that, in many important areas, the levels of government service in the traditional “have” provinces like Ontario (also Alberta and British Columbia) are “significantly below” those enjoyed by residents of most of the so-called poor provinces that receive equalization payments from Ottawa.

Compared to the “have” provinces, the poorer provinces that receive equalization money benefit from substantially more doctors and nurses per capita, lower university tuitions, more daycare spaces, lower students-per-teacher ratios and more long-term-care beds, according to the study.

The authors, Ben Eisen and Mark Milke, say the original intent of equalization – to ensure that poorer provinces could offer public services that are “reasonably comparable” to those available in better-off provinces – has been distorted.

“The real have-nots in Confederation are those provinces that have, through their federal tax dollars, historically contributed massive amounts to equalization,” they write. “British Columbia, Alberta and Ontario now find their benefits from taxation are demonstrably fewer than those available in the provinces to which they have contributed so much, the so-called have-nots.”

Of the $14.2 billion in federal equalization payments being distributed this year, the largest share goes to Quebec, which receives nearly $8.4 billion. Other major recipients include Manitoba at $2 billion, New Brunswick, $1.7 billion and Nova Scotia, $1.4 billion. Ontario receives $347 million.

Describing the consequences, the report says: “On social service spending, Quebec spends more per capita than any other province, at $2,342, while B.C. is second at $1,702. Alberta spends $1,592 per capita on social services and Ontario, $1,398.

The report is entitled “The Real Have-nots in Confederation: Ontario, Alberta and British Columbia.”

The authors say equalization, while well intended, is damaging Canada because it distorts the country’s productivity, a measure of output-per-worker that economists see as the key to maintaining a high standard of living. The current wealth-sharing plan transfers “excessive” wealth from areas of the country that are economically efficient to areas with lower levels of productivity, undermining Canada’s ability to compete effectively in the global economy, the study says.

Also, the report says the huge financial transfers obscure accountability for the way governments in poorer provinces allocate money and provide “an incentive for have-not provinces to spend more freely on government programs than they would if taxpayers elsewhere were not being forced to pick up part of the tab.”

Concluding that the system is unfair to the residents of Ontario, Alberta and British Columbia, the authors say equalization is “broken” and should be abolished or dramatically reformed to curb the “unintended consequences.”

The centre says Ottawa has never measured the specific impact of equalization in different provinces and should ask for the existing data so an analysis can be done. In the meantime, equalization spending should be frozen at its current level, the authors recommend.

A spokesperson for Finance Minister Jim Flaherty said the government moved in 2007 to “ensure federal transfers are balanced and fair to all provinces and territories.”

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