Social Policy in Ontario

Ottawa to limit equalization payments

Posted on October 31, 2008 in Equality Debates, Governance Debates, Social Security Debates

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TheGlobeandMail.com – national – Ottawa to limit equalization payments
October 31, 2008. KEVIN CARMICHAEL AND KAREN HOWLETT

OTTAWA, TORONTO — Finance Minister Jim Flaherty, facing Canada’s first budget deficit in more than a decade, said he will limit the growth of equalization payments to the poorer provinces.

Speaking to reporters after the first meeting of Stephen Harper’s new cabinet yesterday, Mr. Flaherty said the equalization program, which redistributed $13.6-billion in the current fiscal year, is growing at an unsustainable pace of about 15 per cent a year.

He said he would discuss the subject at a meeting with his provincial and territorial counterparts in Toronto on Monday. While he might be willing to negotiate how tightly to pull the reins, the federal minister made clear his mind is made up on the need to constrain future equalization payments.

“It’s a federal program; we will put a limit on the growth of it,” Mr. Flaherty said. “This is not something that is discretionary. We must do this, otherwise the integrity of the program will be under attack.”

Mr. Flaherty, who on Wednesday stepped away from a pledge never to accept a budget deficit, is risking the Harper government’s uneasy peace with the provinces over the fair allocation of the national wealth.

The federal government’s desire to restrain spending reflects the dramatic change in the country’s economic prospects since the equalization program was overhauled in 2007. At the time, federal officials foresaw economic growth of 2.9 per cent this year.

Now, as a result of this year’s turmoil in the financial markets, which plunged the U.S. into recession, most economists predict Canada’s economy will grow less than 1 per cent in 2008.

A slowdown of that magnitude will squeeze tax revenue, all but assuring a budget deficit in the fiscal year ending March 31, 2010, and threatening Mr. Flaherty’s assurance that he will record a surplus in the current fiscal year.

The 51-year-old equalization program seeks to redistribute wealth from the richer provinces to the poorer ones. In the current fiscal year, six provinces received payments. British Columbia, Alberta, Saskatchewan and Ontario did not.

Mr. Flaherty didn’t elaborate on how he would seek to constrain the growth of the equalization payments.

With a report from Rhéal Séguin

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