Setting the record straight on equalization

EdmontonJournal.com – business – Program is working as intended, study finds
January 11, 2012.   By Jason Brisbois, Edmonton Journal

In the world of federal-provincial relations, 2012 will undoubtedly bring tiffs and squabbles – most over jurisdiction, money or both. But for federal-provincial aficionados, this year will be particularly interesting in the obscure domain of fiscal arrangements where, at about 22 per cent of federal program spending, big money is at stake.

Under current arrangements, the federal government transfers about $56 billion annually to help all provincial and territorial governments fund health care, education and social services, as well as providing equalization payments to lesswealthy provinces. The arrangements usually last five years and 2012 is the negotiating year for the next set, which will start in 2014.

A few days before Christmas, federal Finance Minister Jim Flaherty dropped an unanticipated lump of coal into provincial stockings by announcing that in 2017 – about halfway through of the next set of arrangements – the growth rate in the transfers for health care would be reduced. The health transfer, at $27 billion, is the largest and is set to climb at a fixed annual rate of six per cent until 2014. Flaherty announced he will extend the six per cent rate until 2017, after which health transfers will grow by the annual rate of growth in national gross domestic product or three per cent — whichever is less.

Provincial finance ministers were not impressed; partly because they were hoping the six-per-cent growth would continue indefinitely, or even be increased, and partly because the announcement, made before the negotiations had formally started, was considered an act of bad faith.

Clearly this gets the negotiations off on the wrong foot and despite Premier Alison Redford’s commitment to play nicely with the federal government, the issue of Alberta’s contributions to and receipts from Ottawa is likely to become a spring election issue.

The fiscal arrangements tend to be a bigger issue in Wild Rose Country than in most other provinces. A point of view often expressed, especially during election campaigns, is that Alberta is not getting its fair share from Ottawa. Numerous studies have examined the “balance sheet of confederation” and concluded that for most years since 1960, taxpayers in this wealthy province have sent considerably more money to Ottawa than the provincial government gets in return. Resentment of this sometimes manifests itself in criticism of the equalization program, which currently provides $14 billion per year to less wealthy provinces so they can provide levels of public services similar to those in wealthier jurisdictions. Prince Edward Island, for example, has about 65 per cent of the average provincial fiscal capacity, while Alberta has 166 per cent.

A frequently expressed Alberta view is, “why should I give money to people in poor provinces so they enjoy more public services than I do?” The viewpoint is reinforced by an occasional media call for the program’s termination, or by organizations such as the Frontier Centre for Public Policy, which suggests the program is excessive and leads to dependency.

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