Equalization payments make for unequal services: study

Posted on November 5, 2013 in Governance Policy Context

NationalPost.com – FP/News/Economy
04/11/13.   Gordon Isfeld

The debate between  “have” and “have-not” provinces has been bubbling for years, fuelled largely by the growing wealth of resource-based economies and the decline of Canada’s manufacturing heartland.

Ottawa’s program of equalization payments has shifted, to a large extent, from West to East. As a result, so the argument goes, the least-productive provinces are binging on the success of others.

These have-not provinces are now on a “government-services spending spree,” thanks to equalization payments from the country’s richer regions, according to a study released Monday by the Fraser Institute.

Mark Milke, author of the report by the independent public-policy think-tank, says “instead of providing ‘reasonably comparable levels of public services at reasonably comparable levels of taxation,’ as the Constitution sets out, equalization results in ‘have-not’ provinces buying more expensive government goodies than the spending-responsible ‘have’ provinces.”

“More professors, more doctors, more nurses, lower tuition fees and smaller class sizes can all be enjoyed in the provinces which do not have to pay for these services by themselves.”

Government equalization programs cost Canadians $16.6-billion in fiscal 2012-13, the report notes. That’s a jump of 50% from 2005-06, when total spending was $11.1-billion, the report states.

Over that time, Alberta, for example, was the only province that did not receive financial assistance from the rest of Canada. The Fraser Institute contends that British Columbia, Saskatchewan and Ontario received “very little.”

For the current 2013-14 fiscal year, equalization payments will total $16.1-billion, according the Finance Department.

Among the six provinces receiving transfers this year, the biggest recipient will be Quebec at $7.8-billion, followed by Ontario — which qualified for the first time in 2009-10 — at $3.17-billion, department data show. The other recipients are Manitoba ($1.79-billion), New Brunswick ($1.51-billion), Nova Scotia ($1.46-billion) and Prince Edward Island ($340-million).

Newfoundland and Labrador, which had received payments since the program began, became a “have” province in 2009-10.

Canada’s territories are not part of the equalization program, but receive federal assistance through a separate funding scheme.

“A university student in Vancouver pays substantially more for tuition than her counterpart in Quebec or Manitoba; a patient in Nova Scotia has easier access to a doctor than a patient in Alberta,” Mr. Milke argues.

“Yet in both cases, the tax dollars of the British Columbian and Albertan are used to provide those better services.”

The report points to Quebec, where tuition fees average $2,774 a year, compared with $7,180 in Ontario, $6,017 in Saskatchewan and $5,015 in B.C.

“Not only are the services unequal at the provincial level — missing the point of the payments entirely — but individuals in B.C., Alberta, Saskatchewan and Ontario are forced to pay for substantially larger government spending elsewhere,” Mr. Milke says.

As for health service, provinces receiving equalization payments have higher ratios of public health and social service workers. However, the report says “have” provinces have slightly shorter health care wait times and benefit from higher annual expenditures on post-secondary institutions.

Equalization payments have long been a sore point among provinces, given the so-called “zero-sum” funding formula, which results in higher levels to some provinces and requires cuts to some others. This has been highlighted with changing regional fortunes, predominantly through growth of resources development in Western Canada and a decline in manufacturing in many parts of Eastern Canada, such as Ontario.

The program will need to be renewed in 2014, and Finance Minister Jim Flaherty has indicated few changes are in the works federally, except for a spending cap on the program pegged to economic growth.

The issue is likely to be one of the top issues discussed by Mr. Flaherty and his provincial counterparts when they gather in Ottawa sometime in December.

< http://business.financialpost.com/2013/11/04/equalization-payments-make-for-unequal-services-study/ >

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