Social Policy in Ontario

At the beginning of the pandemic, it seemed futile to talk about the history of sharing in Canada. How could the story of federal efforts to create a fairer nation possibly compete with news of health crises and government stumbles?

But then I realized: Now is the perfect time to explain how we came to share after decades of fierce disputes among the richer and poorer provinces and their weary citizens. Without sharing, we would not have national social programs. Without sharing, the federation might have disintegrated. Without sharing, we could not pull each other up or even trust each other and our governments throughout today’s pandemic.

The history of that crucial decision is tangled, crossing time to the pre-Confederation discussions of the 1860s, and crossing oceans to Australia, which hastily cobbled together a model program for sharing among states after disgruntled Western Australians voted to secede in 1933. Today we call our version of that approach by the fusty name of equalization. But the distribution of federal revenues from all taxpayers to the poorer provincial governments since 1957 has been a lifesaver that has enabled all provinces to provide adequate medical and social care through troubled times without exorbitant rates of taxation.

Equalization was not an easy sell to the wealthier provinces when prime minister Louis St. Laurent outlined his prudent approach in the mid-1950s. The federation had somehow survived to that point with a clumsy system of subsidies, which mostly purported to treat each province equally, but never really worked. Federal politicians surreptitiously manipulated the system to funnel more funds to the poorer provinces. The money was never enough. With the Great Depression, even the richer provinces could barely cope with relief payments for the jobless and their families. They wanted their taxpayers’ money for themselves, while the poorer provinces pleaded with Ottawa for any funds to dodge default.

The search for a better way attracted some of the most eccentric and talented Canadians of their generation, who argued, plotted and sometimes drank together. A Royal Commission even devised a convoluted model for sharing that was partly based on the Australian approach. Nothing worked. Politicians could not agree: They were angry with each other. But by the 1950s, impatient Canadians were demanding the good life promised after their sacrifices in the Second World War. They wanted hospital care, improved pensions, better post-secondary schools and, most of all, medicare. But the poorer provinces could not participate in national shared-cost programs without financial help. So St. Laurent created unilateral grants based upon the key tax revenues in two wealthy provinces, raising the poorer governments to the average of the richer ones. (Ottawa now uses fiscal capacity as a determinant.)

Today, equalization grants are the often overlooked ties that really bind Canadians to each other. During the pandemic, Ottawa and the provinces have created massive spending programs that target individual needs. But the existing equalization funding has already strengthened the social fabric, enabling poorer provinces to enhance their medical and social care in hard times.

The principle of sharing permeates our 21st-century federation. Until the pandemic, Alberta Premier Jason Kenney complained about Ottawa’s generosity to the poorer provinces: Alberta does not receive equalization because of its relatively high per-capita fiscal capacity. Now University of Calgary economist Trevor Tombe calculates that “for the first time in 55 years, Alberta will be a net receiver in the federation.” (It will still not receive actual equalization because of its relatively strong economy, however.) Newfoundland and Labrador, which did escape reliance on equalization in this century, is now teetering on the brink of default. But whether through reforms to the equalization program or other transfers, Ottawa will almost certainly have to extend more aid to the floundering province; it has already guaranteed $7.5-billion in debt.

In contrast, the European Union, which is an uneasy monetary union but not a fiscal one, spent four acrimonious days in mid-July to agree upon an unprecedented stimulus package to help member countries to bolster their slumping economies. The recovery package is a mixture of grants and low-interest loans. Even then, the richer northern members were openly distrustful of how the poorer southern members would spend their windfall.

The often-fractious Canadian federation is certainly not without defects – and the now-convoluted equalization program is flawed. But since Ottawa sent out the first equalization cheques in April, 1957, that willingness to share has encouraged social unity and mutual trust. We save ourselves when we save each other.

https://www.theglobeandmail.com/opinion/article-how-canadians-learned-the-art-of-sharing/