Equalization without Discrimination

Politically, equalization payments have been an interesting topic ever since the system has been implemented.  At both the federal and provincial level, the topic has been debated since inception, and is often seen in opinion articles throughout media outlets. The purpose of the equalization program is to provide a similar level of social services across Canada, including education and social assistance. This ensures Canadians are treated equally nationwide as theoretically the same level quality of service should be granted in all provinces. Equal treatment of all Canadian citizens should lower rivalry between provinces, and assist against high differentiation levels of quality of living between Canadian citizens.  Additionally, with regional fiscal disparities countered, this should lower the temptation of citizens to migrate to another province to search for a better life, and instead contribute to their home province. Lastly, the province of Quebec historically has a higher interest in social programs, and thus equalization payments assist in quelling the motivation of separatism. Overall, equalization payments are systematically unifying Canadian citizens allowing for equal treatment regardless of geographical location.

Equalization payments began in 1957 as a method to ensure that all provinces had similar social programs that were acceptable, ensuring equality among the provinces as the program’s title suggests. With different resources and populations in each province, it is expected that some provinces will have stronger economies than others, thus allowing for more taxation revenue and a different level of service to be delivered from provincial governments. The provinces that have stronger economies that contribute to the equalization program are colloquially defined as have provinces while provinces who receive from the program are known as have-not provinces. Quebec is by far the largest receiver of equalization payments, with $8.5 billion transferred to the French speaking province in 2010/2011. The major contributors through throughout the program’s history have been Ontario with their commercial and manufacturing economy and Alberta with their oil revenues. However, in 2009 Ontario qualified as a have-not province while Newfoundland and Labrador ceased to qualify as a have-not province.

Throughout the equalization payment system’s history, there have been multiple changes in the calculation method. In 2007, the equalization program was reformed based on the recommendations made by the Expert Panel on Equalization, or the O’Brien Report. The report recommended increasing funding to the equalization program by $900 million annually, more transparency, reject deals that favour provinces, and include all 10 provinces in the calculation of the national standard. Currently, the formula to calculate equalization payments is based on comparing provincial revenues and estimating fiscal capacity of each province in five different categories.These categories are personal income taxes, business income taxes, sales taxes, property taxes and natural resource revenues. After this data is gathered, the per capita amount is calculated in each category and each province is compared categorically to the average of the 10 provinces to decide who receives equalization payments.

By using an average of 10 provinces in five distinct revenue sources, the government objectively has made a large contribution to enable that Canadians are granted the same quality of service from West to East coast. However, the program has faced controversy as the have provinces often criticize equalization payments for its unfairness, while the have not demand more financial support. Additionally, some analysts have correlated equalization payments to the Atlantic region`s slow economic growth, attributing reliance on the payments as a reason for provincial governments not to encourage economic activity. This is because the higher the growth of the economy, the higher the revenue in forms of taxation the province receives, which leads to lower equalization payments. However, the federal government has recognized the lack of incentive and addressed it with special programs such as the Atlantic Accords, which allows for a delay period between the lessening of equalization payments while other sources of revenue such as resources are being developed. As a result of the adoption of fair policies for the equalization program, all provincial governments should have the correct amount of financial resources to provide their population with the same quality of service across Canada.

Quality of service should be equal in education and health care across Canada. However, according to Heather Smith, president of United Nurses of Alberta, the shortage of nurses in Alberta has reached around 1400 due to cuts in post-secondary programs. Estimations suggest that in the next 20 years, 75% of all jobs will require post secondary training.This statistic is troubling, and reveals the value in governmental subsidization in post-secondary education. Equalization payments can help stem the education cuts that have occurred in provinces such as British Colombia, and ensure that provinces have the correct tools to adequately accommodate correct training of their workforce to contribute and succeed in the world economy.

With different economies across Canada, and different median rates, Canadians have different levels of income that differentiating provincially. In 2001, Ontario and Alberta led the way with the highest income per capita rates while Newfoundland and PEI had the lowest. Interestingly, Quebec was at the average, even though they receive by far the highest amount of financial support from the equalization payment program. These statistics reveal that some provincial economies provide more opportunity and higher levels of income than others. Recognizing this, the Canada Health Act ensures that Ottawa assists in health funding provided that the administration is public, healthcare is accessible and portable, universality, and comprehensive. This is one social program that reveals the federal government’s intentions of ensuring that all Canadians are provided with equal governmental support.

However, some provinces have begun to cut health care expenditures due to looming deficits that threaten the province’s future. For example, Ontario has seen health care spending decline from 50% of the budget in 1981 to 34% of the budget currently.Some have suggested that efficiency and process changes can be made, but as Ontario has become a have not province they will need federal support to continue a strong level of health care service. To ensure that all provinces provide similar health care service to all Canadians, the equalization payment system gives provinces some latitude in healthcare.

The concept of brain drain has been discussed internationally. Basically, it is the concept that if a nation does not provide opportunity for their most intelligent or ambitious citizens, they will migrate to another location that does.  Similarly, this concept can be applied on a provincial level within Canada. Exemplifying this is British Colombia, which has seen an increasing migrant outflow with its higher cost of living than other provinces. Most of the British Colombian talent has settled in Alberta, where the economic activity is far greater as oil exploration drives opportunity for entrepreneurs. Problematically, engineers or other skilled tradespeople are needed in British Colombia for economic growth, but according to the Director of Research and Learning with BC Human Resources Management Association someone can simply “fly in and fly out from Alberta and make a lot more money [relative to the cost of living].”

The problem of brain drain affects most provinces who are economically lower contributors to national GDP than other provinces, as Newfoundland and Labrador have also suffered from brain drain in 2008.New resource projects in the Atlantic region have assisted in lowering the migration, but the problem still exists as younger talent who are mobile seek better opportunity and higher quality of life in provinces such as Alberta or Ontario. Equalization payments can help solve this problem as they grant provincial governments additional tools to entice talent and skilled trades to stay in their home province by providing programs which can create opportunity. Programs such as offering post-secondary graduates tuition/tax rebates have been created in Saskatchewan, Manitoba and New Brunswick. Nova Scotia has sent out representatives of provincial industries armed with incentives to attempt to persuade migrants to move back home.With the assistance of equalization programs, provincial governments are given the tools to fight brain drain and retain the talent necessary for bolstering economic growth.

Some critics have suggested that provinces given equalization tools will not use the funds to bolster the economy. With provinces being given the tools in the form of additional funds through equalization payments to fight brain drain in terms of education and talent migration, it is more likely a province will eventually not require equalization payments. Saskatchewan has gone from being a have not province to a have province, while Newfoundland and Labrador have joined them. While ensuring a steady budget, the provinces have made economic gains in terms of natural gas exploration. It is difficult to say that without equalization payments, the talent that has explored and harvested these resources to add to the provinces wealth, would have stayed within the province. Obviously, some outside help has been granted, but with examples such as Saskatchewan it is very hard to suggest that equalization payments are an addiction that prevents governments from pushing economic growth.

Additionally, critics have long accused Quebec of taking far too much federal assistance in proportion to other provinces. Agreeably, Quebec does take the highest percentage of equalization payments with $7.4 billion in 2012. Some economists such as Yourri Chassin from the Montreal Economic Institute have stated that there is little incentive for Quebec to develop their economy as they receive so much from the federal government. This is arguable, as Newfoundland and Saskatchewan have pulled out of their have not status by developing their economy. A better argument in favour of Quebec receiving equalization payments can be made by looking at their past. Historically, Quebec’s Roman Catholic inspired society has had a government providing extensive social services involving a larger government. These services include the lowest tuition rates in Canada, and $7 a day daycare. Although Quebec’s taxation rate remains higher than all the other provinces, the government has had difficulty meeting their budget as they try to preserve their culture. Laws such as the French Language Charter are enforced to protect the Quebec culture, or distinct society, but often deter business.  Quebec has a different culture than the rest of Canada, and that culture is often protected at a certain financial expense.

With two referendums in Quebec and the continual threat of separation, it is reasonable to argue that equalization payments have kept Quebec within confederation and prevented secession. Without equalization payments, the Quebec government would face a larger budget deficit, and a much more difficult time in providing the same type of service that Quebeckers have grown accustomed to. It is interesting to note that Quebec on a per capita basis actually receives the second less amount of equalization payments, with PEI being the highest. Ensuring Quebec receives some support from the confederation to continue their distinct society is crucial to ensure that separation does not occur.

Equalization payments have often been criticized across Canada. However, often the criticisms are based on misconceptions surrounding the payment system. The largest misconception is that Alberta and the other have provinces fund the have-not provinces. During the Alberta election, Wildrose Party leader Danielle Smith criticized the equalization payment immensely stating specifically that Quebec benefits at Alberta’s expense. Ms. Smith is incorrect, equalization payments are paid directly from the federal government’s coffers, and is not a directly transferred from another province. The federal government collects taxes their income from a wide variety of sources such as GST, federal portion of gas, or other federal portions of taxation. If the equalization payment was ended, this would not affect the amount collected from each province, it would simply end the payments received by have not provinces. Additionally, the federal government collects revenue from all Canadian sources equally, and does not receive specific payments from provincial governments based on economic growth. Basically, the equalization payment program is not a direct financial transfer from province to province, more so financial assistance from the federal government with revenue it collects with or without the equalization program.

Although the preceding argument is probably the largest criticism, some falsely state that the equalization program allows for have-not provinces to charge lower tax rates in their province. This is simply not true, as Quebec has one of the highest tax rates compared to Alberta which has one of the lowest. Others argue that provinces should raise taxes themselves in order to fund their own governments. Unfortunately, provinces all were not given equal resources. PEI’s population of around 146 000 does not have the manpower nor the resources of a province like Alberta to fund their social programs. Raising taxes would most likely impair PEI’s economy further with today’s highly competitive international market. As a result, federal assistance is necessary to ensure that all Canadians have similar social services.

Equalization payments allow Canadians to be treated relatively equally nationwide in terms of social assistance indifferent of the economic provincial condition. The main objection of the equalization payment system is to provide all Canadians with the same level of social services from the East to West coast without discrimination. Hypothetically, this program should ensure that Canadians are treated equally across the confederation. Equality among provinces should lower provincial rivalry and differentiation in national living standards, thus lowering provincial migration or brain drain. Additionally, equalization payments most likely have played a part in the prevention of Quebec secession and successful stifling of the separation movement. Equalization payments will always be a continual topic of discussion and critique; however the general idea promotes equality among Canadians regardless of the province which promotes unification.