What is Equalization?

We have dicussed this ad nauseum on this blog over the past few years but I still think that it remains a valid question.  To some, Equalization is a perfectly legitimate – and if you remember former Premier Lord’s fiery defence – a Constitutionally protected – source of revenue for poor provinces that need it to provide a similar level of public services to citizens as richer provinces.

But if it is a perfectly legitimate source of provincial revenue similar to sales tax or income tax, why then is Equalization a knock on Premier Doer’s record as Premier of Manitoba?  From an editorial in today’s Globe & Mail:

The Winnipeg Free Press noted that he failed to wean his province off equalization payments, which last year made up over 20 per cent of provincial revenue.

Let’s be clear.  The Globe & Mail is not a bastion of right week ideology and neither is the Winnipeg Free Press but the default position is that it is a negative that Doer “failed to wean his province off equalization payments.”

It seems to me that Equalization has never been considered legitimate.  Instead of being viewed as a way the federal government (taxing Canadians not Albertans or Ontarioians) supports an equivalent level of public services across the country, equalization is positioned – squarely (not withstanding Lord’s position) – as a negative subsidy where money is being taken from residents of rich provinces to subsidize poor ones).

I have been tracking this issue in the national press for almost as long as I have been writing this blog and I can tell you that this is the first time I have read that it was a negative for a Premier not to wean his province off equalization.

Shawn Graham was right to make weaning off equalization a fundamental part of his government’s strategy.  The writing is on the wall, folks.  The problem is that we have only increased our need for equalization in the past three years.  In the 2006-2007 budget, we received $1.43 million.  By the 2009-2010 we received $1.69 billion in equalization.  An 18% increase in three budget cycles.

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10 Responses to What is Equalization?

  1. richard says:

    NBers seem to regard equalization payments as a natural right. You see very little discussion in the local press about what might happen if transfers are reduced; instead, there is an almost surreal focus on ‘I pay my taxes so pave my road and cut the brush on the right of way’. I am not sure that most people really understand what self-sufficiency really entails, or why it is necesary. When ON starts to complain about ON not getting its fair share, then surely the writing really is on the wall. But few here are reading the wall. And, no wonder, when the local press reports how great we are doing in the current recession.

  2. Rob says:

    “NBers seem to regard equalization payments as a natural right.”

    I disagree. I think the majority of NBers have no idea how much of our budget revenues are coming from the feds. That’s why self-sufficiency has won broad appeal, we have no real idea what we need to do to get there, or how painful it may be.

    We don’t see equalization as a natural right, in fact, we don’t even see it at all.

  3. Samonymous says:

    It seems to me that Equalization has never been considered legitimate. Instead of being viewed as a way the federal government (taxing Canadians not Albertans or Ontarioians) supports an equivalent level of public services across the country, equalization is positioned – squarely (not withstanding Lord’s position) – as a negative subsidy where money is being taken from residents of rich provinces to subsidize poor ones).

    As much as I like to agree with you, David, on this one (and to a certain degree I do), it has always been a part of the central government’s mantra to view equalization, in our neck of the woods, as a good thing — a long term solution or a big victory, constitutionally, so to speak.

    Just look at some of the wording bantered about during the Charlottetown Accord (which came at the heals of a recession). David McLaughlin put it best in the second chapter of his book, and reads as follows (I added a few things in brackets):

    “The Yes campaign’s messages were essentially three-fold: Voting Yes would end the constitutional wrangling, would help the economy and unite the country. Voting No, on the other hand, would stall economic recovery, destroy the years of effort put into constitutional change, and create more disunity and instability. Underneath those broad-brush arguments were the expected gains for each region of the country. Ultimately, the Yes campaign resorted to how each part of the country benefited from the Charlottetown Accord; The West got an equal and elected senate (additional HoC seats), Atlantic Canada got entrenched equalization (less seats in an equal senate), Quebec got the Distinct Society Clause (a guarantee of 20 % of the seats in the Hoc regardless of population decline), (Ontario 18 more seats in the HoC), and so on.”

    So let me get this clear, central Canada, and the central [federal] government’s who have always favored that region, see a road to constitutional and economic stability as one where “entrenched equalization” is viewed as a long term, viable solution to our region’s social and economic challenges. I’m surprised the provincial government of the day (in that case McKenna), and our people (who vote “Yes” to the Charlottetown Accord) saw it that way too, because I sure as heck don’t see how remaining hooked to equalization payments was any sort of victory, long term or short. Better yet, it no way of becoming a prosperous region who can act as a national asset rather than a dependent drag.

  4. mikel says:

    We simply don’t know how canadians view ANY of these things. People voted no to the charlottetown accord, and even though the yes vote was higher in SOME maritime provinces, the accord contained so many things that we simply can’t make specific conclusions on it. I tend to agree that most people don’t sit around analyzing budget documents, I certainly know few people who even realize how much the feds contribute to the province. I make a point of mentioning it because few realize just how little corporations contribute to the budget.

  5. mikel says:

    Oh yeah, the Globe and Mail is NOT a bastion of right wing ideology?? Since when? Have you been reading The Aryan Press or something? They are the business press of the country.

  6. The way equalization has played out, provinces with resources (especially oil, but also mineral wealth) have subsidized those without (usually agricultural or fishing-based provinces). Nothing wrong with that; it’s a way of saying that the resources in Canada belong to all Canadians. So there’s nothing wrong with accepting transfer payments, at least, not until we discover oil in the province. That said, the warning is well-taken: there are forces at work that would like to reduce transfer payments, omne of them in the PM’s office (just ask Nova Scotia).
    p.s.

    > The Globe & Mail is not a bastion of right week ideology and neither is the Winnipeg Free Press

    That’s pretty funny. Totally false, of course. But pretty funny.

  7. richard says:

    “no way of becoming a prosperous region who can act as a national asset rather than a dependent drag.”

    The real problem is not equalization per se, but the lack of any real effort to generate broad-based prosperity. Federal agencies like ACOA and DREE have not been used as part of any regional development strategy; instead they have been used to buy votes and create photo-ops for politicos. That may be largely the fault of provincial governments; the feds sometimes have money to spend, but by default they will spend it in ways that enhance govt MPs re-election chances.

    The failure to develop the NB economy to reduce reliance on transfers will now bear the expected fruit. It won’t matter much who is in power in Ottawa – transfer payments will be cut as Ottawa deals with its own fiscal problems. Plus we will see reductions in federal R&D spending, cuts in military spending, etc. All of these will hit NB pretty hard.

  8. Samonymous says:

    I don’t know, if I were to compare the results of DREE (early on in its mandate) to the overall results of ACOA, I’d have to give the nod to DREE. Stats did show that it made a contribution to slow growth areas via job creation and investment, that is, until the plug was pulled by it’s Minister Jean Marchand (after political pressure from the island of Montreal won the day). Correction, the plug wasn’t pulled, but its funding was significantly reduced for the maritime provinces.

  9. richard says:

    ” results of DREE (early on in its mandate) to the overall results of ACOA, I’d have to give the nod to DREE”

    One should not confuse correlation with causation.

  10. Anonymous says:

    ” In the 2006-2007 budget, we received $1.43 million. By the 2009-2010 we received $1.69 billion in equalization. An 18% increase in three budget cycles.”

    The only thing NB is successful at, and you criticize it!

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