Canada’s poorest provinces are on a “spending spree” thanks to equalization payments: Fraser Institute

Another report, this one from the Fraser Institute, suggests that Canada's federal equalization program is in serious need of a major overhaul.

Equalization was introduced in 1957 as a way to promote comparable public services in all 10 provinces. Essentially, the program takes federal tax dollars and distributes them to "have-not" provinces with lower per-capita revenue.

But according to the report, the system in inherently unfair to taxpayers in Canada's richer provinces.

In other words, as former civil servant David McKinnon once put it, "the federal government is robbing Peter [ie: the have provinces] to pay Paul [ie: the have-not provinces] so that Paul can live better than Peter."

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The Fraser Institute looked at the period between 2005 and 2013 and found that the 'poorer' provinces have better outcomes in 13 out of 19 social indicators.

One specific example highlighted in the report — written by Mark Milke — is class sizes in elementary and secondary schools: In 'have-not' provinces, class sizes are between 13 and 24 per cent smaller than in 'have' provinces.

"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. Yet in both cases the tax dollars of the British Columbian and Albertan are used to provide those better services," Milke said in a press release accompanying the report.

"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."

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According to a 2012 Mowatt Centre report, one of the equalization system's biggest failings is that it doesn't appropriately account for cost of living discrepancies between the provinces.

"Provinces … differ in their ability 'to provide reasonably comparable levels of public services' because they have to spend different amounts to offer similar services; in other words, because they have different expenditure needs," wrote author and equalization expert Peter Gusen.

"Expenditure need is not new. It features in other countries’ equalization systems, notably Australia’s. It shows up in programs provinces use to set transfer payments for municipalities, school boards, and hospitals. It has been discussed in the Canadian Equalization context, though never adopted.

"Many reasons have been advanced for rejecting expenditure need: too complicated, too many value judgements, too much federal interference with provincial decisions, too costly, too much trouble for too little difference in outcomes."

The equalization system is slated to be reviewed in 2014.

Despite calls for reform, Prime Minister Harper has recently said that he doesn't expect any major changes to the program.

Have Not Provinces: for fiscal year 2013/14:

Quebec: $7.83 billion

Ontario: $3.17 billion

Manitoba: $1.79 billion

New Brunswick: $1.51 billion

Nova Scotia: $1.46 billion

Prince Edward Island: $340 million

(Photo by the Canadian Press)

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