Equal­iza­tion pro­gram based on myth of have and have-not prov­inces

Cape Breton Post - - COMMENT - BYMARKMILKE Mark Milke is di­rec­tor of re­search of the Fron­tier Cen­tre for Pub­lic Pol­icy, a mar­ket-ori­ented think tank based in west­ern Canada.

If a fed­eral politi­cian were to run on a plat­form de­mand­ing home­own­ers in Toronto or Van­cou­ver sub­si­dize those in Char­lot­te­town, the re­sult would likely be lost votes in On­tario and Bri­tish Columbia.

If a civil ser­vant urged Man­i­to­bans to use more wa­ter and elec­tric­ity, she’d be ac­cused (rightly) of be­ing un­friendly to the en­vi­ron­ment.

If a Que­bec premier as­serted it was the right of Que­be­cers to have cheap day care at the ex­pense of On­tario, chances are a ver­bal Plains of Abra­ham bat­tle would en­sue be­tween Queen’s Park and Que­bec City.

But th­ese Alice in Won­der­land sce­nar­ios ac­tu­ally oc­cur due to the in­ter­provin­cial wealth re­dis­tri­bu­tion game known as equal­iza­tion.

They’re just rarely the stuff of fed­eral-pro­vin­cial con­fer­ences or made ex­plicit in cam­paign plat­forms.

Equal­iza­tion is only one of many fed­eral pro­grams that trans­fer tax­pay­ers’ cash to pro­vin­cial gov­ern­ments. But in the cur­rent bud­get year, Ottawa plans to shower al­most $14.2 bil­lion on the prov­inces.

That’s up from $10.9 bil­lion when the fed­eral Con­ser­va­tives took of­fice in 2006 and up from $8.7 bil­lion in 2003.

As to where the money goes, Nova Sco­tia, New Brunswick and Prince Ed­ward Is­land col­lec­tively take in $3.4 bil­lion and Man­i­toba gar­ners al­most $2.1 bil­lion. Que­bec takes in the largest share of the fed­eral honey pot at al­most $8.4 bil­lion (or 59 per cent of equal­iza­tion).

The anom­aly this year is On­tario. Be­cause of how “ have” and “ have-not” sta­tus is de­ter­mined, and be­cause On­tario’s eco­nomic per­for­mance has lagged the West, On­tario is a have-not prov­ince this year for the pur­pose of equal­iza­tion. It will re­ceive $347 mil­lion.

Nor­mally, On­tario is a have prov­ince and will be again as its econ­omy re­cov­ers. Thus, to keep a long-term per­spec­tive – and be­cause when all fed­eral trans­fers are added to­gether, On­tario still sends more money to Ottawa on a net ba­sis – I’ll keep On­tario in the have col­umn.

The nor­mal jus­ti­fi­ca­tion for equal­iza­tion is that it helps pro­vide roughly equal ser­vices across the coun­try. Wrong: in re­al­ity, equal­iza­tion trans­fers cash from tax­pay­ers in high cost prov­inces to gov­ern­ments in lower cost prov­inces.

The pro­gram also al­lows for lav­ishly sub­si­dized ser­vices where they ought not to ex­ist and thus acts as an in­cen­tive to poor pro­vin­cial pol­icy.

For ex­am­ple, on the en­vi­ron­ment, Man­i­toba can and does un­der-price its provin­cially-owned hy­dro­elec­tric­ity by about $1.2 bil­lion ev­ery year. That doesn’t help con­ser­va­tion. Without the $2 bil­lion in equal­iza­tion, Man­i­toba’s gov­ern­ment would be forced to charge mar­ket rates. So it’s nei­ther smart mar­ket pol­icy nor smart green pol­icy.

An­other equal­iza­tion-al­lowed sub­sidy ex­ists in Que­bec where day care costs just $7 for each child, re­gard­less of fam­ily in­come. Without fed­eral trans­fers, which ul­ti­mately orig­i­nate in the pock­ets of tax­pay­ers out­side of Que­bec (that’s why Que­bec is a net re­cip­i­ent of tax dol­lars in Canada, not a net payee), more sense on day care costs might pre­vail, such as not sub­si­diz­ing mil­lion­aires in Mount Royal.

But the best ex­am­ple of why equal­iza­tion is a bad deal is in home prices. For ex­am­ple, the av­er­age bun­ga­low will set you back be­tween $210,000 and $299,000 in Hal­i­fax, $160,000 in Prince Ed­ward Is­land, $177,980 in Saint John, be­tween $206,000 and $290,000 in Montreal, and be­tween $220,000 and $280,000 in Win­nipeg. This is ac­cord­ing to the most re­cent sur­vey from Royal LePage.

When tax dol­lars are sent to pro­vin­cial gov­ern­ments in those re­gions, the money comes from some­where. Be­cause equal­iza­tion is ul­ti­mately a fed­eral trans­fer of wealth from tax­pay­ers in the have prov­inces to gov­ern­ments in the have-nots, that some­where is in­di­vid­ual tax­pay­ers in have prov­inces where the cost of hous- ing is of­ten sig­nif­i­cantly higher than in the equal­iza­tion-re­ceiv­ing prov­inces.

Here are ex­am­ples of av­er­age bun­ga­low prices from the so­called have prov­inces: in greater Toronto, a range of $303,000 (in Burling­ton) to $725,000 (in Lawrence Park), $275,000 to $380,000 in Ed­mon­ton, $310,500 to $558,600 in Cal­gary, and a range of be­tween $413,000 and $1,050,000 in greater Van­cou­ver.

The fed­eral equal­iza­tion pro­gram cre­ates the no­tion that there are have and have-not prov­inces. It’s a fic­tion. A bet­ter de­scrip­tion is ex­pen­sive and cheaper prov­inces in which to live.

And through fed­eral tax and trans­fer pro­grams such as equal­iza­tion, it’s fam­i­lies in the for­mer who sub­si­dize gov­ern­ments in the lat­ter – along with the poor pol­icy choices in the so-called have-nots.

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