Moe’s equalization plan a way to blame others

For many years, Saskatchewan was a recipient of equalization, write Daniel Béland, Gregory P. Marchildon, André Lecours and Rose Olfert.

When provincial governments face difficult fiscal situations or see the federal government in a surplus position, a common political response is to find a justification to seek more money from Ottawa.

For example, in the early 2000s, Quebec and other provinces pushed the issue of “fiscal imbalance” onto the agenda to get more money from Ottawa, at a time when the federal government was running large budget surpluses. Today, both Alberta and Saskatchewan face fiscal challenges at home and, predictably, they blame fiscal federalism for contributing to their budgetary problems. Politicians in both provinces have found an easy culprit to mobilize their political base and seek a better fiscal deal with Ottawa: the federal equalization program.

Under the equalization program, required by the 1982 Constitution Act, the federal government has the responsibility to allocate resources from the federal treasury to those provinces whose fiscal capacity falls below the national average. The formula for the redistribution is routinely revised.

Saskatchewan Premier Scott Moe has put forward what he called a 50-50 formula. According to this new formula, only 50 per cent of the nearly $19 billion now paid as part of the equalization program would be distributed to provinces with a lower-than-average fiscal capacity. The other half of the equalization pool would be distributed across all 10 provinces on an equal per capita basis, unrelated to regional disparities.

Under this proposal, the “winners” would be Alberta, British Columbia, Saskatchewan, and Newfoundland and Labrador, the four provinces that currently do not receive equalization payments. The “losers” would be the six other provinces that receive equalization payments, but would then receive less.

From a purely political standpoint, it is easy to understand why focusing on equalization policy is a winning issue for Premier Moe. It is a way to blame others — the federal government (for the current formula) and recipient provinces such as Quebec — for the fiscal challenges facing Saskatchewan.

Clearly, this plan involves a reduction in regional redistribution. Canada already has two other major transfers (the Canada Health Transfer and the Canada Social Transfer) that are operating on a strictly per-capita basis. In fact, 70 per cent of the total value of the combined three major transfers already flow money to the provincial governments on a per-capita basis.

Equalization transfers are designed to reduce horizontal fiscal inequalities among provinces, focused on allocating money to provinces that fall below the national average. In Moe’s plan, more than 80 per cent of the cash value of combined transfers would become strictly per capita, leaving fewer resources to reduce fiscal disparities among provinces. These disparities stem from enduring regional inequalities due at least in part to the uneven distribution of natural resources across the country.

The Moe plan misses the point of equalization: As stated in Subsection 36(2) of the 1982 Constitution Act, it is a program that reduces potential provincial revenue disparities “to ensure that provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation.” And let’s not forget: Someday, Saskatchewan could receive equalization payments again as it did for many years in the not-so-distant past. In the first few years of the program, Saskatchewan received the second-greatest percentage of equalization money. No Saskatchewan government ever wanted to shrink the pool back then. Would the premier put forth his plan if his province were still — or would soon again become — a recipient? No. Daniel Béland, Johnson Shoyama Graduate School of Public Policy; Gregory P. Marchildon, University of Toronto; André Lecours, University of Ottawa; Rose Olfert, Johnson Shoyama Graduate School of Public

Policy. They are among the coauthors of Fiscal Federalism and Equalization Policy in Canada (University of Toronto Press).