Is equalization even working?
To rectify fiscal disparities between provinces, the federal government incorporated Clause 36(2) into the 1982 Canada Act. It reads as follows: Parliament and the government of Canada are committed to the principle of making equalization payments to ensure that provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation.
In other words, the equalization payment is meant to increase provincial revenues by an amount that, together with provincial revenues, will be sufficient to provide reasonably compatible levels of public services in provinces.
The current equalization formula is based solely upon the average/ capita revenue of each province and compared to the national average/capita revenue. Equalization payments are calculated as: national average/capita revenue less the average/capita provincial revenue times the population. Canadian provinces have different characteristics, such as varying land areas, distinctive topographic, geographic, and hydrographic features and different demographic distributions. Natural resources also differ between provinces.
Therefore, what relevance do the national average/capita revenues have when calculating the amount that, together with a province’s revenues, will be sufficient to provide reasonably compatible levels of public services in a province?
Why wasn’t the cost to provide, operate and maintain provincial services included? Without knowing the costs, how is it possible to calculate if costs exceed available revenues?
If a program is worth implementing, it should, at a minimum, achieve its intended purpose. Private industry would require that program developer provide verification and validation that the program meet its objectives. Verification is carried out by the program developer. It includes inspection of the program, demonstration that the program works, testing with predefined inputs and expected output values and analysis by using calculations and models to evaluate performance. Validation is carried out by the owner to assure that the program meets the owners’ requirements. Has the current equalization program been verified and validated? If so, why haven’t the results been made available? If not, what method has been used to assure Canadians that the current $19-billion equalization program is in compliance with the 1982 Canada Act?
In addition to the executive and legislative branches of government, the federal government is involved in state-owned enterprises, government enterprises, federal trust funds, special operating agencies, agents of Parliament and departmental corporations. Most government operations can be established anywhere in Canada.
Surely any equalization program should start with redistributing of federal enterprises proportionally in provinces.
Dave Short, St. John’s