Equalization: The Cynical Game

A clear-minded critique of Canada’s federal-to-provincial tax revenue distribution scheme – the constitutionally-mandated “Equalization” program – appeared in today’s National Post. Written by Calgary-based conservative author and columnist Mark Milke, Harper’s Costly Lust for Quebec Votes tackles the cynical money dance played between federal governments and their provincial counterparts. The Equalization concept mandates that the federal government oversee a program that takes tax revenues collected in the most successful provinces, and hands it over to provincial treasuries in the least successful provinces, to help those “have-not” provinces provide social services that would otherwise be unaffordable.

As Churhill would have said, the program has firmly established what kind of relationship exists between the federal government and the provincial premiers; now it’s just a matter of haggling over the price. As the headline suggests, Milke is highly critical of Stephen Harper’s Johning for votes in Quebec. To be fair to Harper, every government of the past 40 years has gained power by buying off Quebec in one way or another. But the column goes much deeper, exposing other economic perversions the program encourages:

…equalization encourages less-wealthy provinces to pay above-market wages to provincial civil servants and others, even though the cost of living is substantially less in, say, St. John’s, Quebec City or Charlottetown, compared with Toronto, Calgary and Vancouver. It also encourages have-not provinces in their complacency on smarter economic policy and allows them to retard sensible development. (The Newfoundland government’s continual Hugo Chavez-like demands regarding offshore-oil development is a case in point.)

Also, far from equalization providing provincial governments with “roughly equal” services, some provinces use the cash to provide programs unavailable in the very provinces where equalization money originates. As an example, think of Quebec’s heavily subsidized daycare program.

Quite apart from the indefensible subsidies in Quebec’s daycare program itself — the day care of a two-income family is subsidized to the same extent as that of a single mother — the reality is that taxpayers in Ontario, Saskatchewan, Alberta and B.C. subsidize universal day care in Quebec, while no similar universality exists in their provinces.

It’s another example of the political absurdity of Canada. Quebec gets away with economic murder; the Maritimes’ strongest incentive is to stay down on the mat; and Alberta and Ontario are painted as selfish louts when they try to resist. The solution? Maybe I’ll suggest something someday. But now…I must sleep.

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Filed under Perverse Economic Incentives

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