The equalization system between provinces is the biggest welfare program going in Canada. Set up to be a helping hand up between sub-sovereign entities in the country, it has become an enabler. A program that allows provinces who make bad financial decisions to keep making bad financial decisions. It is a program that needs to end, now.
There has always been equalization payments of some form in Canada since the time of Confederation. The current system grew out of a program dating to 1957. Taking money from the provinces that are doing well, and using it to help the provinces that are not. Government was much smaller then. As government grew, so did the amount of money flowing from “have”to “have-not” provinces. All in the name of keeping the provinces equal.
Provinces like Ontario and Alberta were net contributors for decades. Some provinces contributed for a while, then received for a while. Others have always been on the dole, never contributing to the system. Historically half the provinces contribute and half take. But this is 2016.
Ontario has been a “have-not” province for a few years now. Alberta is a “have-not” province thanks to the drop of global oil prices. Quebec always has been a “have-not”. In the last fiscal year, only British Columbia, Alberta, Saskatchewan and Newfoundland and Labrador were “have” provinces. This fiscal year, only B.C. and Saskatchewan will be contributing. That is unsustainable.
Quebec has received the largest sum of equalization payments out of all the provinces. This highlights two key issues with equalization. It is easy to cheat the system, and there is no incentive to try to pull their own weight.
Natural resources in provinces like Alberta (oil) and Saskatchewan (potash) are factored in to the equalization formula. Quebec’s natural resources like hydro-electric power generation are not. Quebec has large proven reserves of Natural Gas which remain in the ground. The government has stated that they are not going to extract that resource either. Electricity is sold cheap in Quebec by the province’s crown corporation because equalization payments top up their budget. The government has more generous social safety net programs than the rest of the country. Yet it is one of the few provinces to post a balance budget this year, its first in seven years. Only because of the 9.5 billion in transfer payments it received. Otherwise it would have the largest deficit in the country, bigger than Ontario’s 7.5 billion for the same period.
It is not just Quebec that does this. Ontario’s government keeps spending on programs galore while running a massive deficit. It receives welfare from the “have” provinces too. Few of the “have-not” provinces balance their books, their surpluses never exceeding the amount of the transfer payments from others.
This writer is not opposed to helping out others in need. But 50-plus years of handouts, while claiming a moral high ground and not doing more to help your own province be self-sufficient has to stop. The best way to do that is ending equalization payments. Force provincial governments to look at what’s important and how they are going to pay for it, themselves.
While family budgets do not get to phase in an income-cut when it occurs, the end of the equalization program should be over four years. This w0uld give the “have-not” provinces time to get their financial houses in order and come up with a plan.
Ending the equalization program should be in conjunction with lifting of inter-provincial trade barriers. This would make free trade within Canada just as common place as free trade between Canada and the United States. Provinces such as Alberta to be able to build the Energy-East pipeline to get oil-sands to market in the east. It would also assist Quebec in exporting electricity to Ontario, or Natural Gas nationally.
Government is not the answer to all problems. Forcing provinces that are doing well, to pay for provinces are not, creates resentment across the country. Provincial governments need to come to grips with what their roles are, and live within their means. It may mean that a province can no longer afford seven-dollar-a-day subsidized day care. Or that you cannot afford two-years of all-day kindergarten or four publicly-funded school systems. So be it.
The equalization system in place now cannot afford this forced equality either. Robbing Peter to pay Paul has gone on for over 145 years between the provinces. It’s time to give it a rest.