Canadian Politics Today

Federal Politics => Canadian Politics => Topic started by: JMT on February 02, 2017, 09:56:26 am

Title: Reforming Canada's Equalization Program
Post by: JMT on February 02, 2017, 09:56:26 am
As I'm on the mailing list of all federal parties (I've been slowly blocking their incessant emails from my inbox) I get a lot of mail from the leadership candidates for the CPC.  This morning, I got an email from Maxime Bernier.  It reads as follows:

John, itís time to reform Equalization in Canada.

When I launched my leadership campaign last May, I made it clear that all my policies would be based on four key principles:

Freedom, fairness, responsibility, and respect.

Canadaís equalization program is unfair, and inefficient.

It must change.

Albertans are out of work and still paying for social programs in provinces with stronger economies than their own.

Itís not fair.

Equalization is a poverty trap that stops provinces from developing to their full potential.

Itís a badly designed welfare program that discourages growth.

The equalization formula counts a provinceís energy revenue. But, it doesnít treat all forms of energy revenues the same way.

Itís time to stop rewarding provincial governments for bad policy.

As leader of the Conservative Party of Canada and prime minister, I will freeze the budget for the equalization program.

Second, Iíll have a committee review the budget, and propose a new formula.

That new formula must end the provincial equalization welfare trap.

My plan is based on freedom, fairness, responsibility, and respect.

I will lower taxes for every single Canadian.

I will end corporate welfare, and lower taxes for every single business.

I will remove barriers to trade within Canada.

And under my plan, the so-called ďhave-notĒ provinces will have all the tools they need to unleash their full economic potential.


I have several problems with this email.  First, Alberta isn't paying for social programs in other provinces.  That's a common misconception about the equalization system that Bernier is exploiting.  Second, Alberta is still not a recipient of the program for good reason; even with the recent downturn which has been very hard on their economy, their per capita GDP based on the latest available numbers is still far stronger than that of pretty much any other jurisdiction in Canada.

On the other hand, I do see room to improve the system.  I think that all potential revenues should be included, and I think there should be a mechanism to adjust the system quickly for catastrophic changes to the negative.  It ends up costing Ottawa a lot of money in down years when they're relying on fiscal data from strong years to make the calculations. 
Title: Re: Reforming Canada's Equalization Program
Post by: SirJohn on February 02, 2017, 12:10:07 pm
Reforming something like that is a complicated undertaking. All I know is that the Atlantic provinces have been getting huge amounts of transfer payments for about as long as I've been alive and it doesn't seem to have done anything but make them dependent on those transfers. They've done nothing to improve their economies. If you took the transfers from other provinces away all four provinces would be in bankruptcy. There is an old axiom that says if you give a man a fish he'll eat for a day but if you teach him how to fish he'll eat for a lifetime. It seems to me transfers are giving them fish, and they've done nothing to teach them how to fish.
Title: Re: Reforming Canada's Equalization Program
Post by: JMT on February 02, 2017, 12:17:59 pm
Just a correction - Newfoundland and Labrador is not an equalization recipient.  Their GDP per capita is very high.  They're still flat broke though.
Title: Re: Reforming Canada's Equalization Program
Post by: Blueblood on February 02, 2017, 12:30:45 pm
There's going to be a lot of provinces that are in tough financial shape given the macroeconomic environment
Title: Re: Reforming Canada's Equalization Program
Post by: poochy on February 02, 2017, 12:46:10 pm
Equalization of some form is good for all of us.  But, if you put everyone's money into a big pot and give more back to some than you do others doesn't that have to mean that some give more than they get out of it?  It has to be, the money isn't simply conjured out of nowhere, everyone pays federal tax and some provinces receive a greater proportion of those taxes as equalization payments than others, so those provinces benefit more and the ones who don't get equalization effectively have more money taken out of their system than the others.  The fact that it isn't a direct payment from province to province or that it starts out as a tax and gets turned into equalization doesn't mean that some don't contribute more than others when all is said and done. 

Anyway, i don't think this is a good idea for him, bold maybe, but perhaps stupid.  Perhaps the thought is he being from Quebec needs to pander to Albertans now in order to overcome the O'leary/leitch factor (christ please )  to win the leadership, but in practice this will only hurt him elsewhere during an election, and it could easily be one of those promises that is never intended to be kept. 
Title: Re: Reforming Canada's Equalization Program
Post by: JMT on February 02, 2017, 01:04:51 pm
Equalization really shouldn't be thought of as a transfer from province to province, but rather a transfer from individual taxpayers at the federal level to provincial governments.  In theory, any province could end up being a recipient.  In practice, some provinces always get it, and some never will (probably), so I understand where the province to province sentiment comes from.
Title: Re: Reforming Canada's Equalization Program
Post by: cybercoma on February 02, 2017, 01:24:51 pm
Just to be clear, provinces don't get equalization payments for being broke. This is the biggest misunderstanding about the program. It's about their capacity to fund their social programs at an equitable level to the rest of the country. A province could be flat broke because it 1) doesn't raise enough revenue, or 2) spends too much on programs, or 3) both. However, the equalization program is not dependent on their actual levels of taxation or spending. It's based on a calculated mean for the province, taking into consideration a number of different factors.

More importantly, federal taxation is the same across the board. The federal government collects money and distributes it nation wide as it sees fit and according to the terms of its programs. How much the federal government spends in any given province depends on what those provinces need and what federal programs and infrastructure exist there. NB gets a crapload of money from the federal government for Base Gagetown. However, everyone in Canada pays for its operation. Ontario gets a crapload of money for all of the federal infrastructure and human resources in Ottawa and across the province. Equalization payments are just another form of federal spending and it comes from the same pot of federal taxes that they charge to everyone equitably.