Until now, equalization has worked amazingly well
Winnipeg Free Press May 7, 2008
Canada’s equalization system isn’t broken. What’s broken is our national will. We have sleepwalked into an era of what constitutional expert Eugene Forsey once called “province-worship.”
Sometime between the election of a separatist government in Quebec in 1976 and Alberta’s unforgettable “let the eastern bastards freeze in the dark” bumper sticker of 1980-81, the federal government began cowering in the basement, afraid to exercise the immense powers it enjoys under the Constitution for fear of offending provincial nationalisms.
Even the language of federal-provincial relations changed to stroke sensitive provincial egos. The two “levels” of government became the two “orders” of government. “Federal-provincial” conferences became “first ministers” conferences. “National standards” became dirty words. Canada has been turned precisely on its head. Founded in 1867 as a highly centralized federation, it is now a true confederation. Canada collects just 45 per cent of total revenues; the U.S., ostensibly a decentralized federation, takes in 66 per cent.
History provides us context. Ottawa bought the land that forms the three Prairie provinces from the Hudson’s Bay Company in 1869. Alberta and Saskatchewan have federal cartographers to thank for the fact they won the national resource lottery grand prize. The boundaries of the four western provinces were set by Ottawa, not the provinces, more than half a century before the discovery of oil.
Before oil, Ottawa had to save Alberta from bankruptcy. Now, it’s “fat cat” Ontario’s turn to fall on hard times. What goes around, comes around. Except Ontario’s potential have-not status is not just a catastrophe for Ontario. It’s a catastrophe for Canada. Ontario has 40 per cent of Canada’s population and economy.
But there’s a further catastrophe in the making, thanks to today’s market fundamentalism. It regards the market as omnipotent and anything that interferes with its invisible hand an abomination. High on the market fundamentalists’ list of abominations is Canada’s constitutionally entrenched equalization program. Right-wing think-tanks have launched an unprecedented attack on equalization, denigrating it as “welfare” and “dependency” and labelling Ottawa’s role in making Canada a kinder, richer nation ineffective and outmoded. “Have-not” province is also now a dirty word.
But Canada’s geographic area is so huge and its economy so diverse all provinces will never be prospering equally simultaneously. Equalization is sound national economic and social policy, avoiding “race to the bottom” tax havens creating extremes of provincial poverty and wealth leading to vastly unequal opportunities for citizens.
Equalization arose from the last time the market fundamentalists held sway and ushered in the Great Depression. Ottawa appointed a royal commission to recommend a way to buffer the national economy from boom and bust markets.
The 1940 Royal Commission on Dominion-Provincial Relations, otherwise known as the Rowell-Sirois report, pioneered the concept of national wealth-sharing. This extract from Volume Two is as true in 2008 as it was 68 years ago:
“In Canada today, freedom of movement and equality of opportunity are more important than ever before and these depend in part on the maintenance of at least minimum national standards… Not only national duty and decency, if Canada is to be a nation at all, but equity and national self-interest demand… it because the existence of areas of inferior education and public health standards affects the whole population and creates many grave and dangerous problems. More fortunate areas cannot escape the pressure on their standards and the effect on their people; in this case prevention, in both fiscal and human terms, is much cheaper than the cure.”
Until now, equalization has worked amazingly well. Lars Osberg, chair of the economics department at Dalhousie University, reports that economic disparities among provinces have substantially decreased over the last 20 years. Manitoba’s dependence on equalization has fallen from a peak of 35.8 per cent of all revenue in 1991-92 to a low of just 28.7 per cent in 2005-06. The new formula bumps it back up to 31 per cent in 2008-09.
Equalization and the whole national economy are being twisted out of shape by global oil prices and Canada’s soaring petrodollar. While Ontario’s manufacturing heartland suffers, Alberta and possibly, Saskatchewan and Newfoundland and Labrador are becoming tiny, fabulously wealthy United Arab Emirates or Qatars within Canada.
By including just 50 per cent of resource revenues in the new equalization formula, Ottawa automatically made the province with 40 per cent of the nation’s population and economy an equalization recipient. Resource-poor Ontario could soon be in the ludicrous position of being both equalization’s chief funder — and its chief recipient.
Ottawa cannot equalize wealth to which it has no access. While natural resources belong to the provinces under the 1867 Constitution, the same Constitution gives Ottawa the power to raise money “by any mode or system of taxation.” Recalling that it was once saved from bankruptcy by Canada and all of Canada west of the Ottawa River subsidized the start-up of its oil industry, Alberta should drop its ferocious opposition to a federal royalty tax on oil’s current “super” resource rent.
Unless this happens, it’s Canada, not equalization, that’s broken.