Ask any Western Canadian politician what federally managed program they hate the most and you’d probably get a fairly similar answer. The answer would probably be Canada’s the equalization program and its mismanagement.
The program has generated so much rage in the Western provinces that the leader of Alberta’s United Conservative Party called for a referendum on the issue earlier this year.
The controversial equalization which is written into the constitution, aims to give “less prosperous” provincial governments access to a level playing field through a transfer of general government revenues.
Wealth drain on the West
While this goal is certainly noble and a key factor to nation-building, it does have some serious problems.
Over the years the controversial program has taken billions of dollars out of the resource-rich West and moved it chiefly to Quebec and the Atlantic region.
In doing so, it has created an economic dependency in the East, while also seriously hindering development in the West through reduced available incomes.
A majority of payments go to Quebec
In 2018-19, equalization payments will rise to a new high of $19 billion rising to an all time peak of $22 billion by 2022.
Sixty-two per cent of the transfer funds will go to Quebec, while Albertan taxpayers will have to pay about $3 billion.
Canadians have given Quebec nearly a quarter of a trillion dollars in equalization payments since 1957, half of all the money the program has ever handed out.
While western sentiments have always been negative, today a combination of political, economic and social factors worldwide could aid in finally changing the formula once again.
Equalization creates long-term dependency
According to the originator of the formula, the idea had flaws and it created long-term effects in promoting a culture of dependency on the part of the citizenry and their political leaders in provinces with relatively low fiscal capacities.
With the global economy becoming competitive and more connected than ever, relationships of dependence cannot be allowed to continue in the long term without risking a loss in economic opportunity for everyone.
At this moment Quebec manages to maintain massive social programs or low energy costs supplemented largely by transfers.
This financial bargain allows and incentivizes Quebec voters to actively vote for a completely different set of long-term objectives, without even realizing it.
Payments influence long-term decisions of provinces
Quebecers, for example, maintain cheap daycare, and other luxuries, technically financed from the wealth of equalization payments. If they were to improve the financial well-being of the province by investing into their own manufacturing or resource production, in turn, they’d lose these grants.
If the formula were changed, and the real underpinnings of each economy exposed, you’d see a massive change in support for projects such as pipelines, since consumers in the East would finally understand what helps finance their provincial wealth.
There is potential for this to occur, historically the formula has been changed multiple times, and the newly elected pro-business Premier of Quebec has described the steep payments his province receives as “shameful”, providing potential leeway from the leader of the largest consumer of equalization funds.
— Jason Kenney (@jkenney) October 2, 2018
The historical precedent, combined with western rage at a time of economic heartache, and a potentially friendly Conservative ally in Quebec, could be what is required to finally move towards a more acceptable formula for equalization.
Now we’ll just have to wait and see if the Trudeau government is willing to anger its base in the Atlantic and Quebec to finally make that change happen.
What do you think? Join the conversation by commenting below!