In a country where Saskatchewan refuses to collect carbon taxes for home heating, and Ontario’s Doug Ford asks “what the guy is smoking” when he talks about the Prime Minister’s policies, it feels like a return to a more genteel era to fight about something as old-school as equalization.
In 2024, it’s not just conservative Alberta voices lamenting the hypocrisy of the province’s oil wealth being redistributed to a large degree to Quebec, where drilling for fossil fuels is banned. The Premiers of Newfoundland and Labrador and British Columbia are worried about equalization, too.
The Premiers don’t agree on why the equalization program is flawed, and part of their battle is likely about bolstering their own approval numbers before approaching elections.
But that doesn’t mean their calls for change are baseless. The program carries much emotional weight in this decentralized and disparate country, and could use a re-examination. It’s been two decades since any kind of in-depth review.
The money for the 67-year-old equalization program doesn’t come from provincial coffers, it comes from federal taxes paid all across the country. From that, Ottawa makes transfers to provincial governments based on an established formula. As is entrenched in the Constitution, it’s about ensuring “provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation.”
Quebec now gets about half of the total $25-billion pot, Manitoba about one-quarter, and the rest is divided up between the Atlantic provinces and Ontario – although Newfoundland and Labrador, as well as Canada’s most populous province, get only a tiny percentage of the equalization kitty. Alberta, Saskatchewan and B.C. don’t receive equalization payments.
Premiers have some cause to be annoyed. Yes, it’s a completely federal program, and opening it up for review will be a thankless headache for any finance minister no matter which party is in government – especially when it means ruffling feathers in headache provinces such as Alberta and Quebec. But the politically potent program moves a lot of money in this country, and Ottawa has been treating what are supposed to be once-every-five-year reviews as a mere formality. The system as we know is locked in until 2029.
The federal government also tends to conflate its discussion points on equalization with other federal transfer programs or one-off cash infusions. Provinces are also annoyed with a nine-year-old Liberal government that overreaches into provincial jurisdiction while not focusing enough attention on running its own existing programs.
That friction is now coming to a head. Newfoundland and Labrador will receive just more than $200-million in equalization this year, but believes it is due hundreds of millions of dollars more. It announced this spring that it is launching a constitutional challenge, with Liberal Premier Andrew Furey arguing Ottawa does not consider the cost of delivery of services to his geographically dispersed province. The province is also challenging the way natural-resource revenues are calculated, and says excess funds in the program shouldn’t go only to have-not provinces.
It’s not a surprise that feisty Saskatchewan will support Newfoundland and Labrador’s action. But even on the West Coast, B.C. NDP Premier David Eby is adding his backing, saying the current equalization system is resulting in “perverse outcomes.” The province as a whole sends more to Ottawa on a per-capita basis than they get back, and Mr. Eby said it’s unreasonable for B.C. residents – who are struggling to afford the soaring cost of living – to see their federal tax dollars flow to other provinces.
It is surely no coincidence, either, that the B.C. Premier, who is usually friendly with the feds, is picking a novel fight with Ottawa as his approval numbers dip before an October election.
But the housing crisis that has hit B.C. hard didn’t exist when then-federal finance minister Ralph Goodale ordered a review of equalization in early 2005 – a review that eventually informed changes enacted by his Conservative successor Jim Flaherty. Al O’Brien, the respected former civil servant who led that expert panel when the program was less than half its current size, has said that after 20 years, it’s time to have another look.
For instance, he told me, the equalization pot is adjusted to keep the total program payout increasing in line with the economy. This is problematic, as in recent years it means the size of the program has grown significantly even while fiscal capacity disparities between the provinces have eased. Mr. O’Brien added he fears Canadians have forgotten about the importance of equalization and its simple, original intent to keep Confederation balanced and working “when there’s oil in Alberta, and they don’t have as much in New Brunswick.”