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Thursday, 5 June 2014

How fair is Canada's system of federal-provincial transfers?

by Thomas Granofsky

The MowatCentre’s recent report examines the good, the bad and the ugly of Canada’s federal system of inter-regional redistribution.

Photo: Are you familiar with the good, the bad, and the ugly of Canada’s system of provincial transfers? Are you aware of some of the misconceptions surrounding this type of redistribution? For instance, do you think Equalization is fair? Do you feel that qualifying for Equalization is a sign of fiscal mismanagement? Do you lump provinces and territories into “have” and “have not” categories? The Mowat Centre’s recent report explores these issues (and more), and shows that these distinctions are almost entirely driven by whether or not they are endowed with resource wealth. These, and other factors, play a large role in Canada’s fiscal redistribution. To learn more and to join the conversation, visit the IPAC Impact Blog:

http://ipacimpact.blogspot.ca/2014/06/how-fair-is-canadas-system-of-federal.html

Three things to know about Canada’s system of inter-regional redistribution:

  1. Because of progressive taxation and federal programs that support lower-income Canadians (and less wealthy provinces through Equalization), we would expect wealthier provinces to be net contributors and less-wealthy ones to be net beneficiaries.  Yet this is not the case.

  2. We found that Ontario is a net contributor of inter-regional redistribution – with a “gap” of $9-11 Billion (depending on how you measure), while Saskatchewan and Newfoundland & Labrador are net beneficiaries.

  3. Our fiscal arrangements were not designed to moderate inequities between provinces during times of sustained commodity booms. While eligibility for Equalization is largely driven by disparities in natural resource wealth, the program does little to bridge those gaps.

Three Myths about Canada’s system of inter-regional redistribution:


Myth #1: This has little real impact on people’s lives.

The Reality:  With no justification, Ontarians receive shortfalls in federal funding support for infrastructure, housing and Employment Insurance, critical to prosperity and well-being.


Myth #2: Provinces can be lumped into two camps – either “have” or “have not”.

The Reality:  These labels are untrue and unhelpful.  Ontario can't be considered “on the dole, supported by other provinces” as a “have-not” province when it is a net contributor, just as it makes no sense for Saskatchewan or Newfoundland & Labrador to be considered to be “subsidizing the rest of the country” as “haves” when they are still net recipients.


Myth #3: Qualifying for Equalization is a sign of fiscal mismanagement.

The Reality: Whether or not a province qualifies for Equalization today is almost entirely driven by whether they are endowed with resource wealth.


Thomas Granofsky is a Policy Associate at the Mowat Centre and one of the authors of Cheques and Balances: The Finances of the Canadian Federation. He can be reached at: thomas@mowatcentre.ca. Follow the Mowat Centre on Twitter @MowatCentre

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