November 1, 2012
The Myths of Equalization
Notes for Speech by Prof. David C. MacKinnon to the Rotary Club of Ottawa West
I'd like to start by warning you that my subject today is a difficult one.
Regional subsidies, including equalization, are portrayed by many as one of the foundations of Confederation.
I will be arguing that they are both counterproductive and unprincipled and that Canada's competitive position in the world and possibly its unity depend on changing them.
It is important to note, first, that even though Ontario is receiving equalization payments, its taxpayers are still spending, according to the Drummond Report, about $12 billion to support other province's programs - programs that are more accessible elsewhere than in this province.
Ontario taxpayers contribute twice as much as they receive from equalization.
They are contributing about $1 billion a month or about $50 million every working day toward these programs.
I will return to that theme later.
I'd like to deal first with what I will call the myths associated with the current system and then devote the largest part of my remarks to the consequences of these myths for Canadians and the politics of actually changing.
The first myth is that equalization, the largest regional subsidy program, is required by the constitution. Federal leaders and Premiers from recipient provinces have often said this.
Put simply, it isn't true.
The constitution requires a commitment in principle to equalization, whatever that means, and I'll leave it to the lawyers in the room to decipher that.
The commitment, whatever it is, can be fulfilled at any significant level of funding rather than the $15 billion that is currently being spent each year.
The second myth is that the federal government is managing the bundle of regional subsidies it offers in a competent way.
At no time has the Government of Canada ever done an analysis of the economic impact of its regional subsidy effort on Canada, recipient provinces or the major contributors, Ontario and Alberta.
This has had tragic consequences and I'll describe them later.
The goal for equalization described in the constitution is comparability of programs among provinces.
The federal government doesn't even bother to measure comparability which means it isn't managing the program.
One can't really manage what one doesn't measure.
The third myth is that there is no equalization outside equalization.
This has never been true.
For many years, the Canada Health Transfer and the Canada Social Transfer had strong biases against Ontario and Alberta. While these have been eliminated in the last few years, they were in place for decades.
View the entire speech in PDF (12 Pages)
a native of Prince Edward Island, was awarded a Bachelor of Arts degree (honours economics) from Dalhousie University and an MBA from York University. He was awarded a Centennial Fellowship by the Canadian Imperial Bank of Commerce and York University to study at York, Harvard and Oxford Universities as well as the European Institute of Business Studies. Mr. MacKinnon served as Director, Planning and Economics and Executive Director, Development Strategy in the Nova Scotia Department of Economic Development from 1976 to 1981. He later served in several senior capacities in the Ontario Public Service, the Bank of Montreal and as CEO of the Ontario Hospital Association from 1996 to 2003. Mr. MacKinnon is a Public Member of the Council of the Ontario College of Physicians and Surgeons and is the Chair of its Finance Committee and a member of its Executive, Complaints and Outreach committees. He serves on several Boards of Directors, including the West Park Health Centre. He recently finished my five year term on the Standards Council of Canada and was subsequently elected to the board of the Canadian Standards Association. He has advised the Ontario Chamber of Commerce and other Ontario organizations on fiscal federalism issues particularly on the impact of regional subsidies on recipient and source provinces. He is currently the Chair for the Ontario Institute for Public Policy www.oipp.ca.