The Real "Have-Nots" of Confederation

The real “have-nots” of Confederation
March 1, 2010

By Mark Milke
Research Director
for Public Policy


Mark Milke
CALGARY, AB, March 1, 2010/ — Canadians have long been told it is our duty as compassionate citizens to transfer money from the so-called “have” provinces to the have-nots. So they might be surprised to discover the ostensibly worse-off provinces in fact receive more lavish public services. Have-nots can staff their hospitals better, give students cut-rate tuition and fund more day care among other disparities in comparison to “have” provinces.

Simply put, the have-nots have unfocused and large social programs and bigger governments, all at the expense of taxpaying families and businesses in the “have” provinces. It’s the unfortunate but predictable consequence of federal transfer programs which prop up poor policy in “have-nots” and hammer the traditional have provinces of Ontario, Alberta and British Columbia.

There are plenty of ways in which taxpayer cash is shifted from taxpayers in one province to those in another but the most explicit example is found in the federal equalization program, under which poorer provinces receive money from taxpayers in richer provinces. The program is akin to 10 people chipping money into a common pot with a few taking the resulting spoils.

To clarify an anomaly, in the current year even the biggest province in Confederation – Ontario – is now, technically, an equalization recipient although not by much. Out of the $14.2 billion Ottawa equalization program, Ontario will receive a cheque for $347 million or $29 per person. By comparison, Prince Edward Island’s government will receive $340 million, just under what Ontario receives. But, at $2,429 per person, PEI receives the most on a per-capita basis. Quebec gets the biggest overall cheque: almost $8.4 billion, which amounts to $1,107 per capita.

Is equalization really the goal?

The interesting thing about Ontario is that this year is an exception; it has never before received equalization payments. Still, when all the other federal transfer programs are included in calculations, Ontario, along with Alberta and British Columbia, still pay much more into the federal treasury than any of them get out of it.

So it makes sense to ask if equalization’s goal — “reasonably comparable levels of public services” — as the relevant constitutional section describes it, is in fact happening. The answer is no and it is to the detriment of the have provinces.

For example, the average university tuition is $5,040 in B.C., $5,361 in Alberta, $5,643 in Ontario — and just $2,167 in Quebec for Quebecers.

On health care, consider this comparison: per 100,000 people, B.C., Alberta, and Ontario have the fewest number of nurses and residential-care beds - dead last behind the other seven provinces which benefit from the overall transfer of wealth from the three “have” provinces.

On physician ratios, B.C. is 4th highest in the country but behind better-staffed Nova Scotia, Quebec and Newfoundland (Alberta is 5th and Ontario 8th). In most other categories, similar patterns emerge: at least some or all net recipients of federal dollars do better than the “have” provinces which foot part of the bill for the “have-nots”.

It’s an unjustifiable transfer of wealth. The so-called “have” provinces are, in fact, the most expensive ones in which to live. That fact means families and businesses should keep more of their money, not send it elsewhere through a flawed federal transfer system. Also, those three provinces are the ones to which migration flows are the largest. But even though B.C., Alberta and Ontario have massive influxes of people every year, a reality which necessitates more hospitals, schools, the staff to go with them and other new infrastructure, an ever-larger larger chunk of taxpayer cash from those same provinces is instead recycled through Ottawa to support provincial governments in status quo provinces, and often where poor policy is the reason for their static state.

There are remedies, however, to this situation: it’s important to note the constitutional provision on equalization commits governments to the principle of equalization, not to a particular level of funding or a specific framework.

Freeze equalization and other transfers

In the short-term, Ottawa should freeze equalization and other transfer payments - better yet, cut them. In the longer term, the federal government should negotiate away equivalent tax room to the provinces on the condition that federal transfers cease. (That’s the only way to end transfers without political screams from the “have-not” provinces. It can also only happen in the context of a federal budget in surplus.)

In general, transfer payments drag down all of Canada by rewarding low productivity provinces with “free” federal money transferred from high productivity provinces. More specifically, it is the residents in expensive “have” provinces who suffer by subsidizing big government and generous levels of services in the “have-nots”.

In the mythology of modern Canada, where announced compassion has become a substitute for actual compassionate policy, nothing better demonstrates the preference for public preening over results than the federal transfer program that is equalization.