Don Cayo: In my opinion

Haves, havenots: Third of Canadians defray service costs for Ontario, 5 others

Equalization may be laudable in theory, yet it is seriously fl awed in practice. Why are lower- income British Columbians subsidizing high- income Ontarians?

Ontarians earn almost $ 1,000 a year more than British Columbians, on average, yet the province gets billions in equalization payments — special federal handouts for provincial governments that may not otherwise be able to afford services as good as the rest of us pay for ourselves. And we get left holding the bag.

Not only that, but ever since Ontario became an equalization recipient in 2009, less than a third of Canadians — those of us who live in B. C., Newfoundland, Saskatchewan and Alberta — have been subsidizing services for those living in the six other provinces.

These are among the most provocative points in a new analysis by Mark Milke, the Fraser Institute’s director of Alberta policy studies. They illustrate a dramatic change in a constitutionally entrenched program that was designed, in the federal government’s words, to help “less prosperous” provinces. And they raise the question, less prosperous than whom?

A few of the givers and takers in the equalization game have changed sides from time to time in the 58 years since the transfers began. B. C. was briefly “have- not” in the early part of the last decade when our natural gas revenues plummeted. And both Saskatchewan and Newfoundland got a lot of equalization money for many years until their resource revenues became too high for them to qualify.

In the years just prior to Ontario being designated a recipient

Adding to the perversity is the most recent absurdity — lowerincome British Columbians subsidizing higher- income Ontarians.

province, the 68 per cent of Canadians who lived in “have” provinces were subsidizing the 32 per cent who did not. Now, because Ontario’s population of almost 14 million is so large compared to other provinces, the ratio has shifted to 29 per cent of us supporting 71 per cent.

And this support is substantial. In 2008, when Ontario was still a “have”, Ottawa transferred $ 13.4 billion to the poorer provinces. This year, that figure will be $ 16.7 billion. The increase almost exactly equals Ontario’s take, which has risen from $ 347 million ( or 2.4 per cent of the pie) in 2009/ 10 to $ 3.3 billion ( 21.1 per cent) last year.

Interestingly, Milke notes, the remaining “have” provinces all have healthy resource revenues, and the “have- nots” don’t.

“The flip in Ontario’s status has led to a situation that has the potential to exacerbate provincial wrangling,” he writes.

For one thing, it creates a sharp division between provinces that have and develop their natural resources and those that don’t.

Only 50 per cent of natural resource revenue is now included in the arcane formula that determines equalization eligibility. Now, with a big majority of Canadians in recipient provinces, Milke foresees strong pressure to raise this to 100 per cent, which will disadvantage those provinces that do the most they can with what they have.

As well, he predicts that if Ontario continues to hog a large share of equalization revenue, it will lead either to great pressure for Ottawa to spend more on the program, or to growing rancour among the recipients.

My own view is that equalization may be laudable in theory, but it has long had serious flaws in practice. Long- term recipients have, in essence, learned that they will be well paid to fail, and they have developed a high degree of dependence. And in many cases, they have used the federal handouts not to develop their economy, but to build their government services to a higher level than is found in the provinces that help pay their bills.

Adding to the perversity is the most recent absurdity — lowerincome British Columbians ( whose average income was $ 38,463 in 2011- 12) subsidizing higher- income Ontarians ( who average $ 39,273).

But it is hard to see when or how it might be fixed. If governments — the Harper Conservatives and the Liberals before them — have been too timid to do more than tinker when the recipients were a minority, it is difficult to imagine they will find the courage to act now.