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Equalization Payments May Not Stand Up to Legal Scrutiny

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Release Date: December 7, 2006
The long-standing equalization program that sees the federal government provide money to 'have-not' provinces may not be legally enforceable and could contravene Canada's constitution, according to Questioning the Legality of Equalization, a chapter from a forthcoming Fraser Institute book that explores Canada's equalization program.

"Many Canadians commonly assume that equalization payments from the federal government to the 'have-not' provinces are required under the constitution. But our research shows this is not the case," said Sylvia LeRoy, co-author of the study and a senior policy analyst with The Fraser Institute.

LeRoy and Burton H. Kellock, Q.C., argue that Canada's constitutional commitment to equalization is a political policy that cannot be enforced by a court of law. This view is shared by prominent legal scholars and supported by the documented intentions of the authorities that debated and ultimately agreed to include equalization in the Constitution Act, 1982 .

"Although the principle of equalization is included in the Constitution Act , the provincial and federal government representatives that signed the Act believed the details of equalization were open to negotiation. There's absolutely no legally-binding language in the Act that commits the government to fund a certain level of transfers," LeRoy argued.

LeRoy and Kellock point out that politicians from both federal and provincial governments realized this problem and attempted to include amendments in the 1992 Charlottetown Accord to strengthen the commitment to equalization. However, with the defeat of the Accord, the issue remained unresolved.

In addition to this legal ambiguity, LeRoy and Kellock's research uncovered a more fundamental problem: equalization may fall beyond the scope of the powers of the federal government as defined in the British North American Act, 1867 , Canada's original constitution.

Equalization involves the federal government transferring tax revenue to provincial governments to be spent in areas of provincial jurisdiction. But that clearly conflicts with the section of the BNA Act that delineates the powers of the federal and provincial governments, LeRoy and Kellock concluded.

"The BNA Act is quite precise in its language that federal dollars can not be directed to matters that fall under provincial jurisdiction," Kellock said. "This division of powers was supported by a definitive series of judicial decisions issued in the 1930s by Canada's highest court of appeal."

Despite the apparent precedent, the federal government has over time enacted a number of statutes such as the Canada Health Act and Federal Provincial Fiscal Arrangements Act to exercise its spending power within areas of provincial jurisdiction.

"The validity of these powers have never been fully debated or examined by the Supreme Court of Canada," Kellock said. "A court that respects past precedents and the division of powers central to Canada's founding Constitution would find that the entire equalization program falls outside the powers of Parliament. This has serious implications for other federal-provincial transfer programs."

Kellock, partner emeritus at Blake, Cassels, & Graydon, has more than 40 years of civil and administrative legal experience and has appeared in every court in which he is entitled to practice in Ontario, including the Supreme Court of Canada, the Federal Court of Canada, and the Ontario Court of Appeal.

Questioning the Legality of Equalization is taken from the forthcoming book, Beyond Equalization: Examining Fiscal Transfers in a Broader Context , to be published by the Fraser Institute in early 2007.