Federal-provincial transfers deserve more attention this election season
In early August, Saskatchewan Premier Brad Wall expressed his hope that Canada’s equalization program would be a topic of discussion during this federal election campaign.
Among other problems with the program that he identified, Premier Wall argued that equalization payments do not respond rapidly enough to changes in resource prices. The consequence of this, Wall argued, is that during the periods immediately following a drop in resource prices, the equalization formula ends up overestimating the gap between poorer and richer provinces, with the consequence that equalization payments are larger than they should be. Wall called for a reduction in total equalization payments by the federal government with the savings directed to tax cuts and infrastructure spending.
Whether you agree or disagree with Premier Wall’s specific prescriptions, he was certainly right in suggesting that the equalization program, and Canada’s complex system of federal-provincial transfers more generally, should be a central topic of discussion during this federal election campaign.
It may come as a surprise to some that Canada’s system of financial transfers from Ottawa to the provinces cumulatively represents one of the federal government’s largest expenditures. In this fiscal year, the federal government will send more than $68 billion in transfer payments to the provinces. To provide context, this means that fully 25.8 per cent of all federal program spending went to major transfers.
Equalization alone costs the federal government more than $17 billion per year—6.7 per cent of all federal program spending.
Managing Canada’s system of fiscal transfers is therefore one of the most important responsibilities of the federal government. It’s not just the sheer size of the transfer system that makes it worthy of careful discussion, but the multitude of negative effects that its current design has on public policy development across the country. For instance, Fraser Institute research has shown that our transfer system subsidizes large and inefficient government in have-not provinces, discourages natural resource development, and constrains policy innovation in health care, to name a few.
Reforming Canada’s system of fiscal transfers should be a top priority for whoever forms the next government—and a discussion about how best to do so should be a part of this election campaign. Unfortunately, to date it has not been, with the result being that an opportunity to discuss reforming Canada’s equalization program, and system of fiscal transfers generally, while the entire country is paying attention to politics and policy, is being lost.
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