equalization

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Over fifty years, observers have become inured to troubling reports of Atlantic Canada's economic difficulties.

Even the most jaundiced observer would recognize, however, that data for the last two years describes something different. The regional economy is not experiencing continued slow decline: it is starting to implode.


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For many years, Ontario has been the quiet enabler for the vast system of subsidies the federal government provides to Atlantic Canada, Quebec and Manitoba. With rare exceptions, it has stood by as equalization grew and as the federal government incorporated subsidies to regions in more and more of its regular programming.

In recent years, evidence has been accumulating that the regional subsidy system is much bigger than it appears on the surface, unsustainable for both Alberta and Ontario and entirely counterproductive because it discourages growth in all recipient provinces.


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In a recent drive from Saint John to St. Andrews, New Brunswick, I marvelled at the mostly four-lane highway that connected the two points on the map and how empty it was on a Friday evening on a long weekend.  I compared it with much of the TransCanada highway in British Columbia, four-laned in portions where it should be six, and often only two-laned where it should be four, as well as to the regularly packed four-lane highway between Edmonton and Calgary.


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Michael Binnion, CEO of Questerre Energy and head of the Quebec Oil and Gas Association, has a great blog post up in which he discusses the impact that equalization payments have on Quebec's energy and natural resource policy.

Looking at Quebec's budget, Binnion observes:


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Imagine you’re a German asked to pay for the lifestyle of a Greek through ever-more transfers to the European Union or through bailouts for Greek debt. Imagine you, as a German, know the average age for a German retiree is 62 while the average Greek is in his retirement villa at age 60. That knowledge explains why northern Europeans may not wish to indulge Greek lifestyles much longer.


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If the average person knows much about federal cash transfers to the provinces, they might know that one program, equalization, is in the constitution. Equalization, a $14.8 billion transfer program funded out of federal taxes, ends up in the coffers of six provinces: Quebec, with the largest share at $7.4 billion, and Manitoba, Ontario, New Brunswick, Nova Scotia and Prince Edward Island, who divvy up the rest.


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For anyone who has paid attention to the student protests/riots in Quebec over the past few months and knows anything about the vast sums of money transferred between governments in this country, there has been no shortage of ridiculous demands from the Quebec students who are “on strike.” Demands include free tuition and an end to functioning free markets. But their silliness—not shared by most students nor by all Quebecois—has been compounded by mythmaking from Quebec politicians about who ultimately foots the bill for so much of Quebec’s existing poor economic policy.