federalism

A primer on equalization in Canada

Saskatchewan Premier Brad Wall’s call for changes to Canada’s system of equalization makes an overview of that system timely.

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Federalism and Fiscal Transfers is a series of essays by regional experts examining the experience of four other federalist countries -- Australia, Germany, Switzerland, and the United States -- and how they transfer revenues from the federal government to subnational levels of government.

Surprisingly, very little attention has been given in Canada to the ways other federalist countries manage programs similar to Canada?s equalization program. Federalism and Fiscal Transfers is a series of essays by regional experts examining the experience of four other federalist countries -- Australia, Germany, Switzerland, and the United States -- and how they transfer revenues from the federal government to subnational levels of government. The report aims to identify ways Canada could improve its own program of transfers to the provinces.

One common finding is that poorer jurisdictions come to rely on the infusion of federal cash from senior governments. Consequently, they have little incentive to take action to improve their economic position through better policies, something that has also been observed in Canada.

Possible solutions the authors identify are to simplify the transfer programs and give receiving jurisdictions more autonomy in how they use federal transfers, either through block grants or untied transfers.

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How can government become more efficient? The answer, world-renowned economist Gordon Tullock explains, is to let governments compete with each other. This means allowing small communities to decide how much to tax and spend. Citizens can then vote with their feet and settle in the community that gives the best mix of services for tax dollars. Governments that remain inefficient will lose their tax base and be forced to mend their ways. Tullock masterfully explains how Canada could move toward such a system and the benefits Canadians would receive.

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How did Canada, land of peace, order and good government, arrive at a constitutional crisis that imperils its existence as a nation? Have Ottawa's options narrowed to drastic decentralization, a mere economic union, or breakup? If not, what concessions should be offered to Quebec to keep the country intact?

These and other questions are here addressed in a series of 20 papers by leading academics, journalists and experts on public policy issues. They include:

  • The Right Honourable Pierre Elliott Trudeau on the importance of popular sovereignty and individual versus collective rights;
  • Stephen Scott on the legitimacy of force if breakup should occur;
  • Michael Walker on guarantees for private property and other essentials for an amendment package.

Contributors also probe the economic costs of separation, discuss aboriginal accommodation, and isolate fundamental principles for defending and strengthening federalism.