Equalization is About Reducing Regional Disparities
Can’t be an Arbitrary Accounting Exercise; Must Account for Needs and Outcomes
By Gregory D. Morrow
Tackling Equalization reform is surely among the most politically contentious tasks in Canada, made even more difficult by its complexity. Equalization is central to fulfilling the federal government’s constitutional responsibility to reduce regional disparities. This vital function of the federal government cuts to the core of Canadian values — that regardless of where you are in Canada, you should have a reasonably comparable quality of life and reasonably equal access to public services — and achieved at comparable levels of taxation.
In May 2006, the “Expert Panel on Equalization and Territorial Formula Financing” or EPETFF made 18 recommendations for reform. Many of these recommendations are sensible — simplifying the revenue streams, using moving averages to even out the impact of fluctuating revenues, and, importantly, expanding the standard to include all 10 provinces. However, overall, the panel’s view of Equalization, like much of the current debate among Premiers, treats Equalization as a narrow accounting exercise, rather than recognizing its larger goal of reducing regional disparities — a classic case of not seeing the forest for the trees.
By taking the narrow view that Equalization is merely about revenues, the EPETFF ignores the issue of need in the regional disparity equation, concluding that “needs not be assessed as part of the Equalization program,” a view supported by many Premiers. In other words, it is irrelevant that Ontario, for example, receives the vast majority of new immigrants, uses by far the most public transit, and accommodates the most urban growth. No, according to the Expert Panel, Equalization should be treated as a one-size-fits-all approach, which doesn’t recognize that different regions have different needs which are not accounted for in simple per-capita calculations.