Equalization payments: To have is to have not, says Fraser Institute

Study says they jack up bureaucratic spending in the least-productive provinces.

CALGARY — Canada’s poorest provinces are on a government-services spending spree thanks to equalization payments from the “richer” provinces, according to a Fraser Institute study.

The public policy think-tank with office across Canada looks at equalization, offshore accords and ‘Transfer Payment Protection,’ in its study that notes the three programs together cost $16.6 billion in 2012/13, up 50% from $11.1 billion in 2005/06. When averaged since 2005/06, Alberta is the only province to receive zero dollars over those years. BC, Saskatchewan and Ontario received very little – and those four provinces are thus labelled “haves” (despite Ontario’s recent entry into equalization) with the other provinces as have-nots.

The study examines 19 areas of provincial government service, from 2005/06 to 2012/13, to determine whether “have” or “have-not” provinces were advantaged by equalization. In 13 service areas, the dependent provinces have doled out more to their residents than did their more productive neighbours. In just three areas were the “have” provinces advantaged. (Three indicators were ranked neutral.)

For example, students in the recipient province of Quebec pay $2,774 per year in highly-subsidized tuition, while “have” provinces such as BC charge students $5,015, Saskatchewan students pay $6,017 and Ontario students pay $7,180.

Class sizes in public elementary and secondary schools are between 13% and 24% smaller in “have” provinces than in provinces that do not receive equalization payments.
Equalization’s recipient provinces have higher staffing ratios of public health and social service workers per 1,000 population that range from 68% more to 109% than, for example, Alberta.

“Have” provinces do have slightly shorter health care wait times and higher annual expenditures on post-secondary institutions.

The federal government spent more than $5,000 per person, per year on average from 2000 to 2009, in Nova Scotia, PEI and Newfoundland but it took $3,852 on average each year away from each Albertan; $1,548 from each Ontarian; and $666 from each British Columbian over the same period.

The study proposes two partial remedies: cutting equalization payments as they were under former prime minister Jean Chretien when overall federal transfers decreased under to 2.3% of GDP in 1997/98 from 3.8% in 1992/93; and calculating a new equalization formula that takes into account the lower cost of delivering services in “have-not” provinces.

The Fraser Institute said this formula would likely have the same effect: lower equalization transfers and more responsible spending on the part of the receiving provinces.