Federal subsidies distributed unequally among provinces: Fraser Institute

Quebec, Atlantic provinces disproportionally benefit from hidden equalization

TORONTO – A number of federal programs distribute subsidies unequally among provinces, says a study released by public policy think-tank, the Fraser Institute.

The study Unseen Equalization: Provincial Subsidies in Federal Programs by David MacKinnon, a retired public servant and well-known commentator, spotlights six hidden forms of equalization, outside the official equalization program.

“Many of the federal programs containing hidden provincial subsidies disproportionately support provinces east of the Ottawa River, especially Atlantic Canada, at the expense of provinces in the west. Yet this phenomenon receives little attention and is poorly understood, even among experts,” MacKinnon said.

Immigration settlement

In 2010, BC, Alberta and Saskatchewan experienced significant funding shortfalls, relative to immigration patterns. BC received 13% of settlement funding while welcoming 18% of Canada’s immigrants. Conversely, Quebec also welcomed 18% of Canada’s immigrants in 2010 but received 28% of settlement funding.

“In the 1990s, immigrant support in Quebec was grossly overfunded by the federal government. The gap has closed somewhat, but bias in favour of Quebec persists,” MacKinnon said.

Employment Insurance

Benefits vary from province to province depending on regional unemployment rates, creating different thresholds for Canadians in similar situations.

“A self-employed graphics designer in Medicine Hat doesn’t get EI, but a self-employed fisher in Tignish does,” MacKinnon said.

Ontario, Alberta, Manitoba, Saskatchewan and BC are “net contributor” provinces, meaning they give more to the EI program than they receive. Ontario workers and employers in 2010 paid more than 40% of all EI premiums, and Alberta was the largest net contributor ($390 per capita). Quebec and all four Atlantic provinces remain net recipients. Newfoundland and Labrador is the largest net recipient, receiving $846 per capita in 2010.

Disproportionate federal employment as a subsidy

The geographic location of federal employees has a dramatic effect on the flow of federal funds. Prince Edward Island has the highest rate of federal employment relative to population (24 federal employees per 1,000 residents). Ontario has the lowest (3.4 per 1,000 residents), roughly 85% lower than PEI. Some categories of federal employees are bound geographically to regions (federal offices in the Ottawa area, Department of Fisheries and Oceans, naval facilities and foreign embassies).

“But the remainder of offices, and subsequently, employees should be spread evenly across the country, and any substantial deviations from such a pattern should be considered a form of subsidy,” MacKinnon said.

Regional economic development agencies

The federal funding of regional development strongly favours Quebec and Atlantic Canada, continuing a trend of disproportionate support for provinces east of the Ottawa River.

Download a full copy of the report here.