Ontario, Québec will force equalization to the fore
By Bruce A Stewart
Easy debt is an insidious thing. It encourages you to spend, spend, spend. No need to make hard choices: just carry on with the goodies.
Drop interest rates to the floor, and debt becomes even easier, especially when you refinance your past spending to take advantage of the new low rates.
That’s a universal story, and there’s been no shortage of families and companies that have followed it to get in over their heads.
For provincial governments in Canada, though, there’s yet another source of funds. No interest to pay on them, either, and no principal to repay. What’s not to like about free money?
That’s the equalization program.
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Equalization has a complex formula that asks what revenues a province brings in relative to what it could have brought in. (How you determine “could have”, with all the policy options that entails, is why it’s so complex.) But here’s the bottom line: if you brought in more than you “could have” under this formula, you’re winning, and so you pay into the equalization fund; if you brought in less, you get to get paid from it.
Four provinces — Alberta, British Columbia, Newfoundland & Labrador, and Saskatchewan — pay in. The rest take.
What that means in practice is that five hundred thousand on the Rock, a million with wheatfield soul, three and a half million wild rose country folk and four and a half million on the coast pay for the rest.
Or, to put it another way, 85 MPs representing the payers have to face off against 233 MPs with their hands out.
Both Ontario and Québec are at the heart of the problem.
For years, Quebeckers have had a great deal: all sorts of social programs at price points no one else can afford, while running up a provincial debt of a quarter trillion dollars and sucking out more than half of the equalization funds as well.
Make choices? Hah! Laissez les autres payer!
But Ontario — which for years was healthy enough to be the fundmaster of equalization — has kept piling up the government largesse too, to the point where it’s nicely killed off the Ontario economy and made Canada’s largest province into a have-not.
Ontario’s public debt is getting close to a quarter trillion, too. Between the two Central Canadian provinces, they almost match the accumulated Federal debt (and they’re racking up the deficits at a rate several times faster than Ottawa, with no end in sight).
Equalization to keep small provinces’ programs on an even keel with what the big and healthy ones can afford was a reasonable intent: we didn’t want any Mississippis in Canada.
Paying so that people can enjoy all the benefits of not having to make any decisions about what they can afford to do, and what they can’t? That was never the intent.
There’s a lot of noise that’s going to be raised over the next few weeks (during the Québec election) about what it will mean if the PQ wins. They’re promising demand after demand, planning to seek “provocation” after provocation, all to get to “winning conditions” for referendum three.
Frankly, Ontario’s thirteen million at the equalization teat is far more likely to break the country up than anything else.
At what point do the four provinces that are paying in decide “enough is enough”?
That’s a question that will fracture the caucuses of every federal party — bring down governments — and shake Confederation to its core.
And it’s the question bubbling under the surface.
It’s time all our governments were put on a diet — something like Saskatchewan’s (balanced budget, declining debt, solid public finances).
There are no free lunches in a world where the economy barely grows.