Analysis

Winnipeg Free Press - PRINT EDITION

Manitoba loses under equalization change

By: Frances Russell

Posted: 01/11/2012 1:00 AM | Comments: 0

Manitoba loses $200 million while Alberta gains $800 million annually under the new federal-provincial cost-sharing agreement federal Finance Minister Jim Flaherty unveiled to his provincial counterparts in Victoria, B.C., last week.

That's because Ottawa is moving to per-capita funding for its share of provincial health costs but keeping the cap on equalization transfers to "have-not" provinces, Manitoba Finance Minister Stan Struthers says.

"Every province contributes to the federal government's pot of money for transfer payments, and every province, including Alberta, receives money from the transfer payments pot of money. Every one of us," he said in an interview. "And every one of us at one time or another collected equalization money, including Alberta. So we all pay in and we all -- every province -- receive money from transfer payments. So when you cap one side and leave the other side to rise through per capita, that... is an upside-down transfer of funds within our Confederation."

The purpose of Canada's constitutionally entrenched equalization program is to ensure all Canadians, wherever they live, can count on comparable public services at comparable tax rates, Struthers says.

But Flaherty's take-it-or-leave-it deal "really turns that upside down," Struthers says. "It really puts a lot of pressure on provinces like Manitoba to be able to offer our citizens health services and the rest without going through the roof on the taxes side simply because we don't live in a province that's rich in oil and gas and potash."

All the provinces that lack non-renewable resources are going to be hurt, Struthers says. Meanwhile, the three resource-rich provinces whose economies are booming -- two of whom, Alberta and Saskatchewan, hovered at or near bankruptcy during the Great Depression of the 1930s and had to be bailed out by Ottawa -- will be better off.

Flaherty has pledged to provide "total transfer protection" to the other seven provinces to maintain last year's level for this year at least. What happens after that remains unknown.

Further complicating the equalization issue is the fact Canada's biggest province, Ontario -- the only one never to have collected equalization until this year and whose taxpayers generate 43 per cent of federal revenues and so finance 43 per cent of the $11 billion equalization program -- is now a full recipient thanks to the globalization-driven collapse of North America's manufacturing base.

"When you squeeze Ontario into a capped fund, that means less money for those that are already in there," Struthers notes.

Struthers insists he doesn't begrudge helping Alberta support its health care and he doesn't begrudge Ontario receiving equalization for the first time.

"What I object to is making decisions that, in effect, leave provinces like Manitoba behind to the benefit of resource-rich provinces like Alberta."

Although virtually every federation in the world, including the U.S., has some form of federal support for its regional entities, Canada's mushrooming phalanx of libertarian think-tanks keeps grinding out columns and op-ed articles denouncing and demeaning equalization as "welfare" for "uncompetitive" governments who aren't "innovative" and won't slash taxes.

"What I find frustrating is there's this assumption that if you're one of the provinces receiving equalization that you're there because you've made bad decisions," Struthers says. "But when you get right down to it, the only way you get off (equalization) -- look at Nova Scotia, Saskatchewan, Newfoundland -- they can move out of equalization because they've got oil and gas and potash."

Struthers finds all the talk about innovation frustrating. "Manitoba and every province in this country is innovative. And every province... can point to things that we're doing that are really innovative. So that's a red herring, absolutely it is. And to use it to try to justify this kind of a shift in support from provinces like Manitoba to provinces that happen to be situated on oil and gas and potash... that's offensive."

Equalization arose from the hardships of the Great Depression. One of its "fathers," as a member of the 1940 Rowell-Sirois Royal Commission on Dominion-Provincial Relations, was John W. Dafoe, the legendary editor of this newspaper.

The 2006 federally commissioned review of equalization headed by former Alberta deputy finance minister Al O'Brian gives some needed perspective to Canada's historic wealth-sharing program.

According to O'Brian, Alberta, at $10,503 per capita, led the provincial pack on public service spending in 2004-5. New Brunswick was lowest at $8,310. Without equalization, the fiscal capacity gap between the poorest, Prince Edward Island, and the richest, Alberta, was more than $6,000 per person.

"(I)n several of the receiving provinces, the absence of equalization payments would make it difficult for them to deliver reasonably comparable public services to their residents," the report concludes.

Frances Russell is a Winnipeg

author and political commentator.

Republished from the Winnipeg Free Press print edition January 11, 2012 A10

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