Wendy Tso defined Canada’s equalization program pretty well (with help from other references):
(Equalization) is the Government of Canada’s most important program for reducing fiscal disparities among provinces.” Essentially, the federal government collects tax dollars from each of the provinces and redistributes the pool of money in unconditional payments to those provinces in “need.” Experts explain that the payments are “transfer[s] of cash, four times a year, from the Government of Canada to those provinces which, according to a formula set out in federal legislation, have revenue-generating capacity that is below the national average.
This has spurred quite the debate in recent years, where Alberta has been a main contributor to these payments. Having worked there, I often heard other workers there complain about their income tax, as a portion of it was used in these equalization payments. They disagreed with how the receiving provinces spend the money “given” to them.
A typical conversation yields a story similar to how a $4800 paycheque would be cut down to $2700, in income taxes and other fees. They would then see that their missing $2100 would be to “bribe” the province of Québec, who seem (to Albertans) to hate the idea of a unified Canada. “Great, people who hate us are taking half my pay. Fuck Québec!”. One would have the impression they only see us giving money for therapy to homosexuals (undebatably blasphemous!), instead of paying debt. They see waste where we see progress and getting ourselves out of a rut. I think if the poorest and the richest of the country were of the same political spectrum, we wouldn’t be having the debate on equalization.
I understand this attitude, and would honestly feel the same way if that were the true case, but I feel it is not. A lot of this money goes for business incentives and health care costs. We do pay more in provincial income tax, especially our rich. We recognize that we’re a have-not province, and that we deeply rely on those transfers in order to stay afloat. Most people who are on social assistance are not lazy – they actually have extreme difficulty in getting employment. Add on a mortgage to a home that will not sell, family and health problems, and language barriers, and you will see how insanely difficult life can get after only 2 weeks without pay. Some try to apply for jobs out-of-province but never hear back. Even for those who are willing to work at a McDonald’s on the other end of the country, the high cost simply to travel there from here makes it a poor financial decision, especially for those who have less than nothing.
I’m three months from my bachelor’s in Mechanical Engineering, and it took me a month to land a job as a server at a café. I canvassed nearly every building in the industrial park, and bars and restaurants. I handed out over 40 resumés to he same “We’ll keep this on file, but we aren’t looking to hire.” Fortunately, I could afford sharp clothes, and was lent a vehicle for a week to conduct the job search (the transit system here sucks). How about someone who is older, can’t afford a look to garner a good first impression, who has to go to the library to print off their resumé?
The West sees a new truck (a second or even third home vehicle) and we see a teacher for a year (our teachers are cheaper than Albertan ones). I’m trying to be objective here, but I really believe that investing in the lesser-income provinces best strengthens the country, because dollars there go much further than in higher-income provinces.
Prosperity in have-not provinces is to Alberta’s advantage, with its overheating economy. The alternative to equalization payments is to cut them altogether; then we would see the demise of any economic prosperity and potential in the Atlantic. We would completely depend on Alberta, Ontario and the middle income provinces for everything then.
But what with all this talk of nationalism, you’d think that from the point of view of an experienced investor, would be to maximize every dollar spent. I think if a team of (honest) financial advisors would run the country and its spending, you would see investment within its hotspots (i.e. Alberta), but also a large redistribution and diversification of investment, especially since progress is much cheaper in our cooler economies.
On the other hand, for the Canadians who make the conscious decision to live in Alberta and work where the bucks are at, they should be entitled to reap the benefits of their personal decision. Alberta owns its natural resources and could do as it sees fit with the money from them. I just think that it would be to Alberta’s disadvantage for that to happen. You’ll get three times the Easterners moving in there (we’ll take your jobs like Mexicans in Texas), we’ll see wicked inflation, and a lack of infrastructure. All this will only last until the gas runs out, because it will some day. Then, we’ll have a bunch of now worthless housing and infrastructure for a resource-deprived region, and the rest of the country would be financially fucked because of a cut in equalization 80-something years prior.
But if you want your boats, quads, trips and swimming pools, I understand your feeling of entitlement – we’re taking a chunk of your personal prosperity. It just depends on what is of import to you: Canada as a whole, or yourself. Both points of view have their own validity. I think investing in Canada as a whole will have a much higher chance of guaranteeing prosperity for future generations. I’m sure somebody will call me a communist anytime now.
That’s my biased $0.02.
Hey man, your not a communist, and I agree with lots of what you say. I think what rubs the people the wrong way in the west, ontario and newfoundland and labrador is the sense of entitlement from some of the other Provinces, with their hugely expensive social programs and some of their anti-business governments.
if you think of it not on the bigger scale but on the smaller one, the idea that some one who works in B.C. could keep $2000 a year in their own pocket, for their Family. Do you think that is fair?
and when it is always the same provinces paying you know something is wrong, like Ontario has never received ( until this next year and only 350 million ) and other places like New Brunswick and Quebec almost always got them. and their is no incentive to change your situation because for every dollar you make you lose it in transfers! that is just insanity! talk about welfare states !
My biased .01 ( would .02 but the other penny’s in Quebec )
Posted by Ab on June 26th, 2009.
I actually found your penny on the ground on my way to work, it’s here in NB. I’ll save it for whenever you’ll come and pick it up.
Posted by Mathieu on June 26th, 2009.
A couple of random thoughts on equalization payments (EP).
1. I agree that EP offers no incentive for a “have-not” province to become a “have” province financialy. It’s more of a pride issue, which, when it comes to a Finance Minister making his budget, isn’t taken very much into consideration. The only time you hear about it is during election campaigns (like the Graham Liberal government in New-Brunswick, and we know how awfully that has gone so far). In that respect, the idea has failed, as it encourages a structural poor showing.
2. However, without EP, many provinces would have gone under a long long time ago. New-Brunswick is one of those. The reason is because in many provinces, it is not “anti-business government” that keeps businesses away, it’s the lack of a local economic generator that builds on itself. See Toronto, Calgary, Vancouver, etc. It is a lot harder to convince a company to come to Moncton, or Summerside, or Cape-Breton.
3. It is true that if we cut our social services, we could balance the budget without EP. But, in NB’s case, I believe EP amounts to 1/6th of our provincial budget. Which means you would have to cut social services by 1/6th! Now, take into consideration that health and education take up over 80% of our budget, and what do you end up with? How could that be acceptable?
4. I agree that EP is not a perfect program, but what else can we put in its place? Every area has differences that give them an advantage over other areas. Some advantages are simply bigger then others. Alberta has oil and gas, which has made them very lucky since the 1980s. Ontario has GREAT accessibility to BIG american markets. British Columbia has best access to booming markets in far-east Asia. In the maritimes, we’re far from the bigger american markets, we’re close to protective EU (perfect example here is the seal hunt debate), Africa and South America (and even then Ontario and Québec have almost as good access) and our primary sector consists of wood and fish, two industries in the shitter. That’s the point of EP, trying to help provinces who have problems for things that are out of their control.
5. Although some ground can be given by both sides of the argument, this is more an ideoligical argument then anything else. Right wing economists will not want to give government their earnings, while left wing economists are more likely to do so. Personally, I think we should raise the GST back to 15%, so there you go. I am already giving up on agreeing and finding common ground with many people on this issue. ;-)
Posted by Sébastien Belliveau on June 26th, 2009.
im going to be rude, and bring up germany once again as an example. simply put, canada is undertaxed. im sure most people will disagree…
-in germany, our gst is at 19%, and almost certainly headed for another raise to deal with the deficit this fall. no one is upset about it, as it seems to be clear to every one that its the lesser evil for now.
-if you where to earn 4800€ a month, your netto in germany would be around 2200€. the rest goes to taxes (45%) and mandatory social systems(further two digit percentages). (the last time i checked)
-in 1989, german reunification was begun, which has turned into a massive effort to rebuild east germany. this effort will last at least until 2019 (30 years), and cost at least between 250 billion and 1,2 trillion euros. everyone in both east and west had an instant 5% tax added to their income taxes, called a solidarity tax. abuse in the form of politicians giving favours and other scandals have occurred, but there seems to be a general consensus on the need to rebuild what the soviet union destroyed in 40+ years of occupation.
the good news is that my tuition costs are 105€ per semester, and i only have to pay back half of my student loan. its the law. :)
Posted by central_european on June 30th, 2009.
thats 105€ per semester, no matter how many courses i take.
Posted by central_european on June 30th, 2009.
Andrew:
Thanks for referencing my article from the Centre of Constitutional Studies.
Awesome website!
Posted by Wendy on June 30th, 2009.