Co-authored with Derek Fildebrandt, Alberta Director, Canadian Taxpayers Federation
Last summer, the Vancouver Canucks tried everything to get power forward Shane Doan signed as a free agent. Doan would have been a huge help, stabilizing the Canucks' second line and providing much-needed grit and scoring.
Ultimately, Doan decided to stay in Phoenix. This was an especially tough pill to swallow in Vancouver, which has been one of the NHL teams stroking huge annual cheques to keep the Coyotes and other NHL money losers afloat. If the Canucks were able to keep and spend all the money they earn and not have to share it with the Coyotes, perhaps they could have offered Doan a larger contract.
Or if the Coyotes weren't taking the Canucks' cash, Phoenix wouldn't have been able to afford Doan - one could argue that Doan was signed away from the Canucks with their own money.
This is precisely what happens in Canada's Equalization program, where "have" provinces such as British Columbia, Alberta and Saskatchewan send billions of dollars to Ottawa that are in turn handed to chronic overspending "have-nots" like Quebec.
Essentially, money is taken from Canadian provinces with low tax regimes that encourage economic prosperity and handed over to spendaholics. It creates a system where the reward for prudent fiscal management is bailing out those who couldn't care less. Equalization should fly in the face of Conservative ideology, yet the federal Tories seem headed toward quietly renewing the program, as-is, in 2014.
It's a two-tiered system: with some provinces cast as cheque writers, and others as cheque cashers. The cheque cashers are already lining up to press the federal government to up their take. Quebec's 2011-12 budget included a 60 page report pushing for more Equalization dough.
To keep the flow of our money going, Quebec resists developing its resources and growing its economy, so as to not increase its 'fiscal capacity,' and therefore cut its equalization take. In fact, their separatist premier, Pauline Marois, recently posted a video to the Parti Québécois website, saying (translated): "If one day, we produce oil and gas in Quebec, why would we let half of this wealth go down the road to Ottawa?"
In other words, we in B.C. pay so they can play. Worse, Equalization has inadvertently forced provinces into such dependence that they are paralyzed economically.
The most incredible example of the Equalization program incentivising destructive behavior are changes made in 2005 that allow Nova Scotia and Newfoundland and Labrador to get an Equalization bonus payment if their respective debt loads were in the highest four in the country. This led Nova Scotia's former NDP Finance Minister Graham Steele to brag about his province's high-debt status paying Equalization dividends.
So far, the only cheque writer who seems interested in fighting for a better deal is Saskatchewan Premier Brad Wall. But with just three per cent of Canada's population, Wall needs B.C. and Alberta to join the fight.
Premier Christy Clark, with a fresh mandate in hand, should be looking for opportunities to partner with Alberta Premier Allison Redford, given the bumpy state of relations between our two provinces in recent months. Working with Wall to push for a better Equalization deal is a perfect opportunity to join forces and build political capital with one another.
Equalization should be transitioned from a federal welfare program to a federal 'Fiscal Recovery Program.' Rather than incentivise substandard government, this new program should provide bridge funding to poorer provinces on the condition that they make necessary economic and fiscal reforms.
For example: instead of incentivising Nova Scotia's government to run up its debt, a reformed 'Federal Fiscal Recovery Program' could use the cash at its disposal to match provincial debt repayments, dollar-for-dollar.
Rather than hand Quebec $7.8 billion a year in Equalization payments, the federal government should count that province's 'fiscal capacity' as if it had already developed its natural resources the way Alberta and Saskatchewan have, and B.C. is moving toward. This would have a two-fold effect of shrinking the cash payout, and removing the disincentive to build its economy.
Taxpayers in B.C. -- and across Canada -- would be better for it.