Many ways have been devised in Canada to lessen the effects of regional economic disparities: subsidies, conditional and unconditional grants, special projects and grants, regional economic development plans, and more. One of the most ingenious that has been created is the equalization payment. As such, this programme was first introduced in 1957, although one could trace its ancestry in earlier wartime and post war programmes.
In essence, originally, the federal government agreed to pay to each province that would qualify, an unconditional amount that would be such as to bring the level of per capita yield from three standard taxes (personal income tax, corporation profits and succession duties) in each province to the average yield in the two wealthiest provinces of Ontario and British Columbia. The programme was designed to ensure that poorer provinces could afford to provide quality services to their citizens, without having to resort to inordinately high levels of taxation. As well, it wished to avoid a situation where Canadians would have little services, or services of low quality, in poor provinces while rich provinces could afford elaborate programmes of a high quality. The desire to ensure that all Canadians enjoy social programmes of a high quality, regardless of where they live in Canada, strikes at the heart of the ethics of Canadianism and constitutes one of the best feature of Canadian federalism.
The programme has been revised on a number of occasions. It is not my purpose to examine this evolution in detail here. Currently, equalization is calculated on more than 30 different taxes whose yield is established for each province, assuming a standardised level of taxation. If a province draws revenues that are higher than the average, then it is not entitled to equalization payments. If the yield of its taxes is lower than the average then a payment, to the extent of its underfunding, will be made by the federal government. The average is calculated on the yield achieved collectively by Quebec, Ontario, Manitoba, Saskatchewan and British Columbia.
Ever since the beginning of equalization in 1957, and with hardly any variation over time, the same provinces have benefited. They are the have-not provinces of Canada: Newfoundland, Prince Edward Island, Nova Scotia, New Brunswick, Quebec, Manitoba and Saskatchewan. Their per capita average income would also show them to be below the Canadian average. [see table] The largest amount of equalization has always been paid to Quebec, and, thus, the province could be considered the main beneficiary of the equalization payments. This is easily understandable when one remembers that the population of Quebec exceeds the combined population of the other six provinces by around 70%. On a per capita basis, the Atlantic provinces receive the largest payments, and the Western provinces, the smallest.
The equalization principle was included in the Constitutional Act, 1982 as article 36 . The same article also committed the Canadian parliament and the provincial legislatures to promoting equal opportunities for the well-being of Canadians, furthering economic development to reduce disparity in opportunities and providing essential public services of reasonable quality to all Canadians.
The features of the equalization programme, and the benefits that Quebec evidently enjoys from it, have been essential elements in the fight against separatism in Quebec and have been raised as arguments in the referenda held in 1980 and 1995. In the recent past, as federal deficits mounted, and federal transfer cuts to the provinces were effected, in the hope of stemming the budgetary deficit, equalization has played less of a role than it did previously. However, the return to a more healthy situation in the federal budget is likely to put federal transfers to the provinces in an even more positive light in the future.
For a history of the evolution of the equalization formula, consult the article by Thomas J. Courchesne in the 2007 March issue of Policy Options.
1999 Claude Bélanger, Marianopolis College