The Paradox of Equalization: Solving Inequity by Increasing Disparities
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2018-08-07
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Abstract
The design of the equalization system is a policy concern in Canada because it has extensive political, social, and economic implications. Equalization is intended to ensure all provinces can offer similar public services and to reduce fiscally induced migration across the country. The program is entrenched in the constitution and has been in operation since 1957. However, equalization has been reformed numerous times over the decades and controversy has followed with each new iteration of the system. In 2018-19, fiscal equalization payments will total $18.96 billion and will be split between six provinces. Quebec will receive $11.73 billion, or 61.88% of the total amount, while Prince Edward Island will receive the most per capita at $2,835. Conversely, the provinces of Alberta, British Columbia, Saskatchewan, and Newfoundland & Labrador will not receive any money. This project was designed to determine the level of success equalization has had in meeting its own objectives and constitutional obligations. Specifically, the focus of the project is on the service comparability aspect of the equalization system. Analysis was conducted by collecting data from Statistics Canada regarding eight different education indicators by province. Provinces were then compared to the national average in each category and any outliers were recorded. This statistical analysis provided insight into how “reasonably comparable” services are across provinces in Canada. Key themes from the literature review include equalization’s ability to reduce fiscal disparities, promotion of bad fiscal policy, political influence, and the system’s lack of focus on service comparability. Authors suggested that equalization was important for national unity, but also emphasized that the system is designed for political motives rather than economic efficiency. Findings propose that equalization has enabled services to improve across the country, but service comparability appears to have faltered over time. In fact, service disparities between provinces have not disappeared despite the existence of equalization and may even be increasing as time progresses. Additionally, fiscal equalization may have the effect of enabling provinces which receive payments to achieve greater levels of service than non-recipient provinces. As a direct consequence, some provinces may have lower quality education services solely because of the design of the system. The equalization program is in need of reform. Moving forward, policy should be designed to legislate what “reasonably comparable” levels of service are and develop concrete tools to measure levels of service in order to compare provinces and assess the program’s ability to meet its objectives. In addition, the government should introduce an independent arms-length agency to provide oversight and direction to the equalization program. The agency would be responsible for ensuring effectiveness, making modifications, and achieving the constitutional requirements of the program. As a result, equalization would become de-politicized and progress towards improving service comparability among the provinces. Any policy approach designed to reform equalization should involve expert consultation and a plan to address service disparities.
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Fuss, J. (2018). The Paradox of Equalization: Solving Inequity by Increasing Disparities (Unpublished master's project). University of Calgary, Calgary, AB.