Equalization – A Family History

Dalhousie's Lars Osberg reflects on his family in relation to the equalization program. This piece was published in the Halifax Mail-Star and Chronicle Herald Op-Ed, April 6, 2005 and merits a reprint here in the context of much bickering among the premiers:

When my parents were growing up in Alberta in the 1930s, it was a poor province – their oral version of Canada’s history contained many complaints about exploitation of Alberta farmers by tariff-protected Ontario manufacturers. However, by the time I was growing up in Ottawa in the 1950s and 1960s, oil had been found in Alberta. As a kid, I noticed that the price of gasoline was higher on the Ontario side of the river than it was on the Quebec side, because the federal government’s National Petroleum Policy restricted the importation of cheaper foreign oil, as a way of encouraging the development of Alberta’s petro-chemical industry. At the National Research Council, my father’s research on extracting oil from the Athabaska Tar Sands was financed by all of Canada’s taxpayers – and from 1957 to 1965 Alberta was a recipient of equalization payments.
By the time my children were growing up in Nova Scotia in the 1980s, Albertans had largely forgotten both past poverty and past assistance, and Ontario had begun to develop similar amnesia about the national tariffs that had protected its fledgling manufacturing industries. But Nova Scotia history texts recalled that Confederation had rescued Ontario from the profligacy of its railway construction debts (at the expense of debt-free Nova Scotia – something I was never told in Ontario schools) and that, in order to create a common market, the Atlantic colonies had surrendered their right to levy customs duties to the new Dominion of Canada.
In the 1800s, tariff income was the major source of Government revenue. To compensate the new provinces for their revenue losses, the federal government made transfer payments to the provinces which were actually larger, as a percentage of provincial revenues, in the 1870s than they are today. I suppose that my grandmother, who was borne in Truro, bore part of the burden of Nova Scotia’s loss of tariff revenue, but got part of the benefit of federal compensation.When my maternal grandmother moved from Nova Scotia to Alberta to teach school, Alberta got the benefit of her education human capital (partly paid for by Nova Scotia). When my parents moved to Ontario, they did so with an education partly paid for by Alberta taxpayers. When my brother moved to BC and I went to Nova Scotia, we had an Ontario funded education.

Today, since my Nova Scotia educated children are now spread over Ontario, Newfoundland and Nova Scotia, they are affected differentially by Canada’s current equalization system. Some of them are now net contributors, and some are net beneficiaries from the impact of equalization on their current taxes and government services. Viewed from a longer perspective, however, their endowments of education and wealth reflect in part the past balance of inter-provincial transfers.
All things considered, and given that any of us may well move again in future, I guess that calculating whether the Osberg family has benefited financially, on net, from Canadian federalism’s transfers would be a pretty complicated affair. It would not be easy to track each family member over time and allocate each year’s net benefits and costs in taxes, transfers and the value of tariff and industrial policies – not forgetting the value of compound interest over many years. And where, in such a calculation, would one count the general prosperity engendered by a wider economic union? How would one calculate the benefit for all of us of the ideal of national citizenship, as embodied in the requirement of Article 36 of the Constitution Act of Canada for “reasonably comparable levels of public services at reasonably comparable levels of taxation”?
The intellectual roots of Canada’s equalization system go back to the Rowell-
Sirois Commission, which was established in response to the final crisis of the Prairie
provinces in the 1930s. Reporting in 1940, they argued:

In Canada today, freedom of movement and equality of opportunity are moreimportant than ever before, and these depend in part on the maintenance of at least minimum national standards for education, public health and care of the indigent. The most economically distressed areas are the ones least capable ofsupporting these services, and yet are also the ones in which the needs are likelyto be greatest. Whether the remedy lies in emigration from these areas or in thedevelopment of alternative means of livelihood, they must not be allowed tobecome backwaters of illiteracy and disease. Not only national duty and decency, if Canada is to be a nation at all, but equity and national self-interest demand that the residents of these areas be given average services and equal opportunities.
It still reads well – 65 years later.