The Star on Equalization: Another Reality Check

The lead editorial in today’s Toronto Star essentially restates McGuinty’s case more coherently than yesterday’s reports. The supposed problem identified is that, if Ontario becomes a “have-not” province, it would continue to pay more into Equalization than it would get out. This scenario is not nearly as strange as The Star makes out.

Equalization has always been funded by all Canadian taxpayers, including those who reside in “have not” provinces. The Government of Quebec, by far the largest recipient of Equalization, collected $5 billion in 2005. However, since the Government of Canada raised 20% of its revenue in Quebec, the province contributed almost $3 billion to Equalization.

If a province’s fiscal capacity falls only slightly below the Equalization standard, its receipts from the program will be less than its contributions to the program. In 2005, the Government of BC received $590 million of Equalization. Since the Government of Canada raised 12% of its revenue in BC, the province contributed about $1.5 billion to Equalization.

Similarly, the Government of Saskatchewan received $89 million of Equalization. Since the Government of Canada raised nearly 3% of its revenue in Saskatchewan, the province contributed well over $300 million to Equalization.

So, if Ontario falls below the Equalization standard, it will not find itself in the middle of an old Twilight Zone episode. Rather, it will find itself in a position frequently occupied by two western provinces in recent years. This outcome would not discredit Equalization, which simply aims to bring all provincial governments up to a minimum level of fiscal capacity.