1. Should there be a link between Development and Equalization? Lars Osberg ACEA Conference Dalhousie University 21/10/05

2. equalization & economic development  Current debates on equalization sometimes link - was this / should this be a motivation for equalization payments ?  Problem for L. Osberg Speaking after Boadway, Palmer and Hobson – what can one say that they have not already said (better)?  Agree on RTS, equalization of fiscal capacity, program cost ceiling, etc.  Why do we have Equalization ?

3.  "The quality of education and welfare services is no longer a matter of purely provincial and local concern. In Canada today, freedom of movement and equality of opportunity are more important 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 of supporting these services, and yet are also the ones in which the needs are likely to be greatest. Whether the remedy lies in emigration from these areas or in the development of alternative means of livelihood, they must not be allowed to become 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 -- equity because these areas may have been impoverished by the national economic policies which enriched other areas, and which were adopted in the general interest. Those whose interests were sacrificed have some claim that the partnership should work both ways. National self-interest demands it because the existence of areas of inferior educational and public health standards affects the whole population, and creates many grave and dangerous problems. More fortunate areas cannot escape the pressure on their standards and the effect on their people; in this case prevention, in both fiscal and human terms, is much cheaper than the cure." Report of the Royal Commission on Dominion -- Provincial Relations, Book 2, page 128 (Rowell -- Sirois, 1940).

4. Lost ideas behind Equalization  Freedom of movement + “Contagion” theory of social problems “Prevention much cheaper than the cure” Longer term view of impacts  Today’s debate: focus = current annual $  Loss of vision of inter-provincial mobility and intergenerational impacts on human capital Benefits for rich provinces stressed in Rowell-Sirois  Historic Redress for “National Policy” Tariff protection & growth Ontario industry Transfers = only 1 component of public policies, which partly balance other policy impacts

5. Almost Lost Idea: National Identity  “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” 1930s-1970s – emerging Canadian nationalism  Today –“national standards” = verboten term in Ottawa policy circles But polity still needs unifying symbols  Equalization as a citizenship right Equal treatment by the state – i.e. by Canada Social Cohesion = new (arcane) vocabulary?

6. The Constitution Act, 1982 & the rights of Canadians  Section 36(1) Without altering the legislative authority of Parliament or the provincial legislatures, or the rights of any of them with respect to their legislative authority, Parliament and the legislatures, together with the government of Canada and the provincial governments, are committed to A) promoting equal opportunities for the well being of Canadians B) furthering economic development to reduce disparity in opportunities, and C) providing essential public services of reasonable quality to all Canadians.  Section 36(2) Parliament and the government of Canada are committed to the principle of making equalization payments to ensure that provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation.

7. 36(1) and 36(2) - quite distinct sections  HUGE impacts if 36(1) taken seriously A “Equal Opportunities”  Including elimination of class bias? C “essential public services to all Canadians”  As specified in Human Rights treaties? B – “economic development to reduce disparity”  Regional Development incentives now rare  36(2) – only reference to equalization to enable “reasonably comparable levels of public services at reasonably comparable levels of taxation” = equal treatment of Canadian citizens Canadian citizenship right = federal responsibility

8. “Essential Public Services of Reasonable Quality to all Canadians” ?  [25] “Everyone has the right to a standard of living adequate for the health and well being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control.”  Universal Declaration of Human Rights - United Nations: 1948

10. Bogus Arguments: “Dependency”  Equalization transfers shrink as the tax base grows – is this a disincentive to growth ? But what do provincial governments maximize? If probability of re-election depends on voter well-being = f(public goods; after-tax income) Government always wants to maximize tax base, even if the amount of public goods it can supply does not increase with tax base

11. Convergence of equalization recipient provinces

12. Fiscal capacity – far from equal, but closer than otherwise

13. Equalization = less than 1/6 th of federal transfers

14. Per capita transfers differ BUT….

15. Equalization – important here but $ largely go to Quebec

17. Why is equalization still (somewhat) supported?  Inefficient migration motivated by resource rents argument matters more within economics than in broader public  The “almost-lost idea” – national identity & common citizenship rights Implication: ‘special deals’ for offshore oil undermine program legitimacy