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May 19, 2012

Calming the furor over equalization

May 19, 2012

National Post features editorial by André Lecours & Daniel Béland addressing equalization programs in Canada.

In the last decade, equalization has attracted significant attention from politicians, commentators and think tanks. Federal and provincial government commissions have shed considerable political light on the program. And elected officials across the country have been quick to voice their concerns about the impact of equalization on their respective provinces. In doing so, they have ratcheted up the conflict surrounding the program.

These quarrels stymie attempts at calm, neutral discussions of the future of equalization. Claims and counter-claims abound — often backed by little or misleading evidence. Thankfully, there is way the discord can be mitigated. Other federations have made concerted efforts to de-politicize their equalization programs through arm’s length governance agencies, and they seem to work.

In Australia, for example, an arm’s length body called the Commonwealth Grants Commission (CGC) administers equalization. The CGC is comprised of respected, non-partisan experts; operates under broad terms of reference set by the Commonwealth government; and makes recommendations for the appropriate redistribution of wealth. The Commonwealth government retains final decision-making power but the CGC’s recommendations are generally adopted because they come with a seal of neutral fiscal expertise.

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As a direct consequence of this institutional setting, the Commonwealth government plays a minimal role in equalization. In other words, equalization in Australia is as de-politicized a program of territorial redistribution as can be found in any federation. As a result, conflict over equalization is rare and, when it occurs at all, generates little political traction.

The Australian model served as the template for the development of both the South African and Indian approaches to equalization, though in practice, the differences of these countries’ federal systems influence the operation of their arms-length governance agencies.

These experiences are instructive for Canada. It would be naive to assume we could replicate the effects exactly. Because Canadian provinces have more politically salient identities than Australian states, we have to be realistic about how this model would translate to the Canadian context. Given the level of existing regional tension, keeping provincial perspectives out of the arm’s length agency’s work would be tricky.

But as it happens, Canada has a history of using the arm’s length agency model with considerable success. For example, the CPP Investment Board was established during the last major reform of the Canada Pension Plan in the mid- to late-1990s. It has since invested over $140-billion on behalf of Canadian pensioners with little political interference. The Canadian Institute for Health Information (CIHI) has similarly been providing expert and neutral health-care information and guidance to Canadian governments since 1994. Arm’s length governance is compatible with the Canadian policy context.

Trusting expert, independent third parties with information gathering and governance responsibilities could improve the current program in a number of ways. It could provide expert legitimacy to policy decisions, reduce territorial conflict, increase the transparency of equalization and clarify accountability.

Equalization plays a unique role in redistributing wealth across the country. Each and every province has a vested interest in the outcomes of the program — precisely the reason why a neutral arbiter could help cut through the conflicts and the politics that make the program so confusing and misunderstood. Although we can’t take the politics out of equalization entirely, we can do a better job reducing the level of territorial conflict surrounding it.

Equalization became highly politicized in the mid-2000s and it has subsequently proven difficult to tone down the rhetoric and bickering. Although vigorous national debates on equalization are necessary from a policy standpoint, the political showdowns that took place during the Martin and Harper minority governments only exacerbated regional tensions.

This piece originally ran in an edition of the National Post.

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André Lecours & Daniel Béland

Release Date

May 19, 2012


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