February 6, 2012
New Mowat research on Equalization explores expenditure needs.
Toronto – The Mowat Centre at the University of Toronto has released new research that updates and expands the expenditure need Equalization report redacted by the federal government and covered extensively by the media. The new report (by the same author), Expenditure Need: Equalization’s Other Half, demonstrates that the current program falls far short of meeting an important Constitutional obligation.
Ontario, in particular, receives far less in transfers than it would using a different equalization formula. This has a significant negative impact on Ontario’s fiscal position. Author Peter Gusen, Mowat Centre Fellow and a former senior federal Finance official makes a compelling, evidence-based case for including the cost of delivering services into the Equalization formula.
According to Gusen, “the Constitution describes a specific task for Canada’s Equalization program. In its current form, Equalization does only half the job assigned to it.”
The report highlights that Equalization takes great pains to measure the amount of revenue each provincial government can raise on its own. Provinces less able to generate funds receive Equalization payments from the federal government to help fill the gap.
Revenue, however, is only one side of the story. Provinces also have to spend different amounts to offer comparable levels of services because they have different expenditure needs, such as having more senior citizens or a higher cost of living. Including expenditure need in the Equalization formula is common elsewhere, including in Australia’s program.
The paper shows that Ontario would receive a much greater share of federal payments if expenditure need were included, narrowing the gap between what Ontario’s taxpayers pay into the Equalization program and what their government gets back from it to support their public services.
The paper also shows that this change could also reduce the overall cost of the Equalization program.
According to Mowat Centre Director, Matthew Mendelsohn, “the federal fiscal transfer system as currently designed is unfair to Ontario in many ways.”
“There are many different ways of addressing this problem. Including expenditure need is one very promising way. The Mowat Centre’s Fiscal Transfers Series will suggest others, but the message is clear: the federal government must, at long last, fix the transfer system that acts as a drain on Ontario’s fiscal resources,” he adds.