July 10, 2014
A substantial portion of the $163 billion in annual federal transfers to provinces is doled out in ways that fail to meet basic tests of transparency, efficiency and fairness, according to a new study released today by the Mowat Centre.
An analysis of the various approaches to federal transfer payments, the study found several cases in particular where federal allocations are shortchanging Ontario.
Two-thirds of the Federal Government’s budget is made up of transfer payments to provinces, municipalities, people, and organizations. Yet, according to the Mowat study, too many of these transfers are allocated without being based on clear and transparent principles.
“Many people believe federal transfers are based on specific principles, like population or need ,” said study author Noah Zon. “However, when we looked at transfers across the country, and the decision-making underpinning them, it’s pretty clear there are a substantial number of big transfers – for infrastructure, social and affordable housing, and job training, for instance – where decision-making for how funding is distributed among the provinces lacks clear or sensible rationales.”
According to Zon, if federal transfers were made on the basis of population for example, Ontario would be receiving $100 million more per year for infrastructure, $84 million more per year for social and affordable housing, and $184 million more per year for job training and employment services. If the transfers were made based on need, Ontario would receive $156 million more per year for housing, and $273 Million for job training and employment.
According to Mowat Centre director Matthew Mendelsohn, the program analysis further reinforces inequities already well documented within the federal Equalization program. “The amount of money transferred to provinces should be based on clearly articulated and transparent principles,” he said. “This occurs for most federal transfers, but for too many it doesn’t. And the inequities that exist are mostly borne by Ontarians.”
These distortions in federal spending help to explain the results of previous Mowat Centre studies that have found that Ontario continues to make a net contribution to the federation of $9-11B, despite receiving Equalization and despite having lower than average fiscal capacity.
Zon says that the ad hoc system does not meet Canadians’ needs, citing the Labour Market Development Agreements as an example. “Today we have a $2 billion annual program (the Labour Market Development Agreements) distributed based on a picture of how the Canadian job market looked in 1996. That’s hardly fair to workers today that were schoolchildren at that time.”
In order to improve on the status quo, the Mowat study proposes four principles that should guide the regional allocation of federal transfers and spending. All federal program allocations should be:
- clear, transparent and understandable, so that Canadians can effectively judge how public dollars are being spent;
- fair to Canadians regardless of where they live;
- designed so that the approach matches the public policy goals of the program; and
- predictable for all parties involved, with the flexibility to respond to changing circumstances.