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How Ottawa slices the pie

If the prospect of discussing Canada’s equalization scheme sends you into narcoleptic despair, consider the bright enthusiasm of Lyndhurst Falkiner Giblin, who, on a warm day in August 1938, eagerly sauntered into a room on Parliament Hill to talk about the nitty‑gritty. The sixty-five-year-old Australian economist wasn’t put off by the dry-as-dust topic; indeed, he had sailed across the Atlantic from England solely to testify before the Royal Commission on Dominion-Provincial Relations.

Giblin arrived wearing a homemade red flannel tie with his blue shirt, a collarless suit, and workboots smeared with dubbin, but nothing showed his eccentricity as clearly as his eagerness to discuss the complexities of federal governments. He was in his element that sultry day, surrounded by people who were energized by the task of making federations more equitable, to allow poor New Brunswick to operate in the same league as rich Ontario. And the four commissioners listened with fascination as he outlined the formula that Australia had come up with five years earlier, so that all of its citizens had equal access to social programs, no matter where they lived.

Some level of equal access had been Ottawa’s goal for decades, as it tried to balance the poorer and richer provinces with a variety of ad hoc loans and grants to deal with the inequality at the core of Confederation. Giblin showed what could be done in a more systematic way, but officials hooked on the practices of an overbearing central government weren’t ready to follow. It wasn’t until 1957 that Ottawa sent cheques totalling $139 million to eight qualifying provinces, so that they could finance the social ­programs that Canadians were demanding.

This bumpy road to equalization is the subject of Mary Janigan’s The Art of Sharing, and it is not damning with faint praise to say that the book is vastly more interesting than the arcane subject matter at hand. Janigan rightly praises the equalization scheme as “the improbable glue that holds the nation together,” even as its sticky charms are well hidden beneath a mountain of obfuscating numbers.

Journalists like to call equalization a MEGO story — as in “My eyes glaze over.” Polls show that the scheme in place since 1957 is popular, but those who can explain how it works are few and far between. Fifteen years ago, as a reporter trying to get up to speed on the topic, I consulted a Queen’s University professor. At one point, I stopped his briefing to say I didn’t quite follow something. “That’s okay,” he said. “Only a few dozen people understand this, and even they don’t always agree with each other.”

But we can agree on this: The Art of Sharing is a book we didn’t know we needed. Janigan uses deep scholarly research — her bibliography is twenty pages long and includes abundant archival material — to illuminate in a readable way the decades-long grudge match between the richer and poorer provinces, with a series of federal governments acting as hesitant referees.

In the postwar period, voters wanted better social programs, even as most provincial governments didn’t have the revenue to provide both good roads and improved health services. The richer provinces — we have come to call them the haves — had the money, but their premiers fiercely resisted any transfers to their poor relations. The have-not jurisdictions, meanwhile, struggled with limited tax revenues.

Eventually, a full-court press by academics and bureaucrats persuaded the moneyed premiers that provincial inequality threatened to destroy the federation and that giving the others a leg up would increase general prosperity. The difficulty was in figuring out how to do it, especially as Ottawa had historically been reluctant to decentralize tax collection.

The federal government couldn’t butt into areas of provincial jurisdiction, such as health care, so it eventually settled on the rather simple idea of giving money to some provinces to ensure they could provide relatively equal levels of services for relatively equal levels of taxation. The feds used the Australian experience to devise what Janigan calls a “rather nightmarish formula” that tops up revenues according to a province’s fiscal capacity. There are no application forms and no conditions on how the recipients use the money. (The three territories have a similar and equally arcane scheme, Territorial Formula Financing, that in 2020–21 will disburse about $4 billion, unconditionally.)

Equalization is not a beloved social program like medicare or a lifesaver such as the federal transfer payments for post-secondary education. “It does not inspire fierce patriotism,” Janigan writes. “It is not flashy.” Yet it’s no stretch to say that this untidy solution has kept this improbable country together.

The mix of have and have-not provinces has varied over the years as Saskatchewan, Newfoundland and Labrador, and Alberta have seen surges of resource revenue (and, truth be told, politics has come into play). The “nightmarish” formula has received a couple of makeovers, but there has been one constant: Quebec has always been a recipient. In 2020–21, Ottawa will pay out $20.5 billion to the have-nots, of which Quebec will receive $13.25 billion. Ontario, which was deprived of the benefit in 1978 by a last-minute change in the formula, received payments for a decade from 2009, but now it joins four other provinces that will wait in vain for money. Alberta hasn’t seen any since 1963.

There are critics of the scheme, of course. This isn’t surprising, considering that equalization sets up a primal battle over cash. When he was premier of Ontario, Dalton McGuinty raised a protracted fuss about his taxpayers sending $23 billion more in revenues to federal coffers each year than they were receiving in services. Reports were commissioned — one said that equalization had “drifted from its moorings”— and Ottawa fiddled a bit with the formula. And then the fuss died down once Ontario became a have-not province.

These days, Jason Kenney is the dominant naysayer. He is promising a referendum this year to allow Albertans a chance to vent their anger about a scheme that has given them a mere $92 million over sixty-three years (compared with Quebec’s $198 billion). Other critics wonder whether the system has fostered dependency among the have-nots. Would the Maritime provinces have so many hospitals and universities without the billions they get? Could Quebec afford its comprehensive child care program? Did New Brunswick reject the tax revenue — and controversy — it would have got from fracking because it was simply easier to accept money from Ottawa?

Despite its somewhat Byzantine nature, equalization is “a principle that should be cherished.” But to what extent does it actually work? While billions of dollars have flowed, there’s never been a comprehensive study of the scheme’s effectiveness. Does it actually ensure comparable social programs across Canada? Does it help have-nots boost their fiscal capacities? Does it foster national unity? The questions need answering, if only to cut down on the sporadic outbursts of resentfulness among the haves. Perhaps the greatest value of The Art of Sharing is to show us that it would be worth finding those answers.