Alberta’s equalization concerns off target

April 9, 2010

By Luc Turgeon
Assistant Professor
University of Ottawa
Jennifer Wallner
Assistant Professor
Universities of Regina and Saskatchewan

REGINA, SK, and OTTAWA, ON, Apr. 9, 2010/ — Alberta once again is in an uproar over equalization, the federal transfer program intended to ensure that citizens in all provinces have access to reasonably comparable public services at reasonably comparable levels of taxation.

The source of Alberta’s recent outrage is a report released by the Frontier Centre for Public Policy, which supposedly demonstrates that equalization has created a situation in which residents of historically “have” provinces (in particular British Columbia, Alberta and Ontario) have access to fewer social services and benefits than do those in “have-not” provinces.

Better services in have-not provinces

Alberta Finance Minister Ted Morton has become a champion of the report’s findings. He recently stated that Albertans are irritated to see have-not provinces offering better services than they receive. Morton has continued to suggest that Albertans are paying for the more generous services offered by have-not provinces, especially Quebec.

The Frontier Centre’s report, however, does not dig deeply enough in its policy analysis, while Morton’s comments obfuscate the real causes of Alberta’s laggard status when it comes to investments in social services and benefits: The province’s low level of taxation, combined with high salaries paid to its employees.

The Frontier report is based on indicators that supposedly confirm its hypothesis, while it leaves out others that are crucial to a detailed analysis. For example, it simplistically argues that equalization transfers have led to the creation of more regulated child-care spaces in the have-not provinces.

However, since it’s parents, not governments, who mostly pay the cost of child care, the number of overall spaces in a province stems from many factors that go beyond public spending, including the cost of the child-care workforce (cheaper in the Atlantic provinces), staff-to-child ratios, and the cost of child-care facilities.

Differences in public spending thus have little to do with variations in the number of spaces. In fact, if one examines public child-care spending per child and that spending as a proportion of the GDP, one finds little variation among the Atlantic Provinces, British Columbia and Ontario.

In fact, the two outliers are Quebec, which spends significantly more, and Alberta, which spends significantly less, than others do.

The explanation for limited social services in Alberta lies elsewhere: The tax effort of Albertans — the amount of revenue raised as a proportion of provincial GDP — is the lowest in Canada, while it’s highest in Quebec.

Alberta has a low flat tax rate, the highest basic and spousal exemptions in Canada and is the only province without a general sales tax. In short, Albertans pay less tax than do other Canadians.

A related factor that explains Alberta’s lower level of services is the cost of providing them in the province. As the Frontier report points out, it is true that Quebec has more physicians than Alberta does, as well as a better student-teacher ratio. However, this reflects the higher salaries of doctors and teachers in Alberta, a fact conveniently ignored in the report.

In 2007-08, a family doctor in Alberta earned on average $90,891 more annually than one in Quabec, while a specialist earned $161,871 more.

Alberta’s teachers are among the best paid in the country, nearly matching the salaries of Ontario teachers, while those in Quebec are Canada’s lowest paid.

Comes down to policy choices

These are all legitimate policy choices. However, it’s these choices by Alberta, not the equalization payments received by the have-not provinces, that largely account for the lower level of services provided in Alberta.

The equalization program isn’t perfect and its Byzantine formula needs to be reformed. However, the ultimate goal of Morton and the Frontier Centre isn’t to reform equalization but to abolish it.

This proposal would bring Canada’s federal system more in line with America’s. However, the U.S. system has allowed dramatic variations to flourish in the services and benefits of the wealthier and poorer states, especially in education. Rich states have charged ahead while poor states have fallen further and further behind.

These types of inequalities among the provinces are simply not a reality in Canada, thanks in no small part to the federal equalization program.

Luc Turgeon is an assistant professor at the University of Ottawa’s school of political studies and Jennifer Wallner is an assistant professor at the Johnson-Shoyama Graduate School of Public Policy at the universities of Saskatchewan and Regina.

Counterpoint: Time to reform Canada’s unprincipled equalization system

Channels: The Saskatoon Star-Phoenix, April 8, the Calgary Beacon, April 9, the New Brunswick Telegraph-Journal, April 13, the Red Deer Advocate, April 14, Canada Free Press, April 20, the Cape Breton Post, April 26, the Grande Cache Mountaineer, May 4, 2010

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