Montreal – To mitigate political tensions about the transfers provincial governments receive through equalization, Canada should follow Australia’s example and establish an arm’s-length agency to recommend the level of equalization payments, says a new paper from the Institute for Research on Public Policy.

Under equalization, a fixture of Canadian federalism since 1957, the federal government extends payments to provincial governments to enable them to provide comparable levels of services at comparable levels of taxation. The formula that determines the entitlements takes into account the significant disparities in fiscal capacity among provinces. As authors Daniel Béland and André Lecours demonstrate, provincial fiscal disparities fluctuate considerably depending on regional economic circumstances, often leading to intergovernmental tensions.

Drawing on Australia’s experience with its Com­monwealth Grants Commission, Béland and Lecours suggest that establishing an independent commission could help depoliticize the process by attenuating the federal government’s role as the sole arbiter on equalization payments. They add, “A new federal government that has signalled its willingness to develop a new type of relationship with the provinces might provide an opportunity to restructure how equalization is administered.”

The authors also address the issue of whether equalization should take into account provinces’ particular needs. Some provinces, for example, are likely to face greater fiscal pressures in providing health care services because their populations are aging particularly fast.

“The Canadian public is in dire need of a better understanding of equalization and the policy choices made in the past,” conclude Béland and Lecours. In their view, knowing how these choices differ from what other countries have done is an excellent start towards improving the quality of the policy debate in Canada.

Canada’s Equalization Policy in Comparative Perspective, by Daniel Béland and André Lecours, can be downloaded from the Institute’s website (irpp.org).

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Media contact:    Alex Shadeed    tel. 514-815-3130    ashadeed@nullirpp.org