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‘Unseen equalization’ among provinces far from equal: study

We know that Canada's system of federal equalization payments to the provinces is, in a sense, inherently unfair. The whole point of equalization is to help out the provincial governments with greater economic need, at the expense of the provinces with the strongest economies and finances. The "haves" support the "have nots." Some provinces are paying more than they get back in return, but we do it in the name of one big, happy national family.

But what about the "unseen equalization," as researchers at the Fraser Institute call it? A new research paper from the Vancouver-based think tank outlines numerous areas of federal government spending, over and above formal provincial transfers and equalization payments, where Ottawa is providing distinctly unequal funding to the provinces.

Some make intuitive sense: Ottawa spends more on regional economic development agencies in regions that are in greater need of economic development, for instance. Others may reflect some combination of historic cultural and political sensitivities: For example, Ottawa's spending on cultural programs in Quebec, on a per-capita basis, is 63 per cent above the national average, and roughly triple its per-capita spending in British Columbia and Alberta.

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But the some other discrepancies fly in the face of sound economic policy. And these particularly surround labour migration – a pressing issue in a country that sees the threat of skills shortages in its future.

Canada's Employment Insurance system, the paper argues, is unique among major federal social programs in that it "does not treat similarly situated Canadians in the same way." The system provides more generous benefits to people in higher-unemployment regions than in lower-unemployment regions.

The logic, on its face, is compelling: Provide more support in places where the unemployed have the most need. (This would be, primarily, in Atlantic Canada, where Ottawa – not so coincidentally – also provides proportionally more federal government jobs than any other part of the country.) But the practical implication is that Ottawa is paying people more and longer to stay in places with fewer job prospects; it's a powerful disincentive for Canadian labour to migrate to regions where labour supply is short and/or demand is high.

Perhaps even more flawed (although not nearly so large in dollar terms) is Ottawa's distribution of spending to help new immigrants settle in this country. The federal government already tried to fix the system once already in order to address egregious underfunding of Ontario's immigration, but it's badly broken again. Citing a 2010 study, the report said that Quebec received 18 per cent of Canada's immigrants that year, but 28 per cent of Ottawa's immigrant-settlement funding; British Columbia, which also took in 18 per cent of immigrants, got just 13 per cent of the funding.

Ottawa's policies, on both the unemployment-benefits and immigration-supports fronts, look more coloured by historical biases and politics than by economic priority. They fail to recognize and address the country's labour needs, and fail to support worker mobility to the places with the greatest need, while supporting location in regions where jobs are more scarce. In the longer term, it's inefficient economic policy and ineffective social policy. That's not fair – to anyone.

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About the Author
Economics Reporter

David Parkinson has been covering business and financial markets since 1990, and has been with The Globe and Mail since 2000. A Calgary native, he received a Southam Fellowship from the University of Toronto in 1999-2000, studying international political economics. More

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