March 18, 2012
Equalization plays a unique role in redistributing wealth across the country.
Each and every province has a vested interest in the outcomes of the program—precisely the reason why a neutral arbiter could help cut through the conflicts and the politics that make the program so confusing and misunderstood. Although we can’t take the politics out of equalization entirely, we can do a better job reducing the level of territorial conflict surrounding it.
Canada needs a new approach to governing equalization. The experiences of other federations warrant serious consideration. There is no guarantee that Australia’s arm’s length model will work. But what is guaranteed is that the conflict over equalization will only continue if we let it. Let’s not let it.
Executive Summary
In the last decade, equalization has attracted significant attention from politicians, commentators, and think tanks. Federal and provincial government commissions have shed considerable political light on the program. Elected officials across the country have been quick to voice their concerns about the impact of equalization on their respective provinces. In doing so, they have ratcheted up the conflict surrounding the program.
Equalization became highly politicized in the mid-2000s and it has subsequently proven difficult to tone down the rhetoric and bickering. Although vigorous national debates on equalization are necessary from a policy standpoint, the political showdowns that took place during the Martin and Harper minority governments only exacerbated regional tensions.
These tensions stymie attempts at calm, neutral discussions of the future of equalization. Claims and counter-claims abound—often with little or misleading evidence.
Tensions over wealth redistribution may be unavoidable, but they can be mitigated. Other federations have made concerted efforts to de-politicize their equalization programs through arm’s length governance agencies.
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In Australia, for example, an arm’s length body called the Commonwealth Grants Commission (CGC) administers equalization. The CGC is comprised of respected, non-partisan experts, operates under broad terms of reference set by the Commonwealth government, and makes recommendations for the appropriate redistribution of wealth. The Commonwealth government retains final decision-making power but the CGC’s recommendations are generally adopted because they come with a seal of neutral fiscal expertise.
As a direct consequence of this institutional setting, the Commonwealth government plays a minimal role in equalization. In other words, equalization in Australia is as de-politicized a program of territorial redistribution as can be found in any federation. As a result, conflict over equalization is rare and, when it occurs at all, generates little political traction.
The Australian model served as the template for the development of both the South African and Indian approaches to equalization. In practice, the differences of these countries’ federal systems influence the operation of their arm’s length governance agencies.
These experiences are instructive for Canada, but it would be naïve to assume we could replicate the effects exactly. Because Canadian provinces have more politically salient identities than Australian states, we have to be realistic about how this model would translate to the Canadian context. Given the level of existing regional tension, keeping provincial perspectives out of the arm’s length agency’s work would be tricky.
But as it happens, Canada has a history of using the arm’s length agency model with considerable success. For example, the CPP Investment Board was established during the last major reform of the Canada Pension Plan in the mid- to late-1990s. It has since invested over $140 billion on behalf of Canadian pensioners with little political interference. The Canadian Institute for Health Information (CIHI) has similarly been providing expert and neutral healthcare information and guidance to Canadian governments since 1994. Arm’s length governance is compatible with the Canadian policy context.
Trusting expert, independent third parties with information gathering and governance responsibilities could improve the current program in a number of ways. It could provide expert legitimacy to policy decisions, reduce territorial conflict, increase the transparency of equalization, and clarify accountability.
Equalization plays a unique role in redistributing wealth across the country. Each and every province has a vested interest in the outcomes of the program—precisely the reason why a neutral arbiter could help cut through the conflicts and the politics that make the program so confusing and misunderstood. Although we can’t take the politics out of equalization entirely, we can do a better job reducing the level of territorial conflict surrounding it.
Canada needs a new approach to governing equalization. The experiences of other federations warrant serious consideration. There is no guarantee that Australia’s arm’s length model will work. But what is guaranteed is that the conflict over equalization will only continue if we let it. Let’s not let it.
Authors
André Lecours & Daniel Béland
Release Date
March 18, 2012
ISBN
978-1-927350-18-8
Mowat Publication
No. 48