Canada performs pretty well on some measures. For example, it received a B+ on the principle of “autonomy”: Provinces are able to run their own programs to suit their own circumstances.

Unfortunately, Canada performs particularly badly on “transparency” and “accountability”: The formulae to calculate fiscal allocations on many transfers are not easily explained or understood by the average voter, thereby creating cynicism and the perception in most provinces that they are getting a raw deal. For example, Nova Scotia and Newfoundland receive special payments beyond their normal Equalization entitlements. Such deals are unprincipled and contribute to unproductive acrimony in the federation.

On the issue of “revenue adequacy” — ensuring that each of order of government has the revenue to fulfill their obligations — Canada gets a C.

The federal share of health-care spending in Canada has declined dramatically. The federal government used to pay as much as 45¢ of every dollar spent on health care. It now only pays about 20¢ on the provincial dollar. Uneven fiscal capacity across the country also hurts our score on “revenue adequacy.” Some provinces have a much tougher time finding the money to fund their social programs. In the past, the federal government had an easy solution to this problem: extract money from the Ontario tax base and reallocate it to other provinces. But that is no longer possible. Ontario’s wealth is now only average and the province cannot afford to bankroll inter-regional distribution.

This brings us to the crucial issue of “equity” where Canada again comes up short. Provinces with huge deposits of natural resources — such as Alberta and Saskatchewan — have much greater fiscal capacity to fund services. And natural resource revenues are not available to the federal government for re-distribution.

Unsurprisingly, there are widelydivergentviewsonwhat to do about these problems. Many experts believe that the federal and provincial governments should consider re-aligning revenue-raising capacity. For example, the provinces should consider vacating the corporate tax field altogether and allowing the federal government to impose one uniform corporate tax rate across the country, giving the provinces GST revenues as compensation.

The federal government could also consider transferring tax room to the provinces — that is, allowing provinces to keep a greater share of the overall tax collected in the federation.

If the federal government is resistant to ceding more revenue to the provinces, it could carve out clearly defined roles for itself. For example, it could ease the burden on the provinces and improve equity by funding a national drug program. Over time, this could be funded through targeted payroll taxes, commonly referred to as “social insurance.”

Alternatively, it could make itself more relevant to low income Canadians by uploading provincial social assistance, integrating it with Employment Insurance and developing one coherent program to help Canadians who fall on hard times.

While experts do not necessarily agree on the solutions, our Report Card points to a consensus around the need for Canada to do better. The transfer system is vital to the health of Canada’s social union. If it doesn’t work well, the quality of our programs suffer. Canadians deserve better.

This piece originally appeared in an edition of the National Post.