Meredith Boessenkool & Phillips

I’m pleased to announce that Shannon Phillips has joined forces with myself and Tyler Meredith, creating Meredith Boessenkool & Phillips. Together we’ll offer our brand of innovative policy-based expertise to Canadians from coast to coast.

We work to translate our clients’ goals into public policy priorities, crafting ready-made, comprehensive solutions for government.

To Make Better Policy with Meredith Boessenkool & Phillips, visit MBPolicy.com.

Ken

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How Ottawa will stiff every B.C. man, woman and child: The C.D. Howe Institute sees less money for our province, and others, and more for Quebec under a new federal transfer program.

The principle of equality has received growing attention in Canada. Particularly important in those discussion is how Ottawa treats citizens in different parts of the country. Most Canadians accept, and support, the principle that richer regions should pr 

vide some level of support to less fortunate regions. Indeed, this principle is embodied in the federal equalization program, a program that boosts the revenues of less fortunate provinces to a representative average. 

Beyond equalization, however, and perhaps as a condition for its continued support, Canadians’ sense of fairness is increasingly embodied in the principle of equal treatment. Ottawa has taken tentative steps in this direction, by scaling down regional development programs and making modest changes in unemployment insurance. 

Even the new Canada Health and Social Transfer, the CHST, was sold as increasing fairness and equality among Canadians. The 1996 budget proposed to move the transfer towards an equal-per-capita system over five years. Unfortunately, the federal proposal presents only the illusion of equality, for beneath the rhetoric and some complex formulas, the playing field under the new CHST continues to be tilted. 

The federal government’s new CHST channels block funding to the provinces for health, education and welfare. It was created in the 1995 budget by rolling together the former federal transfers under Established Programs Financing and the Canada Assistance Plan . 

The calculation of provincial CHST shares is the same as that of the former EPF grants. The total provincial entitlement is a per capita amount, set by Ottawa. This total entitlement is made up of three components: first, the theoretical yield of tax room given the provinces in 1977; second an equalization amount that raises the value of that tax yield to a five-province average; and third, a cash residual to meet the total entitlement. In this process, the actual cash payment made by Ottawa is a residual. The practical result of this is that the transfer’s cash payment discriminates against provinces with richer tax bases. 

To make a long story short, under the new transfer, it is the cash that matters. 

The initial 1996/97 provincial CHST allocation merely wrapped together payments from the previous two programs and as a result is heavily biased against Alberta, British Colombia and Ontario. Initially, Quebec and Newfoundland are the big winners. 

The 1996 federal budget proposal will eliminate half the per capita disparities in the total entitlement of the CHST over the next six years. If, as I have argued, it is the cash that matters, the CHST should be evaluated based on its cash allocations, not allocations in the total entitlement. Looking at cash-only shows that the federal proposal presents only the illusion of equality. 

Comparing Ottawa’s proposal to an equal per capita transfer shows that in five years, Ontario will receive roughly $116 less per resident for health care, post secondary education and welfare than Quebec; Alberta, $114 less; and British Columbia, $85. 

Compared to an equal per capita cash payment, Ottawa’s plan means Ontario will get $500 million less than an equal share would imply, while Quebec will receive $500 million more. Alberta will receive $123 million less; British Columbia, $53 million. 

The easiest way to remove these cash disparities would be to change the program to a cash-only transfer, equal per capita across the country. 

I have proposed that Ottawa eliminate half of the present per capita cash disparities by 2002/03, to ease the transition for Quebec and the other Atlantic provinces. Under this plan, some provinces – especially Quebec, Newfoundland and Nova Scotia – would have to adjust to significant reductions in cash payments (mitigated somewhat by planned increases in equalization payments), while others – especially Ontario and Alberta – would still be receiving less than an equal per capita share. 

The greater equality would moderate an important source of friction in federal-provincial fiscal relations because it would embody the important principle of fiscal equality outside of the federal equalization program. 

Ken Boessenkool is a C.D. Howe Institute policy analyst and author of a new institute publication, The Illusion of Equality: Provincial Distribution of the Canada Health and Social Transfer