Equalization, Incrementalism, the Unlikeliness of Rapid Reform

Equalization is a staple of the Canadian Dominion. Policymakers in the 19th century designed and implemented it to ensure that government provided equal services throughout the country and achieve greater balance between the provinces (or, as they were at the time, regions). The rationale is that small provinces, like Prince Edward Island (PEI), should be able to offer the same quality of public services as larger provinces that have greater fiscal capacity. Ottawa collects revenue from each province, based on a complicated formula that takes into consideration income levels, economic growth, and a swath of complex variables, and then redistributes it to those provinces in need.

The structure of Canada’s equalization program results in wealthier provinces contributing to poorer ones. This year, for example, Ontario, Quebec, New Brunswick, Nova Scotia, PEI, and Manitoba–colloquially referred to as the “have-not provinces”–will receive equalization payments, while the remaining four provinces–the “have provinces”–serve as their creditors.

Equalization’s current structure receives a great deal of criticism from both provinces that receive payments and those that provide a net contribution. Although this is a generalization, some believe that the formula no longer works and requires substantial reform. However, there is a disparity between defining the problem and delineating solutions to fix it. In Eastern Canada, for example, critics indicate that the program does not distribute enough wealth throughout the region, whereas those in Western Canada–where three of the four “have provinces” are located–argue that subsidizing the “have-not provinces” is unfair. In fact, some intellectuals question its constitutionality.

The inability to accurately define equalization’s most serious deficiencies precludes the capacity to solve them. For recipient provinces, including natural resource revenues in the equalization formula would increase the scope of its distributional effect. This is problematic, however, as it could also discourage creditor provinces from developing their natural resources (or, much less damaging, it would reduce their total revenue). Furthermore, including natural resources disproportionately penalizes the provinces that rely on developing them.

Conversely, those opposed to equalization argue that eliminating it or reducing its overall scope. Unfortunately, although this would benefit the “have provinces,” it would be severely damaging for those receiving the transfer payment each year–at least in the short-term. Not only would it reduce the size of federal transfer they receive, but also it could encourage residents of recipient provinces to migrate toward the more affluent West, which would only exacerbate the current migratory trend.

Reforming the Canadian equalization programme is difficult: neither those supporting nor opposing it will accept facing negative externalities of whichever reform route the government chooses. Solving this problem requires alternative solutions and, likely, a tremendous compromise between both sides. Alas, it might be better to transfer wealth directly to individuals, rather than provincial coffers, where bureaucratic excess erodes the government’s ability to effectively distribute it to individuals and families.

Ultimately, though, significant reform is unlikely and incrementalism may very well be the only option.

Randy Kaye is a 2013-2014 Atlantic Institute for Market Studies’ Student Fellow. The views expressed are the opinion of the author and not necessarily the Institute

Who Does New Brunswick’s Recently Introduced Forestry Policy Benefit?

New Brunswick’s (NB) provincial government announced recently a plan called, “Putting Our Resources to Work: A Strategy for Crown Lands Forest Management,” which bolsters the province’s declining forestry sector. Specifically, it will increase the amount of crown land available for harvesting by nearly 20 per cent. The government asserts that removing and processing additional wood will create jobs by encouraging additional investment in the area.

However, while the plan seems logical, closer analysis reveals a great degree of uncertainty about its potential to succeed.

The forestry sector, for instance, has undergone major technological advancements that result in more capital-intensive investment, as opposed to labour-intensive. The policy may very well encourage more investment, yet, it might flow into machines, instead of workers. Therefore, although the number of mills and employees in the province’s forestry sector has decreased, it does not necessarily indicate that the amount of harvested lumber has. The ability of this policy to create jobs is limited, not to mention optimistic (however, the amount of public land that the provincial authorities are opening to corporations is very generous). As a result, while technological advances continue to make the industry more efficient, they also give reason to doubt the government’s expectation of increased demand for workers.

NB’s provincial government addressed public concerns regarding conservation efforts by committing double the amount of protected land in the province. What it failed to mention, however, was making these promises in 2012 and scheduling them to take effect in 2014. Consequently, the government is only promising an additional 6,000 hectares of Protected Natural Areas (PNA), not nearly as much as the 135,000 hectares it claimed. Inside PNAs, there is no forestry activity of any kind; yet, key elements of sustainable environmental planning, such as buffer zones along rivers, remain outside this designation. Hence, there is still a great deal of concern about the adverse effects of additional harvesting and processing in NB forests.

In addition, there is uncertainty about the magnitude of positive spinoff. For instance, while the demand for private wood will likely increase, larger firms are no longer required to purchase from private companies. The cost advantages of harvesting crown land and the increasing ability of large companies to do so illustrates exacerbates this effect. Much of the private sector has been struggling to remain profitable and it is difficult to say how much of a boost private woodlot demand will see from greater forest industry investment in the area.

NB’s new forestry plan, announced just two years after the provincial government released a ten-year plan, suggests altered motivations. Public opinion regarding the former plan was largely positive, yet, the province’s new approach is unfavorable toward public input. One year of consulting with public organizations, researchers, and experts occurred before finalizing the 2012 plan, however, this time, the government did not seek external advice or opinions.  Furthermore, while smaller firms have struggled to compete, bigger firms have political influence that allows them to bargain for more rents. Perhaps, then, the province’s new strategy has less to do with creating economic growth and more to do with convincing bigger firms to stay. Indeed, their exit could cause the province a significant amount of economic distress.

In any case, this policy’s long-term approval by New Brunswick residents will presumably depend largely on whether it acts as a subsidy to the firms that lobbied for additional rents or as a true expansion of industry opportunities resulting in economic growth for the province.

Rachel Lowe is a 2013-2014 Atlantic Institute for Market Studies’ Student Fellow. The views expressed are the opinion of the author and not necessarily the Institute

Status Quo vs. Charter Rights

On 9 June 2005, the Canadian Supreme Court ruled on the Chaoulli v. Quebec (Attorney General) case, which Jacques Chaoulli spearheaded–a physician whose efforts to offer private health care Quebec law frustrated. Chaoulli complained that provincial laws preventing private healthcare violated patients’ rights to life by putting them on wait lists on which they could die before receiving treatment.

The court ruled in Chaoulli’s favour, acknowledging that the wait lists characterizing Quebec’s healthcare system effective rationed life in violation of the provincial Charter of Human Rights and Freedoms. This charter–the province’s statutory, yet, quasi-constitutional declaration of rights–states that, “Every human begin has a right to life, and to personal security, inviolability, and freedom.” Canada’s constitutional Charter of Rights and Freedoms uses similar language, declaring that, “Everyone has a right to life, liberty, and security of the person, and the right not to be deprived thereof except in accordance with the principles of fundamental justice.”

Despite the near-identical language of these proclamations, the Supreme Court of Canada ultimately found that laws prohibiting private health insurance only violated Quebec’s charter. While it made this ruling on a 4-3 split, the question about the Canadian Charter of Rights and Freedoms and its ramifications for bans on private healthcare divided the bench (and Justice Marie Deschamps refused to decide on the matter).

The court correctly recognized that enforcing a state monopoly on healthcare constituted an abridgment of life rights. If state healthcare could address every health woe immediately and effectively, this would not be the case. However, in Canada, government often fails to deal with healthissues that private institution could resolve.

According to the Fraser Institute, the average wait time for surgical and other therapeutic treatments in Canada was 18.2 weeks in 2013, up from 17.7 weeks in 2012. Patients in across Atlantic Canada wait even longer than this on average: 23.7 weeks in Newfoundland and Labrador, 25.8 weeks in Nova Scotia, 31.9 weeks in New Brunswick, and a shocking 40.1 weeks in Prince Edward Island.
As Justice Deschamps stated, wait times effectively ration healthcare. If patients did not leave these lists, they would continue to grow; lists exist only because more people add their names to them at any given time than can be treated at capacity. Nevertheless, wait times afford government the ability to ration care, both by deterring patients from seeking it and leaving them to die before treatment (although this is not, of course, the intention).

By using state power to prevent patients from seeking, and providing, potentially life-saving treatments outside of government’s confines, Ottawa breaches Canadian citizens’ right to life. While Chaoulli v. Quebec constituted a positive step for human rights in Canada, judges, politicians, and citizens should acknowledge that healthcare systems in every province violate the Canadian Charter of Rights and Freedoms, just as Quebec’s system violated its provincial charter. From this understanding, they will have to decide between the status quo of Canadian health care and the rights enumerated in the charter.

Michael Sullivan is a 2013-2014 Atlantic Institute for Market Studies’ Student Fellow. The views expressed are the opinion of the author and not necessarily the Institute