Does Canada Need a Brexit of its Own? Equalization Payments are Dividing the Great White North!

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Canada has been running an interesting experiment for the last half century, provincial welfare. Wealthier provinces have to donate much of their capital to less wealthy provinces in the form of "Equalization Payments".

Western Canada has typically been the wealthy capitalistic, resource-rich region of the country, where costly social programs and high welfare spending has plagued the east.

A divide is a foot in Canada. Folks in the west feel their money is being syphoned out of their hands for no good reason and propping up anti-capitalistic governments in the east. Many feel there is an unfair wealth drain happening that needs to stop.

This is how it works: most tax revenues go to Ottawa, the nations capital, the nations leaders then redistribute that wealth to a large number of social programs including health care, education and even child care programs in Quebec, the Maritimes and other parts of Canada.

The equalization formula calculates the difference between the per capita revenue yield that each province would obtain using average tax rates and the national average per capita revenue yield at average tax rates. So, any province that is below the national average in per capita provincial income, it receives money and if you are above the average, you receive nothing.

Traditionally, in the west, social programs are not a large focus of governments, perhaps that's why they are far wealthier than the east. Western provinces like Alberta and Saskatchewan, who have large natural resource sectors tend to favor more capitalistic economic views. Leave money in peoples and businesses pockets and they will create more jobs in return. It seems to be working.

Alberta has not received a penny of equalization payments back from the equalization program, yet this century. While Albertan's have paid into it well over $200 billion during that same time period, and several years they even paid $20 billion annually, receiving none in return. In comparison, Quebec receives on average about $10 billion every year.

This year, the program is sending nothing to the 3 western provinces and most of the rest to all of the eastern provinces with by-far, the majority going to Quebec, irking many in the west. With oil rich Alberta and Saskatchewan hurting badly and thousands loosing jobs on a regular basis due to the slumping oil prices, some groups are even calling for separation from the East.

This problem is compounded even more having a Prime Minister who is from Quebec in the east. Canada isn't having a drain the swamp campaign like Donald Trump is, but instead they are filling up the swamp with wealth from western Canada.

Other divisive issues like oil pipelines and environmental regulations are helping to put the 2 halves of the country at odds. Alberta and Saskatchewan's oil revenues are keeping the socialism working in the east, while the east complain about the oil production in the west. 

"A government that robs Peter to pay Paul can always depend on the support of Paul." - George Bernard Shaw

The Prime Minister has even been planning to add a new carbon tax to the entire country with many in the west complaining about its need and the Saskatchewan Conservative Premier not willing to sign on.

The Saskatchewan Premier, Brad Wall recently tweeted the following graphic emphasizing how little the equalization program does for his province and how much his constituents are contributing to it.

Equalization has been around since 1957 and half of all the money the program has handed out has gone to Quebec. That sum comes to a staggering quarter of a trillion dollars. 

During that time, Quebec has always been the biggest beneficiary and has never been a net contributor to the program. With that in mind, the 3 western provinces have received the least amount out of all of the provinces since 1957. Alberta hasn’t received equalization payments since 1965.

With these figures in view, it is a wonder that Canada is still in one piece and that western Canadians allow this craziness to continue. One would have thought there would be riots in the west. Perhaps Canadians are too nice to riot.

From a free market viewpoint we see this as a huge issue allowing bad provincial leaders to continue wasteful programs that are being propped up by successful wealth supporting policies from another part of the country. 

If your policies are costly and unproductive, and you don't get bail outs from areas where programs working better, your people will see more evidence of how bad your programs are and vote you out of office in hopes of better fiscal planning with the next government.

We fully support voluntary wealth redistribution. If people in the west want to help their fellow countrymen in the east, then good for them, they should do that voluntarily. The coercion of taxation is not the answer and is obviously helping to divide a great country.

What happens with any welfare program (AKA: wealth redistribution), is you take money out of the hands of productive people and put it into the hands of less productive people. This is an economic drain on those who are productive, it prevents them from creating more jobs, innovating more and creating products that might enrich millions of peoples lives.

Perhaps Canada needs more provincial rights similar to states rights outlined in the American Constitution, or perhaps Canada is just too big and needs to be split up, Brexit style. We'll see what the future holds.

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Comments

  • Anthony Sheppard

    l'm a disillusioned reformer! we had lots of hope for our canada. but we melded into the conservative party all light darken! Glad to see there still could be light on the horizion.

  • William Millward

    I agree when provinces like Quebec who DO NOT have to include all their revenue from hydro electric as part of the income, refuse to allow pipelines, against our resource industry and want to separate (sooner than later most feel) but they are not stupid and subsidize childcare, universities and whatever else they can get away with. It is time to force a change as these times dictate. Now is the time for Brad and Saskatchewan to take the 1st step.