Neutral body could end 'bickering' over equalization formula

A new study calls on federal and provincial governments to try to cut the politics out of equalization payments, handing over the calculation and distribution of some $15 billion in transfer payments to a neutral body.

'Reducing toxic political dramas' better for national unity, study argues

The inner workings of one of the country's biggest government programs need to be de-politicized and handed over to an arm's-length group of neutral technocrats, a new study suggests.

The politics of the $15-billion-a-year equalization program have become destructive over the last 10 years, say political scientists Daniel Beland and Andre Lecours.

Quebec Premier Jean Charest speaks at the closing news conference for the Council of the Federation in Victoria, B.C. Jan. 17. A new study calls for Canada's equalization program to be taken out of the hands of federal and provincial politicians, and allocated instead by a neutral body. (Jonathan Hayward/Canadian Press)

As provincial and federal governments prepare for a new agreement on distributing equalization payments, they should be thinking about ways to cool the political heat the subject generates, the two argue in an essay for the Mowat Centre for Policy Innovation.

"Reducing toxic political dramas like the ones witnessed over the past decade is most certainly a good thing for the country and its unity," they wrote.

Formula set to expire

The current equalization formula expires in 2014. Federal and provincial governments need to know soon how transfers will work after that, in order to budget accordingly.

The authors say Canada -- led by the federal government -- should look at Australia, India and South Africa, where equalization payments are administered by an apolitical arm's-length body.

There, the amount of money in the pot is still decided by elected politicians. And governments are not bound to follow the advice of the arm's-length commissions. But, in Australia's case at least, they usually do.

"This is an option that should be seriously examined, despite the existence of political obstacles to the adoption of this type of governance structure," Beland and Lecours write.

Over the last decade, federal and provincial leaders alike have sought to gain political advantage by highlighting the redistribution patterns of the equalization formula.

Until the end of the Jean Chretien era, equalization was mainly considered a bland formula, a constitutionally decreed funding mechanism that was settled fairly quietly behind closed doors.

The advent of prime ministers Paul Martin and Stephen Harper, as well as a string of minority governments and outspoken provincial premiers such as Danny Williams, changed all that.

The result has been squabbling that undermines national unity and trust, the essay said.

"Bickering over equalization (is) bad for national unity, it creates a lot of divisions and it also undermines the confidence of the Canadian population towards, not just the equalization program, but towards our political officials," Beland, from the University of Saskatchewan, said in an interview.

By creating an arm's-length agency, "they would have to let go some of their own power, and that's always difficult to do. But other countries have done that and the results suggest that in the long run it's to the advantage of the country as a whole."

Health transfers changing

The in-fighting over equalization is poised to get a lot worse now that Ottawa has removed the long-standing equalization component from health care, he added.

After 2014, health transfers will be allocated on a strict per-capita basis, now that the federal government has eliminated previous provisions to allow for the smaller tax base in have-not provinces.

That means some Alberta will gain hundreds of millions of dollars a year in federal funding, while all other provinces will lose to some extent, especially Newfoundland and Labrador.

Ontario and British Columbia, in particular, are crying foul, but the federal government shows no sign of budging -- putting more pressure on equalization to make up for differences in regional economies.

"Equalization becomes more crucial than ever," said Beland.

"There's a lot at stake here."

The authors don't hold out hope that their idea will be adopted soon. They say provincial politicians are inclined to think they'll be able to play equalization in their favour during the next set of negotiations. And federal politicians like to have full control of a kitty that could reward friends and punish enemies.

"It's a hard sell in this context," said Lecours, from the University of Ottawa.

But it's in the federal government's interest to cool things down and foster some national cohesion, he added.

CPP board potential model

The authors say the approach has worked with the Canada Pension Plan Investment Board, where an independent body makes investment decisions with some of the plan's savings. It also works with the Canadian Institute for Health Information, which provides neutral health data.

But they concede it was not worked too well with the Canada Employment Insurance Commission, since its recommendations are often overruled or ignored by the government.

Six provinces are to receive equalization payments in the fiscal year that starts April 1: Prince Edward Island, Nova Scotia, New Brunswick, Quebec, Ontario and Manitoba.

The money is meant to ensure all Canadians can have access to comparable public services wherever they live. But Ontario argues that the formula does not take provincial costs into account, costing Ontario essential funding.