Thursday, May 31, 2012
An excellent article from our friends at the MEI. Equalization is a welfare trap. Quebec goes out of its way not to develope us resources and is the largest recipient of aid. The Reseau Liberte Quebec is part of a trans Canadian coalition that seeks to get rid of equalization. The stated goal of Canada’s equalization program is to ensure that Canadians, regardless of their province of residence, have access to public services that are reasonably comparable, at reasonably comparable levels of taxation. This year, the program will distribute over $15-billion to the relatively poorer provinces (typically known as “have-not” provinces in equalization-speak). In any income redistribution program, there is a risk of creating a “welfare trap” that discourages recipient individuals or communities from building their economic fortunes. Does Canada’s equalization program suffer from this defect? Are the incentives embedded in the equalization formula sufficient to support the development of receiving provinces — and, specifically, the development of their resource sector?