David Dodge, Bennett Jones lawyers: Equalization Doesn’t Work

Former Bank of Canada Governor David Dodge and two of his colleagues at Bennett Jones LLPPeter Burn and Richard Dion — contributed a fascinating article this week to Policy Options, published by the Institute for Research and Public Policy, a Montreal-based think tank.

Bennett Jones LLP senior adviser and former Bank of Canada governor David Dodge. (REUTERS/Chris Wattie/Files)

In their report, the authors explore the long-term effects of equalization payments, and take the counter-intuitive — and controversial — stance that, far from unifying the country, Canada’s wealth-distribution system could lead to the destruction of our national unity.

“Transfers play an important role in preserving the integrity of the union … However, transfers can also play a counterproductive role if they act to mask inexorable structural change, delay necessary adaptation and create the illusion that the unsustainable can somehow be sustained indefinitely. Ultimately, they can destroy unity by creating resentment, disrespect and distrust.

“Equalization is a zero-sum game of income redistribution that increasingly generates more resentment than satisfaction.”

Instead of equalization, the authors suggest a system based on minimum service levels — what they term as “reasonable” public services — combined with initiatives to help spur economic development in so-called have-not provinces (which now include Ontario and Quebec).

“… a more productive and less divisive objective would be to ensure that all provinces possess the fiscal capacity to provide public services of ‘reasonable quality,’ while making investments that build the fiscal capacity of lower-income provinces and reduce income disparity through further economic development.”

It’s not hard to find examples of inter-provincial tensions these days, given the political climate. Official Opposition Leader Thomas Mulcair continues to gain support in Eastern provinces for his argument that this country’s energy boom has come at the expense of the once mighty Canadian  manufacturing sector.

In the same issue of Policy Options, Roger Gibbins, former head of the Canada West Foundation, writes about the NDP leader’s rallying cry in support of the uncompetitive manufacturing sector. Gibbins suggests that Mulcair’s rhetoric could find fertile ground in the East, leading inevitably to another attempt at a  National Energy Program — which nearly tore the country asunder in the 1980s.

“If national carbon pricing is little more than a green-wash for policies designed to redistribute wealth, then the reaction in Western Canada could be ferocious.”

Read the Bennett Jones report here and Roger Gibbins’s article here.

-David Dias

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