Unequal distributions

Andrew Potter is right in noting that most reporting on the Cons' equalization announcement has buried the lede, as Jim Flaherty's unilateral declaration that he plans to cap increases in future payments based on the movement of the national GDP looks far more important than the single-year numbers which dominated the headlines. But even Potter seems to miss just what the cap means for equalization in general.

Let's go back to the principles underlying equalization that I'd discussed when a cap was first mentioned last week:

(I)t's worth keeping in mind a fairly obvious point: if equalization payments are growing at a particular pace under the formula which the Cons approved, then so too is inequality among the provinces by Flaherty's own terms.

What Flaherty has effectively done is to completely detach inequality among the provinces from any calculation as to how much equalization should be paid. And it's hard to see how one can square that with the purpose of equalization in general.

After all, if the goal of equalization is to ensure at least relatively similar capacity to provide services across the country, then it should make all the difference in the world just how large the gap is between the wealthier provinces and the poorer ones. And if the gap increases for the same amount of economic activity, then there's every reason for more equalization to be paid - which should be possible due to what would presumably be higher tax returns from the wealthier areas (assuming a remotely functional progressive tax system).

But not so under the Cons' plan. So long as Canada's central industrial heartland remains in dire enough straits to deflate national economic performance, the amount of equalization paid will also stagnate regardless of how much more wealth might be accumulating in the "have" provinces.

Needless to say, the Cons would likely have been duly punished at the polls if they'd gone public with their plan to remove the concept of relative equality from the equalization program. And given how quickly they've started in on opening up the field for increased regional disparities, it doesn't figure to be long before the same starts happening among income levels in general.