Launching a comprehensive review

Starting with fundamental principles

Canadians have long been committed to the principle of sharing and the idea that, as part of a vast and diverse federation, Canadians, no matter where they live, should have access to reasonably comparable public services at reasonably comparable levels of taxation.

In a practical sense, it means that if people live in Newfoundland or Nunavut or Yellowknife or Yorkton, their children should have reasonably comparable opportunities to get a good education. They should have access to reasonably comparable health care services, social services, and justice systems. And the taxes they pay to support those services should be reasonably comparable across the country.

This important principle is enshrined in the Canadian Constitution and it provides the basis for the federal Equalization program. Although the territories are not specifically mentioned in this section of the Constitution, this principle applies to the territories as well through the federal government’s commitment to Territorial Formula Financing (TFF).

Under the Equalization and TFF programs, the federal government receives taxes from all Canadians and uses a portion of those taxes to provide financial support to provinces and territories that, for a variety of reasons, are less wealthy and less able to provide comparable public services without charging unacceptably high levels of taxes.

It sounds straightforward in theory and in principle. But that’s where the simplicity ends. As many commentators and academics have noted, the saying ‘the devil is in the details’ certainly rings true for both Equalization and TFF.

Furthermore, in spite of the fact that the programs involve billions of dollars in funding every year (about $11 billion for Equalization and just over $2 billion for TFF in 2006–07), until recently the programs have received very little public attention. It’s fair to say that the programs have been largely ignored and little understood by the vast majority of Canadians.

As a result, there are numerous misconceptions about how the programs work, what they are designed to achieve, and what should be done to improve these programs for the future.

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