"Equalization and the Fiscal Imbalance: Options for Moving Forward" is co-authored by Ken Boessenkool and Evan Wilson. The paper suggests ways to address the so-called fiscal imbalance.
Bond Papers readers will recall that Boessenkool is the author of several papers on Equalization that advocated, among other things, the complete removal of non-renewable resources from the Equalization formula. Boessenkool is also a former senior policy advisor to Prime Minister Stephen Harper.
From the abstract:
The federal government has said that it wants to address the fiscal imbalance in the upcoming budget. Broadly speaking, this means dealing with fiscal arrangements between, and clarifying roles of, the federal and provincial governments, and fixing the equalization program. This paper does three things to stimulate debate on possible options for reform. First it discusses three broad policy pillars that together constitute a consistent approach to fiscal federalism. These pillars are: 1) "equalization as glue," which argues for the importance of equalization for our federation; 2) "after equalization, equal transfers per capita," which argues that programs outside equalization should treat all Canadians equally; and 3) "re-balancing the federation," which argues for clarifying federal and provincial roles and responsibilities.The Canada West Foundation paper contains a number of recommendations, many of which the authors acknowledge would be difficult if not impossible to implement.
The paper then discusses political and economic constraints facing the government as it seeks to address the fiscal imbalance. These include the current inefficiencies of the equalization program, cost challenges faced by the federal government, the political importance of Quebec and Ontario, and the influence of promises made previously by the Conservative government. Finally, the paper provides some reform options grouped into three categories: 1) the really difficult; 2) the really, really difficult; and 3) the nearly impossible.
The paper lists options for both fixing equalization and addressing other federal-provincial fiscal arrangements. When it comes to addressing the fiscal imbalance, there are many possible paths. The real challenge for the current government is to choose a path that results in a coherent system of fiscal federalism while addressing very real political and fiscal constraints. The paper does not put such a package together—it leaves this task to the current government. It does, however, present ideas that widen the menu of options currently being discussed.
