"Equalization" and the "Constitutional Entrenchment" Myth

For days now, major daily newspapers have featured one or more reports or columns about the Canadian federal government’s “equalization program”. In a nutshell, the equalization program works like this:

1. The federal government overtaxes Canadians, so that it has more money than it needs to pay for services that it is authorized, by the constitution, to provide.
2. The federal government takes the extra revenue, and contributes it to provincial coffers in an effort to ensure that each province has the same amount of money for its various socialist programs (notably, health care, welfare, and education).

Under this program, people who get skinned are called residents of the “Have” provinces. People who get stuff they didn’t pay for are called residents of the “Have Not” provinces.

In the past, provinces with essentially dead, heavily subsidized, or limping economies – i.e., the “Have Not” provinces – included such provinces as Newfoundland and Labrador (where the fishing industry – which was the backbone of that province’s economy for the longest time – was essentially closed down). However, with the rising price of oil and with various oil discoveries, formerly limping or dead economies have resumed producing things of value. As a result, they have become, or are quickly becoming “Have” provinces.

Meanwhile, the long-standing “Have” province of Ontario is on the verge of becoming a “Have Not” province. Ontario’s wealth production has been largely industrial, banking, and logging. The re-imposition of electricity price controls (after a short-lived, under-defended attempt to end retail price controls) killed any prospects for new investment in power generation in the province. With land development continuing, power demand increasing, and old power-generation facilities wearing out, electricity demand has often exceeded supply (leading the government to ration consumption by means of intentional brown-outs and rotating black-outs). Electricity prices have climbed too high for many logging and industrial companies, which have closed down. With Ontario’s “Employment Standards” legislation, high levels of taxation, etc. making it impossible to justify hiring Ontario labour to build widgets or answer telephones, companies that used to hire Ontarians now hire people in China and India at a fraction of the cost and hassle.

And so, as every socialist is want to do, Ontario’s Premier McGuinty is blaming Ontario’s anticipated economic crisis, at least in part, on the equalization program. For the wrong reasons, he (reportedly) is advocating a good thing: eliminating it.

Now, one must keep in mind that equalization is a program brought in by federal politicians and bureaucrats who strongly believed in a centrally-planned economy. And, as with virtually every economic swindle passed off by Canadian socialists as being part of the “fabric” of Canada, a myth was developed that equalization is “constitutionally entrenched”. Indeed, there were politicians who wanted equalization to be explicitly authorized by the Constitution Act, 1982, but that didn’t happen. Instead, the result was section 36, which expressed a “commitment” to equalization, but which also explicitly stated that section 36 did not confer any authority with regard to equalization.

Life, however, imitates art. Today, the broad majority of journalists falsely think that the equalization power is “constitutionally entrenched”; that the constitution requires the federal government to overtax everyone and redistribute the loot. All it took was for a few loose-lipped liars to falsely suggest that equalization powers are “entrenched in the constitution”. Leftist journalists, eager to help in the effort to turn wishes into realities, propagated the myth in article after column after article. Today, journalists just write “constitutionally entrenched” as though it were a metaphysical given. They never bother to actually speak to a constitutional law professor.

Still, I held out hope that, with this issue once again coming to the fore, Canada’s least offensive newspaper would get it right. I should have known better. There it was, today, in an editorial (published only online, so far) titled “The Post editorial board on equalization: Canada’s albatross“:

While there are practical obstacles to getting rid of equalization — it’s entrenched in the Constitution, for one thing — the arguments that have-not provinces need the money to provide comparable levels of service at comparable levels of provincial taxation have all but evaporated.

(emphasis added)

Sigh.

At least the National Post allows its readers to respond online…which I did, as follows:

It is widely believed, among journalists, that the equalization program is “constitutionally entrenched”. That belief, however, is a falsehood.

Subsection 36(2) of the Constitution Act, 1982 is the source of the falsehood. It states that “Parliament and the government of Canada are committed to the principle of making equalization payments…”. However, that statement is qualified by the opening sentence of subsection 36(1): “Without altering the legislative authority of Parliament or of the provincial legislatures…”.

As any competent constitutional lawyer or law professor could tell you (it might make coverage more credible if the National Post bothered to interview at least one…I’d recommend Professor Andrew Petter, who is Dean of the University of Victoria Law School): Section 36 does not change the law-making powers: it does not confer any authority, and it does not take any away. And, as it turns out: the power to make equalization payments is not conferred anywhere in the constitution.

Paul McKeever’s “The Myth of the Fiscal Gap”

The only authorized transfer of federal funds to provincial coffers is set out in the Constitution Act, 1907. That remains a valid part of our constitution. However, the amounts currently doled out as “equalization” are far in excess of the amounts authorized by the Constitution Act, 1907.

That is why learned advocates of equalization pin its constitutionality not to section 36 of the Constitution Act, 1982, but to the equally mythical “federal spending power”…the very power that Pierre Elliott Trudeau denied existed, which Professor Petter denies exists, which the Reform Party denied existed, and which the Conservatives (before they formed the government) essentially vowed not to use.

Bottom line: please do not help the advocates of central planning to propagate the myth that equalization is constitutionally mandated. It isn’t. And, to the contrary, there is every good argument that it is no more authorized by the constitution than is a Toronto military paid for with Toronto municipal revenues.

Paul McKeever
Lawyer, Leader of Freedom Party