Equalization Transfers in Canada: Emerging Challenges

Since the last one decade or so equalization transfer programme has been a principal source of dispute between federal and provincial governments and among provinces. It has become politically controversial given the lack of predictability, accountability and adhoc change in the formula and use of transfer for electoral purpose, among others. Resource federalism has become another major challenge as provinces are now strongly divided between those that possess natural resources and those that do not. Unlike earlier, the major proportion of Canadian population today resides in equalization receiving have-not provinces. This has had profound consequence on fiscal federalism. The very nature of equalization programme and institution of executive federalism through which transfer is operated are highly politicized. The idea of having a non-partisan and independent body responsible for determining and allocating equalization transfers is resisted by both orders of government. The paper examines these challenges.