A new study by the Fraser Institute says Canada's equalization program frequently directed payments to provinces with higher GDP per person than provinces that received less funding or no funding at all, arguing the pattern reflects long-standing structural issues with the program.
The report examined provincial GDP per person and equalization payments from 1981 to 2024. It found that in 15 of the past 25 years, at least one province with a higher GDP per person received equalization while one or more provinces with a lower GDP per person received none.
The study also found that in all but three years during the 1981-2024 period, either a province received higher equalization payments per person than another recipient province with a lower GDP per person, or a province with a higher GDP per person received equalization while a province with a lower GDP per person did not.
"More often than not, over the past few decades, there have been provinces that have received equalization even though they had a higher living standard than provinces that received none," said Tegan Hill, co-author of Is Equalization Broken?
The report compares provincial GDP per person with equalization payments over more than four decades and concludes the relationship between the two measures has often been inconsistent.
Among the examples cited in the report, Ontario received equalization payments every year from 2009 to 2018, with transfers totalling $19 billion over that period, while British Columbia received no equalization payments despite having a lower GDP per person than Ontario in each of those years.
The study also points to Newfoundland and Labrador between 2000 and 2007, when the province received higher equalization payments per person despite having a higher GDP per person than at least one other recipient province. In 2005, the report says Newfoundland and Labrador had a higher GDP per person than four provinces while receiving higher equalization payments per person.
"If equalization worked as intended, there should be a fairly consistent relationship between GDP per person levels- a general measure of living standards - and equalization payments per person, yet there are discrepancies in all but three years of analysis from 1981 and 2024," said Hill.
The report argues those differences have persisted throughout the period examined.
"These discrepancies between equalization payments and GDP per person have persisted for decades and rather than being one-off quirks, they point to ongoing structural problems with the formula."
The Fraser Institute, which describes itself as an independent, non-partisan Canadian public policy think tank, published the study on July 14.
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