The "welfare state" has been described as every program and policy, which has the effect or the intention of using the power of government to redistribute the wealth from those who have created it - or whose families have created it - to others outside the government who work little and create less. This definition is music to the ears of the Premiers of the so-called "have not" provinces when it comes to the thorny issue of equalization payments, which is the topic du jour in Ottawa tomorrow.

Equalization is a favourite whipping post for most Premiers as it is by far
the most difficult of the federal transfer programs to understand. The
equalization program is Ottawa¹s scheme to spread dollars from wealthier "have" provinces to poorer "have-not" provinces. It functions a lot like a social welfare program you get handouts from the program until you get a job and get back on your feet. As it stands, Canada has only two "have" provinces Alberta and Ontario. They are the only net contributors to the program, the rest take more than they contribute.

Here is how the program works:

• the federal Finance department examines 33 sources of revenue in each province;
  
• it then calculates how much each province raises from those 33 taxes;
  
• five provinces considered "middle income" (Ontario, Quebec, Manitoba,
  Saskatchewan and British Columbia) are examined to arrive at a standard
  average;
  
• provinces below that standard then receive equalization payments to bring them up to the five-province average.
  

For the 2004-05 fiscal year, Manitoba will receive $1.3 billion in
equalization payments and an additional $1.5 billion from the Canadian Health & Social Transfer (CHST) and tax credits. On a per person basis this equates to approximately $2,428 and 38 per cent of the province¹s revenues. The changes that Ottawa is proposing to make with an increase to the floor
(the floor provides protection to individual provinces against very large year-over-year reductions in their equalization payments) Manitoba will receive an additional $184 million.

Unfortunately, like all welfare programs, equalization has a fatal flaw it takes away incentives to improve and become self-sufficient. Human beings, like water, always follow the path of least resistance as many have argued that these various transfer payments are good public policy with the justification that equalization provides roughly comparable levels of
services to citizens. The flip side is that these programs are perverse
since they punish the regions that have the most to offer in terms of
economic potential, job creation and wages. The tax burdens in the have
provinces would also be necessarily higher.

Prior to the last provincial budget, the Premier and the finance minister
made public statements that it was going to be difficult to balance the
books due to BSE, forest fires, and of course, a reduction in equalization
payments. With no political will to reign in their own spending, playing
the federal blame game is always an easy scapegoat - but it has come at a
price. What this dependency on federal transfers has done to Manitoba¹s economy in the past fourty years is difficult to measure in a 600 word column, but one thing is for certain, without meaningful economic reform, including tax cuts, our province will continue to operate as a welfare state.

Equalization is meant to be a hand up when times are tough not a reward
for laziness. So what is the excuse when times aren't tough