"Pooling our resources": equalization and the origins of regional universality, 1937-1957.

Bryden, P.E.

At an official dinner in Ottawa in the summer of 1945, just days after the atomic bomb had been dropped on Hiroshima and Russia had declared war on Japan, Prime Minister Mackenzie King delivered a speech that was characteristic of the time. The end of the Second World War was in sight, but the shape of the peace was by no means certain. With no press at the event, King could speak freely, and what he chose to address was "the need for co-operation in the world today between provinces and Dominion and all parts of the British Commonwealth;" the "privilege for those of us who are here to have the opportunity of shaping a happier Canada"; and the duty to give all men "as much freedom and as much in the way of equality of opportunity as possible." He continued on the theme of equality, "brotherhood" and the postwar rejection of "nationality and the like" (King 1945a: 7-8). The Prime Minister was clearly emotional, but the sentiment was repeated elsewhere: equality of opportunity would be a guiding principle of postwar Canada (King 1945b: 13; King 1945c: 2; King 1946).

The Depression had cast a long shadow in Canada as elsewhere, illustrating in stark terms the fundamental inequalities that existed between individuals. Two key social programs, designed at the end of the Depression and during the war, began to address these inequalities. The Unemployment Insurance (UI) program (1941) and the Family Allowance program (1945) were both at least partially designed to alleviate the inequalities of opportunity. The latter also clearly embraced the principles of universality, while the UI program inched towards universal coverage from its original more circumscribed goal of providing benefits to particular groups of unemployed (Lund 1995; Pal 1988; Struthers 1987). These programs, and others that were discussed at mid-century but not implemented until later--like a system of universal health care--formed the backdrop to an increasingly common discussion about equality, and about the role of the state in facilitating the equality of opportunity that the market denied.

But there were other inequalities that the Depression also uncovered beyond those between individual Canadians. Differences across regions and between provinces were particularly striking in the 1930s (Marchildon 2009), and in this case as well a discourse of both equality and universality began to develop. Like the social programs designed to address individual inequalities, the equalization program that emerged in 1957 to address interprovincial inequalities (or inequalities among the provinces) can find its roots in the debates of the Depression and the later plans for reconstruction discussed towards the end of the Second World War. Equalization has certain similarities with universal programs in that all provinces participate in the program and all are eligible for benefits given the right circumstances; with Ontario's recent shift in economic fortunes and its receipt of equalization payments, all provinces have now, on occasion, been recipients of aid (Courchene 2008). Unlike the social programs of mid-century Canada, however, equalization rapidly came to be seen as foundational, and as such it alone merited specific inclusion in the Constitution Act, 1982. While the Constitution acknowledges a commitment to the same ideal of equality of opportunity that Mackenzie King talked about in 1945, it specifies a particular remedy--equalization--for the inequality of opportunity of the provinces. Section 36 declares:

1. Parliament and the legislatures, together with the government of Canada and the provincial governments, are committed to

(a) promoting equal opportunities for the well-being of Canadians;

(b) furthering economic development to reduce disparity in opportunities; and

(c) providing essential public services of reasonable quality to all Canadians.

2. Parliament and the government of Canada are committed to the principle of making equalization payments to ensure that provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation.

In linking equalization explicitly to the capacity to provide a "reasonably comparable" level of service across the country, as s. 36 (2) does, the two forms of equality--individual and regional--became inextricably linked in the Constitution. This marriage of the two forms of equality finds its roots in the discussion of the 1930s, 40s and 50s, when the question of how to pay for social services emerged as the dominant intergovernmental concern.

This paper places the equalization program within the context of broader discussions of equality and universality that dominated the mid-twentieth century discourse. It examines the origins of equalization in the Rowell-Sirois Report, the flirtation with equalization during the Dominion-Provincial Conference on Reconstruction in 1945-46, and the intergovernmental discussions of the 1950s that led to the first, formal, implementation of equalization in 1957. It argues that a system of universal regional equalization grants was a result not only of the lessons of the Depression and the regional inequalities that came to light in the 1930s, but also a by-product of the move to universal social security measures like family allowances and, later, health insurance.

The Rowell-Sirois version of equalization

The first real evidence of a public consideration of a solution to the inherent inequalities across Canadian regions occurred in the midst of the Great Depression. One of the most important investigations ever into the workings of the Canadian federal system--the 1937-1940 Rowell-Sirois Commission--has been eliciting interest from political scientists and others for close to 75 years now. Examined from all perspectives, the resulting analyses have "tended to reflect commentators' understanding of both current problems in federal-provincial relations and the normative dimensions of federalism" (Wardhaugh and Ferguson 2007: 31). The Report of the Commission, however, is rarely acknowledged as having any continuing relevance and is rather presented as an exhaustive examination of the problems of a particular period, now long past. Many of the changes to the structure of federalism that occurred in postwar Canada, however, can trace their roots to the recommendations of the Rowell-Sirois Commission.

The circumstances under which the royal commission was assembled, conducted its investigations and reported are important to remember. It was called to examine the structure of Canadian federalism at a time when federalism seemed most inflexible. The terms of reference provided "for a re-examination of the economic and financial basis of Confederation and of the distribution of legislative powers in the light of the economic and social developments of the last seventy years" (Canada 1940a: 9). The Depression had stymied politicians at all levels, emptying provincial treasuries with relief programs and public works projects, while at the same time uncovering the federal government as lacking both the necessary fiscal and constitutional capacity to act, and the political will. Conservative Prime Minister R.B. Bennett has certainly tried to address the situation, but the social security policies and fiscal tools that he introduced at the end of his mandate were widely regarded as too little and too late. The so-called "New Deal cases" that were referred to the Judicial Committee of the Privy Council to test the legality of Bennett's scheme were almost all ruled beyond the jurisdiction of the federal government to act (Thompson and Seager 1985). By 1937, when the economy took another downward turn, several smaller provinces were facing bankruptcy and larger provinces threatening to revolt; worse yet, in a "complete reversal" of the policy of the previous twenty years, the National Employment Commission was poised to propose that the federal government take complete responsibility for Canada's unemployed (Struthers 1983: 175; Sautter 1987: 68-9). For King, inclined as he was to delay decisions as long as possible, the only politically viable solution was to appoint an inquiry into the nature of Canadian federalism, with a mandate to recommend on how the system might be changed to better reflect the reality of mid-century Canada.

The Commissioners themselves represented interests and expertise from across the country: Chief Justice of the Ontario Supreme Court Newton Rowell, Justice Thibaudeau Rinfret of the Supreme Court, and Quebec City lawyer Joseph Sirois all variously represented the legal community, although Sirois was the only one whose health allowed him to complete the work of the Commission; the academic perspective on federalism was well-served by political scientists Henry Angus from UBC and Robert A. Mackay from Dalhousie; and journalist J. W. Dafoe of the Winnipeg Free Press offered a prairie-based viewpoint developed over decades of commenting on and complaining about national problems (Ferguson and Wardhaugh 2003: 559-60).

The cross-Canada series of hearings that the Commission undertook included 85 days of hearings, more than ten thousand pages of evidence and 427 exhibits. The Commission made stops in each provincial capital, although the governments of Alberta, Ontario and Quebec all found reasons to avoid the hearings either in whole or in part (Canada 1940a: 15-16). Each of the other governments, however, was cooperative. By the time the Commission reported its findings in 1940, the provincial irritation that had been apparent in 1937-38 in some quarters had given way to full blown enmity, and the arrival of war guaranteed that other concerns would be paramount. As a consequence, the Dominion-Provincial Conference of 1941 ended without any agreement on how to fix the federal system.

Still, the recommendations of the Commission, despite being shelved and languishing for years, remain instructive about the limits of federalism and the solutions to inequities. The Commissioners brought considerable expertise to the questions, and had devoted extensive resources to finding solutions. Based on the "historical, economic and financial analysis" of Book I of the Report, the Commissioners offered up a set of sweeping recommendations in Book II. Noting that the regions "are closely related and integrated" and increasingly "dependent on each other," the Report emphasized that "it does not follow that the income resulting from their joint effort is evenly distributed" (Canada 1940b: 77). Indeed, in the years following World War I, the inequalities only deepened, leaving the Maritimes chronically depressed, the prairies bearing the brunt of the collapse of the wheat economy, and British Columbia and Ontario "inclined to regard" Confederation as "unfavourable because of its potential liabilities" (Canada 1940b: 78).

Regional variation in resource and industrial bases, combined with the differing effects of national policy on the various regions, had led to the uneven fiscal position of the provinces in the late 1930s. The regional effects of Depression were linked in the Commissioners' analysis to the uneven distribution of income between individuals: "There have thus emerged in Canada," they wrote, "chronically distressed areas ... and chronically distressed classes .. . [The] national income is more unevenly distributed (between both regions and between classes) and the disparity in the distribution of surplus income is, of course, even greater" (Canada 1940b: 78).

The solution was innovative: just as the Report proposed that the federal government address income inequities between individuals by assuming full responsibility for the unemployed, it also recommended a way to lessen the regional inequalities. The proposed "National Adjustment Grant" would "enable a province to provide adequate services (at the average Canadian standard) without excessive taxation (on the average Canadian basis)" (Canada 1940b: 84). Although subsequently considered "disingenuous" (Leslie 1988: 13), the recommendations were presented as ensuring "every province a real and not an illusory autonomy by guaranteeing to it, free from conditions or control, the revenues necessary to perform those functions that relate closely to its social and cultural development" (Canada 1940b: 80). So free from controls were the proposed National Adjustment Grants that "if a province chooses to provide inferior services and impose lower taxation it is free to do so ... or it may, for example, starve its roads and improve its education" (Canada 1940b: 84).

The National Adjustment Grants that the Rowell-Sirois Report proposed were unconditional redistributions towards the provinces, designed to make it possible for all provinces to offer roughly the same level of services. What the federal assumption of unemployment insurance would do for individuals, the Report imagined, the National Adjustment Grants would do for provinces. But it was not to be. The Report was shelved following an acrimonious intergovernmental meeting at which provincial premiers accused the federal government of fiddling with the constitution while Europe burned. Individually, the provinces had much to oppose in the Commission's recommendations: the invasion of the income tax field by the federal government upset BC Premier Duff Pattullo, for example, who thought that the Report would "permit British Columbia to be hog-tied and hamstrung by Ottawa" (Fisher 1991: 329). In Ontario there was similar concern about the income tax-grab, but opposition also hinged on the equalization elements of the recommendations. The richest province was "ready to co-operate with all the provinces, whenever it is found desirable to equalize social condition," but "the provinces charged with social services should make the initial levy on incomes arising within the province." Ontario's premier Mitch Hepburn then went on to criticize the western demands for recompense for the costs of the national policy and the tariff. As others in the Ontario delegation reported, Ontario paid more than its share of taxes, and should not be called upon to contribute even more to national equalization (Saywell 1991: 380).

Even the prime minister seemed to agree that the federal reconstruction proposals were untenable: reluctant at best to broaden the scope of federal responsibility, Mackenzie King thought that the Rowell-Sirois Report was "too highly coloured by the needs of the Prairies" and the product of too much western thinking (Henderson 2010: 71). The genie, however, was out of the bottle. The idea that an adjustment could be made that would allow all provinces a roughly equivalent capacity to provide services was now on the federal policy agenda, where it would remain for the better part of the next two decades.

Reconstruction and the possibility of equalization

A large part of the Rowell-Sirois Report reappeared, for example, at the end of the war, in the form of the Green Book proposals for Reconstruction. The product of the collective intelligence of a growing federal civil service of social science experts, the Green Book made two sorts of recommendations (Owram 1986: 318-20). The first involved an expanded role for government in the provision of social security; the second recommended a fiscal structure that would make this possible. The social security proposals of the Green Book reiterated much that had been recommended by the Rowell-Sirois Commission, including national health and old age pension programs. Similarly, the fiscal proposals were little more than a continuation of the Wartime Tax Rental Agreements, whereby the federal government occupied the direct tax fields of income, corporate and succession duties in return for the payment of a rental fee to provinces that voluntarily vacated those fields. The financial arrangements contained in the Green Book made it possible, according to the federal position, to secure "at least a minimum standard of services in all provinces while not denying to any province the advantages which its resources give to it nor the freedom to establish its own standards." The proposals would "strengthen, not weaken, the federal system established in our constitution" by providing a "dependable financial basis" for provinces "to operate and assure them of freedom to make the decisions for which they are responsible, independently of the Dominion" (Canada 1945: 48). Provincial premiers, however, did not see the proposals in quite the same light.

The Dominion-Provincial Conference on Reconstruction, called following much pressure from anxious premiers, opened in August 1945 and would run, with long recesses, until May 1946. For many in the federal civil service, including secretary Alex Skelton and his assistant John Deutsch, it was merely a continuation of the intergovernmental conference of 1940 on which they had both served (Owram 1986: 320). The discussion too seemed to pick up much where it had ended in acrimony five years earlier. When the financial arrangements that Rowell-Sirois had recommended, including both federal control of direct tax fields and the provision of National Adjustment Grants, failed to be accepted, the tax part of the plan was introduced in an ad hoc manner in the federal budget of 1941. Those Wartime Tax Rental Agreements had been regarded, naturally, as a temporary measure. When the Green Book proposals contained a recommendation that the federal government continue to occupy certain direct tax fields, the opposition was both vociferous and unsurprising. Ontario's Conservative premier George Drew led the charge against the continuation of the practice of tax rental, although he was careful to couch his remarks in conciliatory language. While praising the federal conduct of war, he nevertheless devoted the majority of his opening comments to the need to determine a new financial arrangement between the two levels of government. "If we accept the proposition that the provincial legislatures are to continue to exist as responsible bodies," Drew argued, the provincial legislatures needed to be vested with "real and not merely nominal powers. The power to legislate and to govern rests upon the power to raise funds by taxation.... [P]rovincial governments must have authority over their own taxation within clearly defined fields" (Canada 1945: 10-11). The Union Nationale premier of Quebec, Maurice Duplessis, was even more blunt: "Centralization always leads to Hitlerism" (Canada 1945: 21).

Large provinces were unwilling to relinquish the tax room upon which the national social programs were predicated. Small provinces didn't carry enough weight at the conference table, but even their premiers expressed reservations about handing over jurisdiction to the federal government. Manitoba's Stuart Garson, a Liberal with a close relationship with the King government, nevertheless noted that the social service responsibilities of provinces depended "upon the financial ability of the provinces to take care of these matters that fall under provincial jurisdiction. If the provinces lack financial capacity these provincial matters will not be handled adequately, and to this important extent the Canadian standard of living will not rise sufficiently, the national income will not be maintained, and there will be greater difficulty in maintaining adequate employment" (Garson, quoted in Owram 1986: 324). Provincial opposition to the federal scheme was clear (Burns 1980; Gotlieb 1985); less clear was the prime minister's own ambivalence to further centralization, but in private he expressed considerable reservation about the plan of his own Finance Department (Finkel 1993: 125-6).

It is possible to argue that the rental program introduced during wartime (and continued on an ad hoc basis for decades after) contained an element of equalization by offering provinces a range of fiscal options, some of which would more successfully moderate regional inequality than others. The first option of simply receiving a rental payment equal to the value of the tax collected in the vacated fields, however, suggests that the scheme was, in practice, "the antithesis of equalization" (Courchene 1984: 27). While the federal position acknowledged that "provincial tax sources will continue to be less productive in some provinces than in others" (Canada 1945: 50), the National Adjustment Grants as they had been constructed in the Rowell-Sirois Report did not reappear in federal minds in 1945.

The same cannot be said of the provinces. Adjustment grants held out considerable attraction for the provincial premiers, and not simply for those who might justifiably have expected to receive them; after all, the grants would come from federal revenues alone. Supporting the delivery of some sort of adjustment would be a cost-free way of demonstrating a sort of transnational provincial position, and one that might have considerable political rewards for future intergovernmental negotiations. After the preliminary sessions of the reconstruction conference adjourned, politicians and officials from all provinces hurried back to their provincial capitals to make sense of the federal proposals. The shadow of adjustment grants was more apparent in the provincial discussions than in the federal offer. While Premier Drew had been one of the most vocal opponents of the Green Book proposals, he nevertheless led the subsequent discussion toward considering the inherent inequities of regions. Shortly after the publication of the Green Book, Drew acknowledged the unequal position of the provinces, and noted Ontario's particularly advantageous position: we should be "pooling of our resources for the welfare of Canada as a whole," he said. "I believe that Ontario should take her full share in building the strength and security of every part of Canada" (Drew 1945).

The provincial treasury officials spent the fall of 1945 investigating alternatives, and by January 1946 a draft text was ready. Drew sent it to the other first ministers. The initial response, was "a flood of comment across the Dominion, largely favourable" (Eggleston 1946). According to the Ontario government's own survey, eleven national newspapers came out in favour of the Ontario submission, eight were opposed, and thirty-eight had comments that were regarded as "neutral" but, according to the highly biased view of Conservative organizer Harry Robbins, tended to praise Drew for "producing a highly constructive brief" and demonstrating "statesmanlike" behavior (Robbins 1946). Sentiment in provincial capitals was more muted. In New Brunswick, for example, the provincial treasurer was sure that others would not find Ontario's proposal a "satisfactory alternative" to the Green Book, but thought himself that it was "advantageous to N.B." (FitsRandolph 1946).

The full intergovernmental group was not to meet again until the spring of 1946, by which time the Ontario delegation had made considerable headway toward designing an alternative. At the May 1946 meeting, Drew tried to keep the focus on the Green Book proposals while at the same time raising the alternatives that his government had circulated in January. It was something of a balancing act, and one in which he was not entirely successful. But after hours of both critiquing the federal position--particularly as it related to the division of tax power--and offering up an Ontario alternative that gave Ottawa temporary occupancy of income and corporate taxes, and permanent and complete responsibility for old age pensions and unemployment relief, Drew made his final offering: "the Ontario government has at all times expressed its belief in the principle of fiscal aid to those provinces which from time to time require financial assistance and ... Ontario, which proposed the setting up of a National Adjustment Fund for that purpose, keeps that proposal before this conference" (Canada 1946: 407-8). While Drew had expressed a "dislike of the subsidy system" he came to realize "the principle of fiscal need to those provinces that would require it" and quietly proposed an adjustment fund that was made up of 10% of certain provincial taxes. He did not "press" the scheme, but he did keep the proposal on the table (Burns 1954).

As Drew had said earlier, Ontario's position was "not only in the interests of the people of Ontario but it is also in the best interests of the whole of Canada" (Drew 1945). It was, perhaps, characteristic of the centrist attitude that held sway in Ontario through much of the twentieth-century, but it underscores the degree to which the idea of equalization had entered the public discourse. The inequalities across regions, just like those between social classes, had been recognized. Providing for equality of opportunity was as important for provinces as for individuals. Drew knew that a provincial position predicated exclusively on distinguishing jurisdiction was not likely to attract sympathy from his colleagues in other provincial capitals; by adding a final, powerful, commitment to occasional if not universal equalization, he was more likely to secure support for his anti-Green Book alternatives. But the conference fell apart in anger in 1946, tripped up by personal antipathy and a surprisingly buoyant postwar economy. Neither the Green Book proposals, like those of the Rowell-Sirois Commission before it, nor the Ontario alternatives, made the transition from recommendation and advocacy to policy quite yet.

The Depression and war cast a long shadow over Canadian policy development. The discussion over Canadian federalism had been shaped by the impotence of governments in the 1930s to address mounting economic inequities; the solutions became path dependent, rooted in the recommendations of the Rowell-Sirois Commission. Successful universal programs like unemployment insurance in 1941 and Family Allowances in 1945 illustrated the advantages of income redistribution between individuals, or at least appeared to do so when the anticipated post-war recession failed to materialize. Significantly, they also highlighted the provincial inability to provide the social services over which they had constitutional jurisdiction. Provinces had been unable to provide unemployment insurance of any kind during the Depression, and had only entered into the provision of mothers' allowances in a needs-based manner (Christie 2000). The federal unemployment insurance program had required a constitutional amendment in order for Ottawa to take control of the system, and the family allowance program was constitutional only because it gave a direct grant to individuals and not because the responsibility over social policy had devolved in any way to the federal government (Blake 2009: 103-4).

Towards a formal system of equalization

Wide differences in the provincial ability to provide services remained in the postwar period. Some regions remained economically depressed and the continuation of the Wartime Tax Rental Agreements meant that each province entered into different tax sharing arrangements with the federal government. If anything, the inequities were becoming even more apparent in the 1950s than they had been in the 1930s. The rental agreements remained contentious. Most provinces signed agreements with the federal government that allowed Ottawa access to corporate, income and estate taxes in return for rental payments based on population. In the first round of rental agreements, lasting from 1947 to 1952, neither Ontario nor Quebec participated; the second round saw Ontario join, but only after having spent considerable negotiating energy attempting to convince the Quebec government to sign on as well (Bryden 2013: 80-88; Perry 1989: 383-4). While there had been "equalization-type" proposals that had been floated as trial balloons in various provincial capitals, like an Alberta suggestion that there be a form of provincial "guaranteed annual income," none had succeeded in diverting the progress of the successive tax rental agreements (Manning 1946). With two of the largest provinces only joining into the tax rental agreements in the 1950s, there was neither an equalization component to the tax system, nor was the tax structure universal in nature. Provincial governments had created a hodge-podge of tax regimes that did little to ensure that Canadians had access to similar levels of services across the country. The idea, therefore, of providing a form of regional income redistribution remained a prominent topic of discussion throughout the early postwar period (Lecours and Beland 2010).

In 1955, the discussions on equalization moved to the forefront of the debate over the fiscal relationship between the two levels of government, in part because it might be a solution to a number of existing problems. First, it could satisfy those regions where growth, if it existed at all, remained slow. This had been the original intent of the National Adjustment Grant proposal in the Rowell-Sirois Report, and was also the element of equalization that most mirrored the economic impact of the universal programs that had been introduced during wartime. It would be a way of equalizing the opportunity of all regions in the country, not simply equalizing opportunity for all individuals. Second, it could reverse the isolation of Quebec. In this way, too, the conversation over equalization paralleled the debate over universal programs, and particularly the discussions surrounding family allowances. While that direct grant to all Canadian mothers was primarily an economic measure, designed to prime the pump in the anticipated postwar slump, it also contained an element of a bribe--to keep Quebec loyal to the Liberal party despite its introduction of conscription in the waning years of World War II. A universal system of equalization might reap the same rewards.

It was not the federal government, however, that endeavored to keep an adjustment grant on the table. Provincial governments were increasingly finding their tax room insufficient for the demands of the postwar economy, and in a variety of ways were lobbying for more financial resources. British Columbia's Social Credit premier, W.A.C. Bennett, for example, based his 1954 claim for a federal subsidy on the province's increasing population, the high levels of current expenditure, and the higher-than-average federal collections of corporate and succession duties (Gathercole 1954). Quebec's concerns had been more clearly manifest: just like in 1947, the Duplessis government had refused to sign onto a tax rental agreement with the federal government for the period 1952-1957. This time around, the Ontario government had succumbed to federal pressure and had signed a partial agreement, making the isolation of Quebec more complete than ever (Perry 1989: 383-4).

This was enough of a concern to instigate a series of secret meetings in the fall of 1954 between various combinations of Maurice Duplessis, Ontario premier Leslie Frost, and Prime Minister Louis St Laurent. The Ontario finance department officials were in the thick of the negotiations, certain that their federal counterparts were "genuinely eager to understand Ontario's position" (Canada 1954). And that Ontario position contained a fair amount of concern about the fiscal situation as a whole. Recognizing "the need for a continuation of the present tax rental agreements in some form," the Ontario group was nevertheless concerned about Quebec's refusal to sign the agreement. As long as this remained the case, "there would be a feeling of isolation and resentment if Quebec was under one fiscal system and all the other provinces were under another." In part because of its "close economic ties with Quebec," Frost indicated that Ontario was "prepared to consider, and indeed, to participate in the devising of an alternative plan or plans" under which "Ontario and Quebec, and probably British Columbia, could operate effectively" (Canada 1954).

Through the middle years of the 1950s, officials at all levels of government struggled to devise a solution to a myriad of fiscal problems affecting Canada--none as serious as those during the Depression, but vexing nonetheless. The key to finding a solution to the problems of the chronically depressed regions, to the isolation of Quebec, and to the division of tax room was to consider the problems together, rather than separately. To that end, federal Finance officials began devising what would become known as "Plan C," a scheme by which the federal government would give up some of its tax room in the income, corporate and succession tax fields by 10, 7 and 50 percent respectively. The difference between what the poorest provinces collected under this system and the wealthiest would then be made up by an equalization grant (Cabinet Committee on the Federal-Provincial Conference 1955). Plan C remained something of an "ace" up the federal sleeve, explained only peripherally and incompletely at intergovernmental meetings where the focus remained elsewhere (Bryden 2013: 83-5). There was no question, however, that provincial premiers were interested in the idea of equalization. At preliminary meetings of the 1955 Federal-Provincial Conference, Nova Scotia premier Henry Hicks advanced quite a detailed proposal for equalizing tax revenue, stating that "in future tax agreements the return of moneys to the province ought to be varied" by a factor relating to GNP and population and "the tax-raising ability of the provincial government concerned" (Canada 1955: 28). New Brunswick and Saskatchewan premiers also spoke on the merits of a fiscal system that addressed inequities directly; other provinces acknowledged the topic without necessarily endorsing it (Canada 1955: 29, 45, 55, 57).

But although it had not spoken to the issue at the preliminary meeting, the federal plans were clearly already far advanced. Once the extent of the federal equalization scheme became more broadly known, it produced some concern in the larger provinces. Frost's chief economic advisor, George Gathercole, wrote to his boss about the "wild ideas" that were being floated at intergovernmental meetings of officials about "what these equalization grants should be." For his part, Gathercole "repeatedly emphasized that an industrial-urban province has to spend money to earn revenue" whereas a "subsidized province" simply receives the revenue without the investment. While there was clearly "sympathy" for a "completely equalizing federal tax payment," the suggestion that all provinces would be brought up to Ontario's yield struck Gathercole, at least, as preposterous (Gathercole 1955). The whole thing seemed like a "plot to buy off Quebec with Ontario's money" (Fraser 1955).

Other universal programs were also on the agenda at the same time, however, and the parallel nature of the conversations about health insurance, on the one hand, and equalization on the other, was a key factor in the intergovernmental acceptance of both. The 1955 intergovernmental meetings called explicitly to deal with the fiscal relationship had raised the possibility of putting other items on the agenda; while most provincial premiers focused their general remarks on the tax agreements, other topics were also raised. Leslie Frost, supported by W.A.C Bennett, Ernest Manning of Alberta, and Tommy Douglas of Saskatchewan, pressed for the inclusion of health insurance on the intergovernmental agenda (Canada 1955: 18-9). It was hardly out of the blue, since health had been part of both the Rowell-Sirois and the Green Book discussions, but it certainly felt outside the orbit of the proposed fiscal focus. The provincial enthusiasm nevertheless served to push the issue toward the top of the list of priorities. Including the discussion of an extremely expensive social policy--and one that would ultimately become a universal program--in debates over the renewal of the tax rental agreements forced the group even closer to adopting some form of equalization.

By 1956, Prime Minister Louis St. Laurent was ready to make a formal offer. His equalization scheme would top up the combined yield of provincial income, corporate and death taxes to the same level as those they yielded in the "two provinces which have the highest per capital combined yields in these three fields" (St. Laurent 1956). The innovation with this proposal, thanks to John Deutsch in the federal Department of Finance, was that equalization payments would be made regardless of whether or not a particular province was renting its tax fields to the national government (Bryden 2010: 81). It was thus a system that would be a way of ending the isolation of Quebec, without actually requiring that the Duplessis government sign an agreement with Ottawa. So from the federal perspective, bringing all provinces up to a pre-determined standard was a way of establishing a national community, and creating an inclusive state. No region was singled out in this scheme--not the chronically poor Maritimes, or the chronically isolationist Quebec. Debated in Parliament in the summer of 1956, its passage marked the beginning of a formal system by which provincial tax yields were brought up to the level of, at the outset, British Columbia and Ontario. Equalization had embraced principles of universality, by delivering the horizontal equity of provincial capacity that made possible the vertical equity of the universal social programs that were becoming such a key feature of the Canadian policy landscape.

Equalization and universality

While generally excluded from lists of universal programs in Canada, the equalization scheme that was debated from the dying days of the Depression through the first, buoyant, postwar decade and beyond was conceived in the same spirit as unemployment insurance, family allowances and health insurance, addressed the same inequities, and shared a somewhat symbiotic relationship with the social policies more commonly equated with universality. The cost of economic collapse had been high, and the wartime expenditures had benefited the national fiscal capacity rather than the provincial.

When war ended, the rapid and at times unexpected expansion of the social welfare net further depleted the provincial treasuries. So, too, did the demands of building infrastructure and the costs of educating the baby boom generation. Shared cost programs merely slowed the drain from provincial accounts, but did not stop it. The inequalities between a region of booming industries and extensive agriculture, like Ontario and the Maritimes, became even starker as universal social programs like health insurance entered the discussions. Thus, while the economic slump that the Rowell-Sirois Commission addressed, and that the Green Book anticipated, did not materialize, the benefits of Canada's postwar boom were experienced unevenly across the country.

Efforts to ensure a greater degree of equality between individuals through social programs like family allowances and, even more obviously, like full national health insurance, only highlighted the inequalities between provinces. Intergovernmental social programs could only be entered into by provinces with the financial resources to do so. While universal program might have been envisioned as ways in which all Canadians could secure at common level of services, this was only possible if the provinces themselves were on relatively equal footing. Thus, the equalization program of 1957 was designed to both address the growing inequalities of regions, and the growing demands of the welfare state.

In these ways, then, equalization must be regarded as both a creature of the mid-century move toward universality, and a policy that enabled universality. The irony, of course, is that these twin purposes have secured equalization's future, by constitutionalizing its existence, in a way that is not true for the universal programs in whose service equalization was established in the first place.

References

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--. 2013. "A Justifiable Obsession": Conservative Ontario's Relations with Ottawa, 1943-1985. Toronto: University of Toronto Press.

Burns, R.M. 1954. Letter to Walter Harris. 23 December, file: 5600-03(47)-1. Vol. 4765. Department of Finance Papers (RG 19). Library and Archives Canada.

--. 1980. The Acceptable Mean: The Tax Rental Agreements, 1941-1962. Toronto: Canadian Tax Foundation.

Cabinet Committee on the Federal-Provincial Conference. 1955. Minutes of meeting, 23 June 1955. file: 5515-04(55/2)-1. Vol. 3879. Department of Finance Papers (RG 19). Library and Archives Canada.

Canada. 1940a. Report of the Royal Commission on Dominion-Provincial Relations vol. I, Ottawa, King's Printer.

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P.E. Bryden is Professor, Department of History at the University of Victoria, Victoria, British Columbia.