Canada’s national wealth-sharing scheme violates the Constitution with a half-baked equalization formula that shortchanges provinces like Ontario, a major new study has found.

In a 41-page paper to be released Monday by the Mowat Centre for Policy Innovation at the University of Toronto, equalization expert Peter Gusen said the status quo is unconstitutional.

And that costs Ontario, British Columbia, Alberta, Saskatchewan, Newfoundland, Nova Scotia and New Brunswick billions of dollars annually that go instead to Quebec, Manitoba and Prince Edward Island.

“If equalization continues to ignore differences in expenditure need it will not be treating provinces fairly and it will not be fulfilling its constitutional mandate,” writes Gusen.

When dispensing equalization payouts from the taxpayer-funded $15.4 billion pool, Ottawa doesn’t take into account that wages and cost-of-living expenses are higher in Ontario and B.C. than in much of the country.

“Provinces … differ in their ability ‘to provide reasonably comparable levels of public services’ because they have to spend different amounts to offer similar services; in other words, because they have different expenditure needs,” he writes, quoting Section 36.2 of the Constitution Act.

For example, if the equalization formula factored “need” into it, Ontario would have received an additional $822 million from Ottawa in 2008-09 while B.C. would have been given an extra $879 million.

Even energy-rich Alberta, Saskatchewan and Newfoundland, where cost-of-living expenses are growing fast, would have gained $526 million, $332 million and $310 million respectively.

But Quebec, by far the largest equalization recipient, would have been given $3.11 billion less that year.

“Ontario and Quebec would receive equally large equalization payments of just over $4.5 billion each. Under the current fiscal capacity-only system, Quebec receives more than twice as much as Ontario, $7.6 billion versus $3.7 billion.

That allows Quebec to provide its residents with services like $7-a-day childcare, which Ontario could never afford.

Gusen is former director of federal-provincial relations at the federal finance department and the author of Ottawa’s 2006 equalization study that the government tried to suppress with 27 redactions in 67 pages.

When an expurgated version of that report was released, eight tables detailing health, education, social assistance and other financial needs of all 10 provinces were blacked out by Ottawa.

Two weeks ago, the Star revealed the uncensored report, prompting Ontario Finance Minister Dwight Duncan to demand federal Finance Minister Jim Flaherty lift the veil of secrecy surrounding it.

Duncan was furious because Gusen’s earlier research concluded that in an average year in late 1990s and the early 2000s Ontario needed $4.56 billion more than it was getting while Quebec required $6.39 billion less to provide the same level of services.

With Ontario facing major cuts to eliminate a $16 billion deficit this year, the treasurer said it’s unfair that taxpayers here subsidize their fellow Canadians who receive higher levels of service.

Gusen’s newest study found there remain disparities despite Prime Minister Stephen Harper’s changes enabling Ontario to receive equalization payments because it’s considered a “have-not” province.

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“There are differences in the characteristics of the population to be served (e.g. age, health, income), in environmental factors (e.g. adversity of terrain, severity of climate, remoteness of communities), and in the prices provincial governments must pay for the inputs they use in delivering public services,” he notes.

“Canada’s equalization system ignores such differences and, thus, does not fully satisfy its constitutional mandate.”

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