The price of federation: Comparing fiscal equalization in Australia, Canada, Germany and Switzerland

Brenton, Scott [University of Melbourne]

This article examines the operation of fiscal equalization systems, where funds are methodically transferred predominantly from the central government to regions with weaker tax bases in particular (but not exclusively). Four of the oldest and most expensive equalization schemes – Australia’s, Canada’s, Germany’s, and Switzerland’s – are compared in terms of their purpose, procedures, and performance. Levels of equalization are measured, standardized, and assessed over time. The general trend is that regional variation in terms of payments is tolerated until there is a tipping point where wealthier regions diverge too far from the average. Subsequent reform processes are often long and in some instances attempt to placate wealthier regions, while federal government contributions increase rather than substantially affecting the conditions or payments for the major recipients. The systems and reforms tangibly value the membership of the constituent members of the federation through permanent, institutional, and unconditional compensation.