Thursday, September 28, 2006

Question About Equalization?

From everything I've read you can count on your hand how many people actually understand the equalization formula. What does seem clear, provinces with non-renewables are adamant that they not be included in the formula:
REGINA (CP) - If the Harper government backs away from its election promise to remove oil revenue from the federal equalization formula, Saskatchewan wants a deal with Ottawa outside the program, Premier Lorne Calvert said Thursday.

I must confess, I don't understand why non-renewables shouldn't be included. The suggestion that inclusion is unfair strikes me as counter-intuitive. Equalization makes sure we have common standards throughout the country. If a province is able to provide services through resources, is that not a factor in the equation. The non-renewable argument fails to recognize that when the resource runs out, it is no longer factored in the equation, which should translate into more money coming from Ottawa or less leaving to counter-balance. In fact, equalization is effectively insurance for the long-term, once the resource royalties subside. But in the interim, why should a province hoard its wealth just because the money is from a certain source. What's the difference?

It would seem the provinces with the heaviest emphasis on non-renewables want to fill the coffers unimpeded, as though other economic engines have some other benefit. Is the manufacturing sector infinite, recent trends in Ontario would suggest otherwise? Equalization is wealth is it not, why would we treat view different revenue streams differently? Non-renewables may not last, but isn't equalization fluid, changing with the differing economic states over time? Am I missing something?


Margaret said...

The so called fiscal balance is a myth. It was invented by the Conservatives to try to appease Quebec. if you recall in the last election Martin and our Liberal MPs campaigned on the fact that there is NO fiscal imbalance. So - now we say the Conservatives have to fix something that less than a year ago we said did not exist???

Steve V said...


I agree that Harper has painted himself into a corner, due to his obsession with Quebecer's votes. The problem now, such a lather has been created on the issue that something has to happen. Why not endorse the experts conclusion and include all revenue. Politics aside, it would seem the most transparent and fair way to make sense of a confusing system.

Peter Loewen said...

Steve V:

I think I am among the 18 people in the country who understand equalization, so please suffer with me.

It's not that provinces with non-renewable resources don't want to be in the equation, they just don't want their resources in the equation. As it stands now, equalization is calculated on the fiscal capacity of the five middle provinces, and non-renewable resources are one revenue source of 33 which is used to calculate each provinces fiscal capacity. Alberta is not in this middle five, so it's vast oil wealth is not in the calculation, and does not bring the average level of fiscal capacity up.

Now, in the move to a ten province standard, all provinces' fiscal capacities would be brought to bear. This means that Alberta's vast oil wealth will bring the average way way up. As the average goes up, the more money that is taken out of general federal resources and devoted to equalization, which means there is less left over for Alberta when it comes to per capita tranfers. So, Alberta opposes the inclusions.

The inclusion of non-renewables also means that Saskatchewan, with its meagre but measurable oil wealth, will be above the average and not eligible for equalization. So, Saskatchewan opposes it.

Finally, Ontario opposes it because any move to enrich equalization is paid for disproportionately by Ontarians (through less per capita transfers) because Ontario has the largest population.

That, in a nutshell, is why the move to a ten province standard with non-renewable resources is largely opposed by those provinces.

Steve V said...


Thanks! I did actually understand the 5 province calculation, which is really illogical and confusing. It is quite ironic that Alberta is forever complaining about not "counting" on the national stage, yet seem quite accepting of this omission, as though they don't exist. One province, one vote.

There are eighteen people? Harper sure doesn't appear to be one of them, aggressively walking into the quicksand on some misguided adventure for votes.

leftdog said...

The Province of Saskatchewan has a valid grievance in the way Ottawa has handled equalization payments under both Liberal and Conservative administrations.

Natural (nonrenewable resources) are treated differently in Nfld and Lab as well as Nova Scotia. They are exempt as provincial income when Federal allocations are calculated. NOT SO FOR SASKATCHEWAN!!

Harper appears so be poised to break a firm election promise on this inequity.

The next time you here a damned Tory bragging about Harper fulfilling his promises,..... kick 'em in the pants for the good folks living in Saskatchewan.

leftdog said...

POSTSCRIPT: The reason nonrenewables should not be calculated in annual ongoing fiscal disbursements is because they are 'one time income.'

They come out of the ground once and are then forever gone as a future asset or cash flow resource for the province.

Candace said...

As an Albertan, I don't get the "don't include" bit either. For crying out loud, our surplus is not far from the federal one.

On the flip side, our contribution per capita is significantly higher than, say, Ontario, so I DO "sort of" get it.

I could probably live with 50% of the revenue considered, provided that "renewable resource revenue" applies equally across the board. If cherrypicking occurs, then I'm all for lowering the flags.

Hey, it's worked in the past... (might not, this time)

And, hey, leftdog, do you REALLY BELIEVE that the dinosaurs respected the AB/SK border when they died? REALLY? Or is it gov't intervention (or lack thereof) that created that interesting divide of oil wealth?

Just askin'

Steve V said...

50% sounds like a good compromise, across the board for all provinces.

Radical Centrist said...

50% isn't good for Newfoundland and Labrador - they're they only province that would actually receive less money if that formula is adopted...

I have a rather detailed section about equalization on my Canadian politics website, if anyone's interested.

Peter Loewen said...

Leftdog, you are quite right to note that both NFLD and NS have been able to get their wealth counted differently. On those grounds, Saskatchewan has a case.

As for non-renewables being excluded, there is really no basis for this, I think. As it stands, equalization is meant to level current fiscal capacities, so it should include all current sources of revenue. Moreover, making a distinction based on the long-term sustainability of a revenue source is a tricky business, because many of the other 32 sources of revenue counted in the forumla are also declining in one sense or another. For example, tax revenues from horseracing are in a steady decline, and this disproportionately affects Ontario and Quebec. Should horseracing taxes now be excluded from the calculation of fiscal capacity?