Tories' reported plan for equalization changes provokes backlash

[RedHot25]

http://www.cbc.ca/canada/story/2007/...e.html?ref=rss

The federal government is facing a backlash from some provinces over a report it plans to change the formula for equalization payments, with Saskatchewan's finance minister calling it an "absolute betrayal" of a Tory campaign promise.

In the last two election campaigns, Prime Minister Stephen Harper and his Conservatives pledged to exclude natural resource revenue from the federal program that gives to poorer provinces to help narrow the gap between "have" and "have-not" regions.

But the CBC's French-language network reports the government will renege on that pledge in its next federal budget, expected in March. Radio-Canada said Harper instead plans to follow the recommendation of a federal task force by including 50 per cent of the natural resource revenue when calculating a province's wealth.


If Harper makes the move, it would mean big losses in equalization payments to provinces like Newfoundland and Labrador and Saskatchewan.

[Frank the Tank]

The government not keeping a promise? Shocking. I wonder when the GST will be eliminated....

[Resolute 14]

I am rather curious as to how this screws Saskatchewan and Newfoundland, but not Alberta.

Not a big fan of this move, if true.

[Bobblehead]

Originally Posted by Snakeeye

I am rather curious as to how this screws Saskatchewan and Newfoundland, but not Alberta.

Not a big fan of this move, if true.

Alberta & Ontario are the current "have" provinces and so don't receive equalization. The rest are "have-not" provinces and receive equalization. (good info here)

[Resolute 14]

Originally Posted by Bobblehead

Alberta & Ontario are the current "have" provinces and so don't receive equalization. The rest are "have-not" provinces and receive equalization. (good info here)

My understanding is that Saskatchewan is now, or about to become, a have province, and Newfoundland is getting close to same.

If that is the root of the anger, then it sounds like two provinces getting ****ed that they are no longer cashing in.

Though I don't like pandering to Quebec's greed either.

[SeeGeeWhy]

Wouldn't this encourage those provinces to further develop the natural resources they have in order to make up for the lost equalization payments?

Saskatchewan is VERY rich in natural resources like oil and gas and other minerals, but they don't do a very extensive job to exploit them. It seems they'd rather farm, sit on the losses and reap the benefits of government hand outs.

Newfoundland refuses to develop it's offshore O&G fields unless the companies doing it are giving the government a sweet, sweet deal. Why not establish a government operated exploration company then?

Serriously, I don't understand why some people are perfectly satisfied to act like this and not behave in a fashion that is self supporting. Canada could be an economic powerhouse if our populace weren't such whiners.

[Bobblehead]

Originally Posted by Snakeeye

My understanding is that Saskatchewan is now, or about to become, a have province, and Newfoundland is getting close to same.

If that is the root of the anger, then it sounds like two provinces getting ****ed that they are no longer cashing in.

Though I don't like pandering to Quebec's greed either.

May well be the case.

I saw something saying that if you include all the ancillary effects of the clawback, Sask actually loses a bit more than $1 per dollar resource revenue.

[Ironhorse]

Originally Posted by SeeGeeWhy

Serriously, I don't understand why some people are perfectly satisfied to act like this and not behave in a fashion that is self supporting. Canada could be an economic powerhouse if our populace weren't such whiners.

Quoted for truth. Welcome to what appears to have started becoming the Canadian way.

[RedHot25]

I think that I have some stuff on equalization that I can dig up....I'm pretty sure one article at least specific to Sask.

Anyways, I believe Sask's big resource is potash. Bobble I believe is on the right track with their complaint - the nature of a clawback. From an article from Thomas J. Courchene, a big name in poly sci/economics:

"In fiscal year 2000-01 Sask's energy revenues totalled 1.04 billion, or just over 1 grand per capita. However, these energy revenues trigged even larger decreases in Sask's equalization entitlements, over 1.13 billion, representing an average tax-back rate on Sask's energy revenues of 108 %. As the title of this paper suggests, Canada's equalization program has more than fully confiscated Sask's energy revenues".

I will post more on the Atlantic provs here in a minute...

[MarchHare]

Originally Posted by Snakeeye

I am rather curious as to how this screws Saskatchewan and Newfoundland, but not Alberta.

Not a big fan of this move, if true.

As was noted above, Alberta already doesn't receive equalization, nor is this province's revenue included among the "five province average" when determining how much (if any) equalization each province receives, so Alberta is insulated from any repercussions of this move.

As for Saskatchewan, they were considered a "have" province and received no equalization in 2004, but they returned to "have not" status and received $652 million in 2005, and $82 million last year. They do appear to be on the way back to being a "have" province, though, so I'm not quite sure where all this anger is coming from (other than the fact that Harper is breaking a campaign promise, of course).

Newfoundland, on the other hand, ought to be really ****ed about this move, as the 2005 agreement with the Liberal government guaranteed that their offshore revenue would receive "100 percent protection from Equalization reductions resulting from the inclusion of offshore revenues in the Equalization program for eight years (from 2004-05 to 2011-12)"*. Moreover, Harper personally vowed that he would honour the terms of that agreement if his party was elected.

So along with the taxation of income trusts, that's two major campaign promises the CPC has now broken. But only the dirty "fiberals" break their promises, right? Surely the noble Conservatives are a party of the people and do exactly what they say they will do and keep their pledges...


*Source: http://www.fin.gc.ca/FEDPROV/nae.html

[RedHot25]

One of the major intents of equalization is to:

Parliament and the Gov't of Canada are committed to the principle of making equalization payments to ensure that provincial gov'ts have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation" (from the 1982 Constitution Act, as cited in an article by Elizabeth Beale).

[RedHot25]

Originally Posted by MarchHare

Newfoundland, on the other hand, ought to be really ****ed about this move, as the 2005 agreement with the Liberal government guaranteed that their offshore revenue would receive "100 percent protection from Equalization reductions resulting from the inclusion of offshore revenues in the Equalization program for eight years (from 2004-05 to 2011-12)"*. Moreover, Harper personally vowed that he would honour the terms of that agreement if his party was elected.

Yeah, offshore oil is a contentious issue.

It is interesting to note that for the Atlantic provinces...

"In 2001-02, the four provinces received an estimated $3.8 billion in equalization payments, equivalent to about a quarter of all provincial revenues. To place this in context, in Nova Scotia alone, equalization payments are equivalent to combined program spending in the departments of Education, Service Nova Scotia & Municipal Relations, Natural Resources and Transportation and Public Works.

These transfers have ensured that each of the Atlantic provinces can engage in levels of program spending well beyond the capacity of its own source revenues, particularly in health, education and social services. Equalization has also played an important role in allowing the Atlantic provinces to keep their burden of taxation in line with other provinces".

(quoted from the same Beale article above).

[FlamesAddiction]

It amazes me that BC is a "have-not" province. There are enough resources, technology, shipping, population, and tourism that it should be making money.

[mykalberta]

Basically provinces that have resource revenue that arent Alberta, still want equalization payments even if they dont deserve them based on income from resources.

It would be like Alberta saying, ok excluding resource revenues we are a have-not province - which would be complete BS because you have to include all revenue streams.

MYK

[FireFly]

So it's okay if the Liberals 'buy' Quebec with Alberta oil, but stay away from Saskatchewans? Sure... that works out well.

[RedHot25]

Originally Posted by mykalberta

It would be like Alberta saying, ok excluding resource revenues we are a have-not province - which would be complete BS because you have to include all revenue streams.

As noted re: Alberta,

Originally Posted by MarchHare

As was noted above, Alberta already doesn't receive equalization, nor is this province's revenue included among the "five province average" when determining how much (if any) equalization each province receives, so Alberta is insulated from any repercussions of this move.

[MarchHare]

Originally Posted by FlamesAddiction

It amazes me that BC is a "have-not" province. There are enough resources, technology, shipping, population, and tourism that it should be making money.

Simply terrible management by the provincial NDP government during the 90s...BC was a "have" province until 1999, but by then the repercussions of some awful policy decisions were felt.

[CaptainCrunch]

Originally Posted by mykalberta

Basically provinces that have resource revenue that arent Alberta, still want equalization payments even if they dont deserve them based on income from resources.

It would be like Alberta saying, ok excluding resource revenues we are a have-not province - which would be complete BS because you have to include all revenue streams.

MYK

Thats a very valid point, and I always thought that the ability to not include resource revenue in equalization went directly counter to the feds plans for transparency within the government.

This could probably be the type of move that triggers an election though by the conservatives.

[MarchHare]

Originally Posted by mykalberta

Basically provinces that have resource revenue that arent Alberta, still want equalization payments even if they dont deserve them based on income from resources.

It would be like Alberta saying, ok excluding resource revenues we are a have-not province - which would be complete BS because you have to include all revenue streams.

MYK

I love it when people moan about the problems with equalization despite clearly having no idea how the program works...

Here's a primer:

Certain public programs (healthcare and education being the two most important) are administered and funded by the governments of the provinces, not the federal government. Alas, not all provinces have the same capability to generate tax revenue equally, and the federal government doesn't want the quality of healthcare or education in one province or region to fall too far behind the national average. Enter equalization.

Equalization is money from the federal coffers (taken from taxpayers from all provinces, including the "have not" ones) and transferred to the provincial governments of any province whose per capita revenue-generating ability falls below the "five province standard". That figure is determined by averaging the abilities of the five "middle income" provinces (Quebec, Ontario, Manitoba, Saskatchewan, and BC) to earn government revenue at a given level of taxation. Note that Alberta and the Atlantic Provinces are not included in the standard. In other words, Alberta could be 100 times richer than we are now and it still would not affect how much equalization is paid to the "have not" provinces. Equalization exists to make sure that no province falls too far behind the rest of the nation, not to hold back Alberta or Ontario as many here seem to think it does. Be thankful for it if you're ever travelling in another province and need to be hospitalized...

And without energy revenues, Alberta still would be considered a "have" province, given our very strong economy (personal and corparate income tax are included in the equalization formula, including taxation from energy companies), so saying that Alberta would be a "have not" province if you took away our resource revenues is a bit of a spurious claim.

[Resolute 14]

Originally Posted by MarchHare

Simply terrible management by the provincial NDP government during the 90s...BC was a "have" province until 1999, but by then the repercussions of some awful policy decisions were felt.

Which is, of course, a major problem with equalization. Doesn't matter how badly you mismanage your province, Alberta and Ontario's wealth will bail you out.