Federal Budget 2007
The fiscal imbalance
The no-lose equalization formula
March 19, 2007
The provinces will now have a menu of five choices to choose from as they decide which equalization formula works best for them, under the plan federal Finance Minister Jim Flaherty unveiled in Monday's budget.
Some analysts who looked at the numbers suggested that it is a no-lose situation for those provinces on the receiving end, which has not been the perception in recent weeks when it was assumed the government would bring in one formula or another.
Flaherty told reporters: "It's certainly the end of the bickering. The discussion on fiscal imbalance is now over."
Provinces such as Nova Scotia and Newfoundland and Labrador have the option of joining the new plan or staying with their offshore agreements, which don't expire until 2012 at the earliest and allow them to shelter their offshore oil revenues from any equalization calculation.
Resource-rich but otherwise poor provinces, such as Saskatchewan, have the choice of excluding half or all their natural resources revenues from the calculations, whichever works best for them.
And in a new wrinkle, to take into account B.C.'s burgeoning residential costs, and the effect these are having on property taxes, a three-year transitional period is being implemented to keep property taxes out of certain calculations.
Equalization is a complex dance between a province's fiscal capacity to raise money and the national average, which is calculated in a particularly complex way and is now to be based on a 10-province average, as per a June 2006 report from an expert panel.
The bottom line: Six provinces will be receiving equalization this year — PEI, New Brunswick, Nova Scotia, Newfoundland, Manitoba and Quebec — and they will be receiving a total of $12.7 billion from this program alone next year, which is $1.5 billion more than they took in during 2006-07.
Quebec receives the lion's share, $7.2 billion, a $1.6 billion increase over 2006-07 but no one (like Saskatchewan in particular) actually loses any money, which was a fear when the expert panel first reported.
Equalization, however, is just one aspect of the fiscal imbalance, which the Conservative government says is now fixed. The Flaherty budget also says they will increase transfers for territorial funding, post-secondary education, job training, infrastructure and health and social programs.
All these new transfers are meant to be calculated on a per capita basis (unlike equalization), which is a boon to the larger provinces such as Ontario and B.C.
All told, they amount to a whopping $39 billion in additional transfers to the provinces over the next seven years, or an average of $5.6 billion a year.
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