The provincial premiers meeting in Montreal failed Tuesday to agree on the terms of a new panel report that aims to correct equalization and fiscal imbalance.

Quebec Premier Jean Charest says he is confident that a new deal will come within a year, despite deep divisions between provincial leaders.

Premiers pose for the media at Montreal meeting.
Premiers pose for the media at Montreal meeting.

Charest says he and the other provincial leaders do agree that the current formula for deciding how much money provinces receive in equalization must change.

But they don't agree on what's fair, "and this is one of the toughest issues any country could face," he told reporters Tuesday.

As it stands now, equalization payments are calculated on a five-province standard, which leaves out oil-rich Alberta.

The panel report recommends equalization payments to poorer provinces be based on revenues from all 10 provinces, including healthy incomes from resources like oil, natural gas and mines.

It's a tough issue politically for Charest, who has vowed to use his federalist clout to cut a new deal giving Quebec more money for health and education. But other provinces, especially rich ones, are resistant to paying more.

Fiscal imbalance

Premiers maintain the federal government has more money than it needs to carry out its constitutional responsibilities while provinces struggle to pay the escalating costs of their obligations to deliver health care and other social programs.

Ottawa gives equalization to poorer provinces to enable them to provide programs at taxation levels comparable to those of the rich provinces.

At the moment, only Ontario, Alberta and Saskatchewan do not receive equalization. In a nod to those richer provinces, the report recommends that a cap be placed on equalization payments to ensure affordability.

And it recommends that federal transfer payments to all provinces for health care, post-secondary education and social assistance be based strictly on a per-capita formula.

That would mean eliminating a rule by which transfers to wealthy provinces are reduced.

Source: Canadian Press

Alberta Premier Ralph Klein says he does not want a system in which his province's vast oil wealth is up for grabs.

"There are concerns about incorporating the whole issue of resource revenue into the equation," Klein stated.

The panel, which was named by the provinces, recommended the provinces get an extra $9.6 billion a year in transfer and equalization payments from the Ottawa.

More than one-half of the additional money, $4.9 billion, would be for health, social assistance and education, while $4.7 billion would be in equalization payments.

Dalton McGuinty, says his province of Ontario already pays billions of dollars each year to have-not provinces, and insists that paying more is not an option.

Ontario doesn't agree with much of Tuesday's panel study, so he's ready to wait for other reports that better reflect his province's interests, McGuinty said.

The two-day meeting wraps up Wednesday.