Canada's poorer provinces will be getting more federal money under a new deal hammered out by the prime minister and the premiers Tuesday.

Following a day long meeting in Ottawa, the federal government agreed to revamp federal equalization payments, which transfer tax revenue from the richest provinces to the poorer ones.

Ontario Premier Dalton McGuinty speaks as Saskatchewan Premier Lorne Calvert and P.E.I Premier Pat Binns listen(CP Photo)
Ontario Premier Dalton McGuinty speaks as Saskatchewan Premier Lorne Calvert and P.E.I Premier Pat Binns listen(CP Photo)

Under the deal, Ottawa will give eight "have not" provinces $10.8 billion this year and $10.9 billion in 2005-2006, up from $8.9 billion last year.

The deal also includes a 3.5 per cent annual top-up, beginning after the 2005-2006 fiscal year.

"We are pleased with the arrangement we have been able to establish," said Ontario Premier Dalton McGuinty. His province and Alberta are currently the only two that pay into the system but receive no money back in equalization payments.

Economic engine

McGuinty says the new arrangement gives the poorer provinces more money without compromising Ontario's ability to act as the country's economic engine.

The politicians also agreed to set up two panels to further refine the equalization system.

Ottawa will establish a five-member panel that will include two provincial representatives to look at new ways of handling equalization payments.

Meanwhile, the provincial premiers will appoint prominent Canadians to another panel to look at the bigger picture of federal contributions to provincial programs.

The deal was briefly overshadowed Tuesday when Newfoundland and Labrador Premier Danny Williams walked out of the discussions because of a fight with the federal government over offshore oil revenues.

But the other premiers praised the deal as a good first step in revamping the way money is shared.

Both Alberta Premier Ralph Klein and B.C. Premier Gordon Campbell left the meeting early for other commitments, but said they were satisfied with the deal.

"We're better off than we were six weeks ago," said P.E.I Premier Pat Binns. He said Prime Minister Paul Martin "has increased the amount of money we will receive over what we would have received had there not been an intervention" by the provinces.