| One of the least understood features of our Confederation
is the term " Equalisation Payments".
In the abstract it is not difficult to explain. Essentially the
federal government has a pool of cash that it distributes amongst the
provinces, based on each province's economic capacity, which is
reflected in their ability to charge taxes. These payments are
intended to enable less prosperous provincial governments to provide their residents with public services that are,
with reason, comparable to those in other provinces, at reasonably comparable levels of taxation.
Sounds good so far?
In 2004, Federal Transfers to Provinces totalled $10,774,000,000.
The formula used to calculate these payments was to take the mean
fiscal capacity average between the "median" 5 provinces - Quebec, Ontario, Manitoba, Saskatchewan and British Columbia.
With this average then calculate what it will take to bring all
provinces up to that level. For example , in 2004, transfers to
provinces, based on the formula were as follows (in millions of
dollars):
- PEI - 277
- NB - 1,326
- NL - 762
- NS - 1,313
- MB - 1,607
- QC - 4,155
- SK - 652
- BC - 682
There was flexibility in the formula to take into account the
revolving prosperity of some provinces. For example, during the
period from 1993 to 1999, BC received no payment. They were
considered a "Have" province. In 2000 they received $125
million and by 2004 they received $682 million. Saskatchewan,
which was traditionally an "Have-not" province, had a blip in
its economy in 2003 when payment fell to $0. But they ballooned in
2004 to $652 million.
Ontario and Alberta have been the only consistent "Have"
provinces.
In 2005/06 the Transfer formula is being changed to make budgeting
easier for the
provinces. There are still 8 out of 10 "Have-not"
provinces. The major change will be that a floor chunk of change
will be established the program. In 2005/06 the floor will be
$10.9 billion. Thereafter it grows by 3.5% per year.
The Transfer payments are not tagged with any guidelines for their
use. The provinces can put them into general revenue and spend
them on anything.
The Province of Alberta, with their
immense natural resource wealth, creates a distortion in the average
capacity. The chart above
(from
Canada Dept of Finance) shows the level of distortion.
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