B.C. contemplates court challenge against ‘unfair’ equalization payment scheme

‘One of the things that shocked me was that British Columbia is sending money to the federal government so they can send it to Ontario,’ Premier David Eby told reporters.

B.C. contemplates court challenge against ‘unfair’ equalization payment scheme
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British Columbia may join a court challenge by Newfoundland and Labrador over unfair equalization funding, Premier David Eby said.

“One of the things that shocked me was that British Columbia is sending money to the federal government so they can send it to Ontario,” he told reporters on Thursday.

Ontario received $421 million in equalization funding last year while B.C. got nothing. 

The B.C. premier says the lack of money for projects in western Canada, amid growing cash flows to Québec and Ontario, shows those provinces get “special treatment.”

“It's not OK,” he said. “I will be asking our attorney general to work with Andrew's team to have a look at the case they're bringing forward and see if there's a place in British Columbia for this.”

Newfoundland launched a court challenge in May after fielding repeated concerns the payment scheme puts it at a disadvantage. 

The Trudeau government announced late last year the province would receive equalization for the first time in 15 years.

The Maritime province will take $218 million from federal tax coffers this fiscal year, according to a letter from Finance Ministers Chrystia Freeland and Siobhan Coady.

The feds rejected calls to overhaul the funding formula last year.

In 2009, then-Prime Minister Stephen Harper said equalization payments would grow annually with the national economic growth rate—regardless of the gap between richer and poorer provinces.

The fiscal capacity gap between ‘have’ and ‘have-not’ provinces shrunk from 27% in 2014/15 to 6% in 2018/19, despite payments growing yearly. 

As part of budgetary legislation for Budget 2023, the feds quietly locked the new equalization formula until 2029, courtesy of Bill C-47, An Act to implement certain provisions of the budget tabled in Parliament. This fiscal year, the Trudeau government increased equalization transfers by $2 billion to $23.963 billion.

In December 2022, Finance Minister Chrystia Freeland said Québec would receive $14.04 billion in equalization, while Manitoba would get $3.51 billion. Nova Scotia, New Brunswick, and Prince Edward Island (PEI) will receive $2.8 billion, $2.63 billion, and $561 million, respectively, while Ontario gets $421 million.

Budget 2018 proposed a five-year renewal of the previous equalization regime, with transfer payments rising from $18.3 billion in 2017/18 to $22.1 billion last fiscal year.

Newfoundland Premier Andrew Furey told reporters the transfer formula is “fundamentally broken for Canadians right now.”

“It was placed in the Constitution in 1982, and the spirit of it is not being reflected in the application today,” he said, noting the formula does not address the rising costs of serving its aging province.

Furey spoke at great lengths with his B.C. counterpart about the lack of funding for certain provinces, which equalization payments should mitigate.

Among the examples include a $4.15-billion replacement for the George Massey Tunnel in Metro Vancouver, flood mitigation in the Fraser Valley, and the Iona Island Wastewater Treatment Plant upgrade.

When asked about federal funding to build out the Massey Tunnel, Eby said: “Zero right now. Zero.”

Under the equalization program, provinces qualify for payments based on their “fiscal capacity” or their ability to generate revenue, according to the Fraser Institute, an economic think-tank.

Fiscal capacity refers to a province's ability to raise own-source revenues at tax rates set to the national average, plus any additional revenues from natural resource royalties.

“Taxpayers in B.C. can't afford to build everything for the federal government so that they can just rain cash down on Ontario and Quebec,” said Premier Eby.

Québec earlier received $750 million this year for a growing immigration surge brought on by asylum seekers.

“There is a calculation problem, a formula problem,” Furey added. “And that's why we think that really a court needs to evaluate how this is applied across jurisdictions, British Columbia and all provinces, for all Canadians.”

At the time of the lawsuit, Newfoundland denounced Ottawa for shortchanging them between $450 million and $1.2 billion in each of the last five years.

Newfoundland has received support from Saskatchewan, who questioned the lack of consultations on the formula, and Nova Scotia, who faces similar resentment towards Ottawa.

Nova Scotia will receive more than $3 billion in equalization payments this fiscal year.

Last December 18, reporters asked Minister Coady if Newfoundland had lost its pride for receiving equalization. “I don't think anything is lost,” she said.

It will constitute 20% of their $1.1 billion in federal transfers this year, including $688 million in health transfers.

“This is about ensuring Newfoundlanders and Labradorians are treated like the rest of Canadians.”

In 2008, Newfoundland celebrated no more equalization amid low unemployment and flowing oil royalties. But times have changed with a mounting provincial debt and the inclusion of offshore oil royalties into the equation.

“If they [the feds] had listened to us, we'd be receiving more in equalization [to ensure] an equivalent level of service for the equivalent taxation value,” she said.

Newfoundland and Labrador joins other Maritime provinces, Québec, Ontario, and Manitoba as ‘have-not’ provinces receiving equalization.

British Columbia, Saskatchewan and Alberta do not receive equalization transfers.

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