Newfoundland and Labrador to receive $218 million equalization payment next year

Newfoundland and Labrador will join other Maritime provinces, such as Québec, Ontario, and Manitoba, in receiving equalization payments. In the next fiscal year, the Trudeau Liberals plan to increase payments to 'have-not' provinces by $2 billion, bringing the total to $23.963 billion.

Newfoundland and Labrador to receive $218 million equalization payment next year
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The Trudeau Liberals have announced equalization payments to Newfoundland and Labrador for the first time in 15 years.

Starting from the next fiscal year, the province will take home $218 million from federal tax coffers, according to a letter from Finance Ministers Chrystia Freeland and Siobhan Coady.

On December 18, reporters asked Coady if the province had lost its pride, given they are on equalization again. She replied: "I don't think anything is lost. This is about ensuring Newfoundlanders and Labradorians are treated like the rest of Canadians.”

In 2008, Newfoundland and Labrador celebrated no more equalization amid low unemployment and flowing oil royalties. But times have changed since then.

Under the equalization program, provinces qualify for payments based on their "fiscal capacity" or their ability to generate revenue, said the Fraser Institute in a press release. 

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.

But in 2009, then-Prime Minister Stephen Harper introduced equalization payments that would grow annually with the national economic growth rate. "In other words, now, it doesn't matter whether the gap between richer and poorer provinces grows or shrinks — payments continue to grow at the same rate as the Canadian economy," said the Fraser Institute.

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. 

Critics of the formula have spent years arguing that Newfoundland and Labrador should qualify for equalization, taking issue with the inclusion of its offshore oil royalties in the equation and the cost of delivering services in the largest Maritime province.

They have a mounting debt of $16 billion and growing — about $30,000 per Newfoundlander — with an unemployment rate nearly doubling to 10%, reported the CBC.

On Monday, the province’s finance minister referenced changes to property taxation, hydroelectricity and population to justify their return to the equalization program.

Equalization, a federal program that addresses fiscal disparities among provinces, transfers tax dollars collected by Ottawa to 'have-not' provinces to ensure comparable levels of public services. It will constitute 20% of the $1.1 billion in federal transfers to Newfoundland and Labrador next year, including $688 million in health transfers.

However, Coady told reporters, "There's a problem with the formula," as Nova Scotia receives more than $3 billion in equalization payments next year.

"If they 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 such as Québec, Ontario, and Manitoba on the list of 'have-not' provinces receiving equalization payments. 

Finance Minister Chrystia Freeland said last December that Québec would receive the most at $14.04 billion, 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.

Earlier this year, 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. Next fiscal year, the Trudeau Liberals are increasing equalization payments to ‘have-not’ provinces by $2 billion to $23.963 billion.

In Budget 2018, then-federal Finance Minister Bill Morneau proposed a five-year renewal of the previous equalization regime, spanning from April 1, 2019, until 2024. Under The Budget Implementation Act, the federal government gradually increased transfer payments to 'have-not' provinces, rising from $18.3 billion in 2017/18 to $22.1 billion by 2022/2023.
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