Ottawa looks to lock in equalization formula until 2029, faces pushback from western Canadians

In 2009, then-prime minister Stephen Harper introduced equalization payments that grow annually with the national economic growth rate.

  • Rebel News
  • April 27, 2023
  • News Analysis
Ottawa looks to lock in equalization formula until 2029, faces pushback from western Canadians
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Ottawa looks to screw over 'have' provinces again as it contemplates locking in the equalization formula until 2029 through an omnibus motion in Parliament.

In Budget 2018, then-federal Finance Minister Bill Morneau proposed a five-year renewal of the previous equalization regime from April 1, 2019, until 2024. Under the Budget Implementation Act, the federal government gradually increased transfer payments to 'have-not' provinces from $17.9 billion in 2017/18 to $22.1 billion by 2022/23.  

The latest pledge to renew the formula another five years comes nearly 200 pages into a 400-plus page motion tabled in the Commons last week.

The equalization program, created in 1957, allows the federal government to transfer funds unconditionally to provinces with below-average revenue per capita to ensure all provinces provide comparable services and taxation levels. Financed entirely from federal revenues, 'have-not' provinces spend it without federal intrusion.

"Under Canada's current equalization program, provincial governments receive or do not receive equalization payments based on their "fiscal capacity" — essentially, 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.

In 2009, then Prime Minister Stephen Harper introduced that equalization payments 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 Institute.

The fiscal capacity gap between 'have' and 'have-not' provinces has shrunk from 27% in 2014/15 to 6% in 2018/19, despite equalization payments growing yearly. By 2018/19, using 2020 dollars, the gap between Alberta and P.E.I. fell to $6,138 from $10,999 in 2007/08.

According to Tombe, the net inflow of all federal transfers to P.E.I. amounted to nearly 30% of its economy.

According to the Institute, equalization cost Canadian taxpayers $18.3 billion in 2017. Given that 16.9% of all federal revenue came from Alberta, taxpayers from the province contributed $3.1 billion to the program that year, which Alberta received no direct benefit in return.

"The message for Western Canadians is crystal clear — our only purpose in confederation is to fund eastern coffers," Colin Krieger, leader of the western-centric Maverick Party, told Rebel News.

"Even [former Prime Minister Stephen] Harper tried using the equalization system to gain Eastern influence," continued Kreiger. "He had the chance to bring change but neglected his western base, fearing the eastern backlash. Nothing surprising here."

In 2021, equalization cost Albertan taxpayers $2.9 billion of the $21.3 billion allocated from total federal revenues. Between 2017 and 2021, equalization payments to Quebec rose from $11.732 billion to $13.119 billion.

"Most Albertans are [mistreated] by Equalization because the money goes to Quebec and other provinces instead of our communities to build schools, hire more frontline healthcare workers, and fix our roads," Independent MLA Drew Barnes told Rebel.

"Over $20 billion a year leaves Alberta's economy. Since the 1960s, $650 billion has left Alberta through equalization and fiscal transfers to Ottawa — most has gone to Quebec," said Barnes.

The Canadian Taxpayers Federation (CTF) calculated equalization has cost Albertans $67 billion since its inception in 1957, or $20,200 per person. Since 1961, economist Trevor Tombe revealed Alberta's "net contribution" to Canada is $622 billion — roughly 5% of its economic activity over the period and equivalent to $3,344 annually per person in 2021 dollars. 

While health transfers are paid to provinces per capita, Ottawa makes annual equalization payments based on the ability of provinces to raise revenues.

In 2023/24, Quebec will receive $14.037 billion in equalization payments, followed by Manitoba at $3.51 billion — a $577 million increase from the previous fiscal year — and Nova Scotia, New Brunswick, Prince Edward Island and Ontario in decreasing amounts, totalling $23.963 billion.

A statement from Manitoba's finance ministry last December said the 19% increase in equalization payments occurred because of more significant economic growth and higher natural resource prices in the more prosperous provinces. "Even with equalization, Manitoba's fiscal capacity is still below the capacity of those resource-rich provinces," it reads.

Though Manitoba had a challenging 2021, it rebounded with 3.7% growth in 2022 as crop production recovered. But, rising interest rates will inhibit the province's growth to 1.8% in 2023 and 2.4% in 2024 — slower than their prairie counterparts.

According to Krieger, Manitoba has "tremendous unrealized potential." He claimed opportunities in the province would benefit every Western Canadian. 

"They need a hand up, not a handout."

"Alberta and Saskatchewan should assist Manitobans on these mega-projects, like LNG terminals at Churchill or new hydroelectric generating stations," continued Krieger. "Through this, we ship natural gas to Europe at fair market value and electricity back to western Canadians — without the feds interfering."

According to Barnes, "We need to take the concept of equalization out of the constitution" because "the system, though designed to promote fairness, creates inequality, unfairness and holds Alberta and Canada back."

"The system encourages provinces not to develop their revenue streams and free enterprises to continue to collect equalization," he said, adding Quebec Hydro is not calculated as part of its fiscal capacity. In contrast, oil and gas production is included in Alberta's capacity.

Conservative Party of Canada Canada Stephen Harper News Analysis Alberta Legislature Equalization
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