“Opposition to resource development, unrelated to legitimate environmental
concerns, is a self-indulgence we cannot afford in a period of slow growth,
large deficits and escalating health-care costs. The public may not be
fully aware of the financial and social implications of its choices.
A reduction in equalization payments would be a wake-up call.” (Joe Oliver)
Equalization is about to loom large in federal-provincial relations and will make the prime minister’s promise to meet with his provincial counterparts increasingly uncomfortable.
The significant regional restructuring of economic fortunes, resulting from the precipitous decline in resource-based revenue, will reallocate billions of dollars in transfer payments — some from previously “have not” to “have” provinces.
Several of these adjustments will be counter-intuitive and will likely engender embittered political reaction from provinces that perceive themselves as losing out. A reordering of transfers will also raise the larger issue of whether the program should be fundamentally revamped.
The public policy rationale for equalization is to ensure that all Canadians in every province receive reasonably comparable provincial services at reasonably comparable rates of taxation.
The federal government achieves this by making up the difference for provinces with less revenue capacity than the average (note that the formula is based on capacity, not taxes actually raised). The formula calculates what each province could collect, on a per capita basis, in personal, consumption, property and business taxes, if they all imposed the same rates.
For the rest of this column, click here: http://business.financialpost.com/fp-comment/joe-oliver-why-equalization-no-longer-works