Days after it was revealed that Ottawa plans to lock in the current regime, Alberta’s government has released a series of proposals to reform Canada’s equalization system, including a combination of measures that if imposed immediately would slash the pool of money redistributed among the provinces by about 80 per cent.
Records have it that Alberta and Saskatchewan have been among the existing system’s most vocal critics. The conservative leaders of the two provinces argue the program largely favours Quebec at their expense.
It is germane to clarify that the equalization program, which is entrenched in the Constitution, is designed to ensure provinces across the country enjoy comparable levels of service at comparable levels of taxation.
The program tries to do this by distributing varying amounts of federal tax dollars to provincial governments. The amounts are based on estimations of each province’s “fiscal capacity,” meaning those that are more capable of self-funding receive less money. Alberta and Saskatchewan are among four provinces that receive none at all.
The nation’s equalization formula expires next March. recently, the federal government tabled an omnibus motion related to the budget that included a five-year extension to the current equalization calculation.
Even though the Alberta government has no power to change equalization unilaterally, Premier Danielle Smith recently released a campaign video promoting her United Conservative Party’s proposed reforms to the program. The proposals are also detailed in a position paper.
In a video statement, Smith said “We have just released a fully costed, practical plan to end the costly, unfair, equalization gravy train”.
According to officials, the size of the current equalization program is tied to the three-year moving average of Canadian nominal GDP growth. In some years, that means the pool of cash available exceeds the amount necessary to bring the have-not provinces up to par. When this happens, the Alberta government’s position paper notes, the federal government makes “floor payments” to recipient provinces, beyond what would be necessary to make them equal to richer provinces.
Meanwhile, the provincial government is proposingdistributing excess money in the program based on population, rather than triggering the floor payments, for the first four years of a new regime.
More so, in the fifth year, it wants Canada to do away with calculating equalization payments based on fiscal capacity, in favour of a system focused on macroeconomic indicators, such as GDP per capita.
It was reported that Alberta also wants Canada to target 95-per-cent fiscal equality between the provinces, rather than the current target of 100 per cent, within a decade of adopting a new system. It is also suggesting the country consider calculating the national average GDP per capita based on six provinces rather than 10. The paper suggested dropping the two strongest and two weakest provinces.
According to the province’s calculations, if Canada immediately implemented the provincial government’s most dramatic proposals, the equalization pool would shrink to $4.67-billion in 2023-2024, compared to $23.96-billion under the current system. Even the most generous combination of measures, if enacted now, would reduce the program to $16.77-billion in 2023-2024, according to Alberta’s math.
