Harper, Equalization & Federal Transfers

August1991 · January 17, 2007

Nobody ever lost an election over the equalization formula. Voters would go to sleep first.

So far, all we've got is a "leaked" report in Radio-Canada that says the Tories will include in the next budget a new formula for calculating equalization, new transfers to the provinces for post-secondary education/infrastructure and a new federal law stating that the feds will not spend in provincial jurisdiction. The Tories will also cut taxes.

The idea behind equalization is to ensure that each provincial government can offer similar services to its citizens. In principle, the equalization formula estimates each provincial government's "tax potential" and then transfers from the rich provinces to the poor. One reason for equalization is to stop citizens moving needlessly around the country merely to take advantage of what's on offer in different provinces.

Harper's new equalization formula will include 50% of provincial resource revenues (whereas at present, bizarrely, all resource revenues were excluded from the formula).

This change will mean that Alberta will pay more and Quebec will receive more. Estimates suggest that the Quebec provincial government will receive about 1.5-2 billion more annually. Saskatchewan will also be a loser, moreso because explicit promises were made to keep resource revenues out of the equalization formula.

Provinces with oil and natural-gas reserves, such as Alberta, Saskatchewan and Newfoundland, argue natural-resource revenues should not be included in the formula used to calculate equalization payments.
But according to the report, Harper's plan exempts only 50 per cent of resource revenues. That would break a Conservative election promise to Saskatchewan to exempt all resource revenues.

Saskatchewan Finance Minister Andrew Thomson said it was the first he's heard of the equalization plan, which he called "unacceptable."

CanWest

Saskatechewan has 14 seats in the House; Quebec has 75. Or at least, that's how it's presented in English Canada.

In Quebec, this has been noted but it's also mentioned that Ontario stands to gain under this new formula and by way of the new federal transfers.

La réforme exclurait seulement 50 pour cent des revenus de ressources naturelles, plutôt que les 100 pour cent promis à la Saskatchewan. En vertu de cette réforme, le Québec recevrait à compter de 2007-2008 une somme de 7 milliards $, plutôt que les 5,5 milliards $ actuels. La Saskatchewan, elle, ne recevrait que 200 millions $ supplémentaires, plutôt que les 800 millions $ attendus.
...

Les transferts directs aux provinces seraient aussi bonifiés en vertu du projet de M. Harper, une mesure qui viserait surtout à plaire à l'Ontario. Les provinces recevraient ainsi des centaines de millions de dollars supplémentaires pour financer l'éducation postsecondaire et des travaux d'infrastructure. De l'argent neuf pourrait arriver dès cette année, mais il s'agirait surtout d'un engagement financier à long terme.

CP

(Note that the Saskatchewan government will receive $200 million more, but it won't be the $800 million expected.)

And who is going to pay for all of this? Make no mistake, it will be Alberta.

Albertans may soon discover what Quebecers have long suspected. Having one of your own as PM is not necessarily a good thing. The price of vanity can be high.

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I think what bothers me most about this scheme (still only a leak) is the idea that "government" is going to take more money from citizens and "government" is going to blow the money on God knows what. You can be quite certain that the provincial governments, when or if they get this money, will not cut taxes. They'll just spend it on more stuff.

The last thing Canada needs is more stuff bought by governments. They've got a garage filled with the crap, most of it we don't need. In fact, it's so bad, that they can't even find the stuff they have, complain we don't have it and so they go out and buy a new one.

Harper's new scheme will just encourage our governments to clutter up the garage more.

I sympathize with Harper though because he only has a minority government and he's in no position to challenge Canada's sacred cows. Politically, this is a golden opportunity to box in the opposition and to make the Conservatives a pan-Canadian party. The BQ can only complain that it's not enough. The NDP can only complain that it weakens the federal government. The Liberals can only complain that they never did it themselves.

Moreover, Harper's move is a gift from heaven for Charest. It makes his pre-electoral budget a fun exercice - the spouse gets to plan the new kitchen after the promotion. Harper has often said that English-Canadians have a federalist premier in Quebec City; why would anyone want to make the guy's life difficult?

But then. I am thinking about this simple documentary, L'Illusion tranquille, which I saw recently. There was finally a (devastating) review in English that is unfortunately behind The Gazette subscription wall. Here's the opening paragraph:

New film systematically challenges Quebec's sacred cows
The Quebec model is assailed as a recipe for economic disaster

The most shocking movie in town contains no gore, no sex, no foul language. L'Illusion tranquille, which opened quietly during the weekend, is far more shocking than anything like that. Halfway through the performance that I saw, the couple in front of me rose in a huff and stomped put.

For the moment, I'm going to trust Harper. But I didn't vote Conservative to have someone manage the caseload while the Liberals were on vacation.

jdobbin · January 17, 2007

Nobody ever lost an election over the equalization formula. Voters would go to sleep first.

With every province screaming about it when it is announced, it will not be a sleepy issue. The Finance department has said it is the equivalent of opening the constitution. Harper's own promises in 2004 and 2005 put him in a difficult position. In 2004. he said that he would not include energy money in the calculations. In 2005, he said he would look to increase Quebec's transfers. These two polices clash and it looks like Quebec will benefit.

Since Albertans will vote Conservative regardless, Harper probably thought there will be a lot of bark and no bite.

Ricki Bobbi · January 17, 2007

Nobody ever lost an election over the equalization formula. Voters would go to sleep first.

Amen to that. You never know though. Losing seats in Saskatchewan could really hurt the Conservatives.

So far, all we've got is a "leaked" report in Radio-Canada that says the Tories will include in the next budget a new formula for calculating equalization, new transfers to the provinces for post-secondary education/infrastructure and a new federal law stating that the feds will not spend in provincial jurisdiction. The Tories will also cut taxes.

I still don't understand how Radio Canada is the outlet that got this story. The Conservatives have been so leak-free that I can't see the Radio Canada getting it as an unplanned lead. Maybe it's a red herring??? Has the added bonus of making MortherCorp look bad!

Harper's new equalization formula will include 50% of provincial resource revenues (whereas at present, bizarrely, all resource revenues were excluded from the formula).

Not bizarre at all. The primary rationale is that natural resources are not a stable source of funding and should not be the basis for deciding transfers in the long-term. For example, oil is off almost 25% from it's peak last summer. What if Alberta, Saskatchewan and Newfoundland's 2006-7 contributions were based on the peak figure? Would the have-nots offer to take a smaller transfer out of the same sense of fairness that lead to the transfer program in the first place?

Albertans may soon discover what Quebecers have long suspected. Having one of your own as PM is not necessarily a good thing. The price of vanity can be high.

Vanity? wtf? That has to be one of the strangest ascribed motivations for Albertans voting Conservative I have heard...

The Quebec model is assailed as a recipe for economic disaster.

It has been for a long time. Most posters here are too young to be able to remember this, but Montreal was the main centre of commerce in the country before Rene Levesque won his first election.