Equalization is it time to renegotiate the formula?

[westernvicki]

http://edmontonjournal.com/opinion/columnists/frank-atkins-canadas-equalization-formula-needs-to-change-heres-why

"Under the current funding arrangements, the equalization formula does not count the market value of hydroelectric power produced in Quebec, but rather the highly subsidized price at which hydroelectric power is sold in local markets. This anomaly creates a perverse set of incentives. Power is sold in Quebec in local markets at a highly subsided price, and this reduces the amount of revenue that gets counted in the equalization formula, thus artificially increasing the amount of transfer payments received by Quebec.

The Frontier Centre for Public Policy estimates that, over the period 2005-10, if the funding formula were corrected for this anomaly, Quebec’s equalization payments would have decreased from $42.4 billion to $28.1 billion. Given that a large portion of the equalization payments have traditionally come from Alberta, which is a large producer of oil, the conclusion here is that Alberta’s transfer payments to Quebec are actually subsidizing cheap hydroelectric power in Quebec (this is also true of Manitoba’s hydroelectric power).


http://www.hydroquebec.com/residential/customer-space/account-and-billing/understanding-bill/comparison-electricity-prices.html

Open this and see the price comparisons by cities as published by "HydroQuebec".

It is a complex question: but is it time the Federation, ask for the formula to be reviewed?

[the big wheel]

If you take a different slant to the hydro thing obviously Quebec is manipulating the cost of hydro to get a payment. Can we assume that the provinces paying into the transfers must know this so if they can't change the formula why are they not subsidizing power here to offbalance this?
Isn't this a confirmation that for decades leaders have been a bit unsavy? Maybe even dumb? Is it the case that who cares we're making all this money so who cares? That is until even though you re making all this money you still can't even balance your budget?

[the big wheel]

I have no idea if the formula needs to be redone because as we have seen on this forum I bet 90% of people
Don't know what the formula really is?
Maybe the formula is good maybe it's just being manipulated? I don't know.

But another question,when we borrowed money to build the stadium and made that expenditure to build is that expenditure counted? So to act like big wheels we borrow for a stadium we
Don't need and then we have to pay more transfer payments because of the expenditure makes us look rich but realistically we re paying the transfer payment and the debt owed? It
Can't be that way but it appears to me it may be, does anyone know?

[macdon02]

Maybe rather then try and convince the Fed's to tweak equalization. One or 3 of the western provinces should simply default on debt. The Fed's are backing all provincial and Municipal debt. The way Canada is setup if 1 province falls the whole confederation implodes. You don't take a knife to a gun fight. In reality is it the end of the world if govt can't borrow? Live within their means and unable to buy votes would seem rational.....

[chuckChuck]

With 10 provinces at the table it is hard to believe Quebec's Hydro would not have come up if it was a contentious issue. Harper and Flaherty received an Expert Panel report on equalization early in their mandate. If there was an issue surely it would have been resolved by a western Prime Minister.

As Big Wheel said none of us have the details to sort this out. Again it seems politics and resentment towards Quebec is the driving force.

Not much criticism of Manitoba even though they are a have not province.

Saskatchewan was also a have not province untill the price of oil and commodities rose in the mid to late 2000s.

2/3 of the prairie provinces have directly benefited from equalization.

Alberta is unique largely because of the luck of sitting on large oil and gas reserves. Woe is Alberta

[chuckChuck]

In this report one expert discusses the problems with oil resources in the equalization formulae and other issues. So it appears that there are issues for all provinces from time to time.

https://mowatcentre.ca/wp-content/uploads/publications/149_ontario_oil_and_unreliable_data.pdf

Ontario, Oil &
Unreliable Data
The Complex Problems Confronting
Equalization and Simple Solutions
to Address Them

Conclusion
Looking ahead to the next decade, the issues of Ontario, oil and unreliable data are likely to be as
problematic for the Equalization program as they were in the decade that preceded it. Attempting to
address them by allowing the current design of the program to persist, however, will not work. The
federal government will be confronted by a fresh set of trade-offs and choices in the face of these
problems.
The cost-certainty for the federal government that came with a fixed envelope could instead lead
to over-equalization. Conversely, under-equalization with respect to natural resources could erode
comparability of services across provinces. An undue emphasis on responsiveness could bring
increased volatility and unpredictability for provinces and the federal government alike, and comes at
the cost of accuracy.
Accurate measurement of the differences in fiscal capacity that the Equalization program is meant
to narrow, however, will take on additional importance in the context of a tight federal fiscal situation.
An increased focus on predictability for both the federal government and the provinces would help
both with cost-certainty for budgeting purposes, and can be achieved without sacrificing the goal of
the program. Overall, the primary focus of the program should be on the explicit goal of the program,
namely to ensure reasonably comparable levels of service are available at reasonably comparable levels
of taxation to all Canadians, regardless of one’s province of residence.


There are numerous papers on the Equalization and it takes a degree in Economics to wade through all of it.

[Bowerpower]

All I know is that the next lotto max winner should equalize their winnings to the all the people of Canada. It is just luck that they won the lottery. That would be fair.

[westernvicki]

https://globalnews.ca/news/1558161/heres-where-youll-pay-the-lowest-and-highest-tuition-in-canada/

Maybe rather than consider the formula based on net income, do a basket of good and compare what net income will buy:
It seems that in Quebec it takes less to buy the same package of goods & service:

https://careers.workopolis.com/advice/comparing-the-cost-of-living-between-canadian-cities/

Is net income a fair formula?