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Fixing equalization will not be easy, but there are other options, say experts

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    Fixing equalization will not be easy, but there are other options, say experts

    https://www.cbc.ca/news/politics/fixing-equalization-formula-challenge-options-1.5362056

    Fixing equalization will not be easy, but there are other options, say experts

    Enlarging the relatively small Fiscal Stabilization Program seen as a possible solution
    Peter Zimonjic · CBC News · Posted: Nov 16, 2019 4:00 AM ET | Last Updated: November 16

    As the premiers of Alberta and Saskatchewan continue to demand a better deal within the federation, all eyes are beginning to focus on the controversial government equalization program.

    It was crafted to help poorer provinces deliver the same level of government services as richer ones, but Alberta Premier Jason Kenney and Saskatchewan Premier Scott Moe want to see it changed.

    Last week Kenney announced the members of his Fair Deal Panel that will hold a series of town halls in an effort to push Ottawa for a better equalization deal, among other things.

    Kenny has even promised to hold a referendum on the program as a way to pressure the federal government to improve the deal for Alberta.

    Chief among his complaints is that Quebec receives $12 billion a year in equalization payments and is posting a provincial surplus, while an Alberta hard hit by the downturn in global oil prices is running deficits and gets no money under equalization.

    But what the deal would look like if it were changed, and what it would mean for Alberta, say experts, might not be what Alberta and Saskatchewan would like to hear.

    "For Alberta there is really a simple answer: nothing could be changed that would result in Alberta receiving payments," said Trevor Tombe, associate professor of economics at the University of Calgary.

    The reason Tombe can be so confident in this proclamation lies in how the equalization formula that delivers federal dollars to provinces works. Tombe explains that the formula basically looks to even out "fiscal capacity" — a province's ability to generate revenue.

    So a province like Alberta that does not have a provincial sales tax is considered to have much more room to increase its tax revenue than a province like Quebec, which has a relatively high provincial sales tax.

    The same can be said for provincial income tax levels. The equalization formula takes into consideration how much income a province has to tax. According to Statistics Canada, Alberta's median household taxable income in 2015 was $93,835, the highest in the country, compared to Quebec's median of $59,822, one of the lowest.

    The federal government could ... do a lot to help Alberta and Saskatchewan but not through equalization

    With Alberta having a very low provincial income tax, compared to other provinces, the equalization program considers Alberta as having a high fiscal capacity, or an ability to increase taxes, and therefore is deemed not in need of assistance from the federal government. At least not before it raises tax levels to be more in line with the rest of the country.

    "Even if you remove natural resources from the equation Alberta will not receive equalization payments, they are just way above the average. There is just no way that they would receive equalization." said Daniel Béland, a political science professor at McGill University in Montreal.


    The Fiscal Stabilization Program

    So putting aside, for the moment, the option of adjusting the equalization program to better help otherwise wealthy provinces hit by hard times, what else can be done?

    "Maybe we need something on the fiscal stabilization side, which has always been a small program, not to be used often," said Kevin Page, president and CEO of the Institute of Fiscal Studies and Democracy at the University of Ottawa.

    Bolstering that program could help provinces weather "the longer-term cyclical downturns in the economy to provide support for these provinces that have helped the federation."

    The Fiscal Stabilization Program is a relatively small program, that provides financial assistance to provinces facing a year-over-year decline in non-resource revenues that are greater than five per cent. The maximum a province can receive under the program is $60 per person, or in Alberta's case about $260 million.

    Boosting other transfers

    Page said that with global oil prices likely to stay depressed for the significant future a program like this could be increased to help not only the West, but other provinces as well.

    "Maybe we need to change that program and enrich that program so that when economies like Alberta or Saskatchewan or Newfoundland go through these periods, that we find ways to give them assistance," he said.

    Béland said the formulas for other federal programs could also be adjusted to help provinces in a downturn by providing higher health and social transfers and investments.

    "The federal government could help Alberta in certain ways, investments in infrastructure, helping them in terms of diversifying the economy. They can do a lot to help Alberta and Saskatchewan but not through equalization," he said.

    That is not to say that Béland is completely against tweaking the equalization program but rather that he believes updating it should be left to experts and not politicians.

    Fixing equalization

    "We could try to isolate equalization from partisan politics and create a federal panel or permanent commission that will actually review the formula to have top economists and policy experts, non-partisan people who will sit at the table, review the equalization formula and make recommendations to government," he said.

    Béland said such a panel could be made a permanent fixture that would make recommendations every couple of years to better reflect changing economic circumstances.

    Tombe said he, too, isn't ready to give up on the program yet and that a commission could consider changing the equalization formula to scrap the limit on the transfer so that the formula itself decides how much money needs to be given to each province.

    "We could move to a system where there's an objective formula-based determination of how large the program is and needs to be," he said.

    #2
    Unanswered for so long I couldn't resist. I unblocked Chuck just long enough to read the article.

    Seems very few outside AB, and some in SK, will ever get it.
    We've had enough. It's more than equalization. Which is only ink on paper and can be rewritten or scrapped if people have the will.
    The whole thing flawed. And QC has special privileges regardless. Which is the flipping point!!!! Hydro sure gets a sweet deal.
    Don't follow the law, change it completely!!
    Rethink how to support the underemployed provinces. Start our own pension fund.
    We are headed towards a standard of living closer to the Maritimes otherwise.
    Inevitable result of being kept in our place. Everyone sharing but the 'ruling class'.
    We don't want in or out this time.
    We want the same deal as QC.
    The rest is buffalo chips.

    Comment


      #3
      According to Statistics Canada, Alberta's median household taxable income in 2015 was $93,835, the highest in the country, compared to Quebec's median of $59,822, one of the lowest.

      Comment


        #4
        Originally posted by chuckChuck View Post
        According to Statistics Canada, Alberta's median household taxable income in 2015 was $93,835, the highest in the country, compared to Quebec's median of $59,822, one of the lowest.
        SO? they need to get a job? Or a 2nd job like lots of people here..

        Comment


          #5
          Did you not see the map of GDP per capita and how high it was for resource rich states like ND, Texas and Alaska? Alberta and Saskatchewan have the same advantage. So your comments about getting a job or a second job are just plain ignorant.

          Comment


            #6
            Originally posted by chuckChuck View Post
            Did you not see the map of GDP per capita and how high it was for resource rich states like ND, Texas and Alaska? Alberta and Saskatchewan have the same advantage. So your comments about getting a job or a second job are just plain ignorant.
            So maybe the Quebecers need to move to where the work is?

            Comment


              #7
              Oh no, we can't move there if we're not bilingual. Why should they be able to move here?

              Comment


                #8
                Originally posted by chuckChuck View Post
                Did you not see the map of GDP per capita and how high it was for resource rich states like ND, Texas and Alaska? Alberta and Saskatchewan have the same advantage. So your comments about getting a job or a second job are just plain ignorant.
                But all the imagrants moved to where it's a better opportunity.
                So why can't the kebekers??

                Comment


                  #9
                  Because they will keep milking the cow till it dies..

                  Comment


                    #10
                    Originally posted by chuckChuck View Post
                    Did you not see the map of GDP per capita and how high it was for resource rich states like ND, Texas and Alaska? Alberta and Saskatchewan have the same advantage. So your comments about getting a job or a second job are just plain ignorant.
                    All the more reason to separate. Quebec is leaving their resources in the ground so they can collect more transfer payment and save them for when they separate.

                    Comment


                      #11
                      Originally posted by Partners View Post
                      SO? they need to get a job? Or a 2nd job like lots of people here..
                      For many Alberta families... Federal tax is the biggest single cost they must pay... progressive tax rates increase tax payable. Work harder... and take home less is the federal scam. It is bankrupting Alberta families... and Alberta small business... who have a heart ... and want their workers to survive. What a tread mill. Extraction by feds at a whole different level... here in Alberta. This is frankly depressing... and destroying young families.

                      Comment


                        #12
                        A fellow I used to work with came from Quebec and he said he was paid under the table.

                        Comment


                          #13
                          Chuck, so all this time you've been defending equalization, and telling us what an effective system it is when us taxpayers tell you how it is broken.

                          Now that your CBC claims it is broken, suddenly you agree that it is broken and needs to be fixed?

                          It sure is a good thing that we have the CBC to tell you what your opinion is.


                          And while the article makes it sound like the solution is so complicated, it is anything but.

                          The solution is that the largest net contributors will exit confederation, the remaining Socialists will discover that equalization isn't as much fun when it involves equalizing poverty and debt as opposed to someone else's hard earned tax dollars.

                          Comment


                            #14
                            Exactly Sum, the higher the taxes, the larger the underground economy.

                            Comment


                              #15
                              Originally posted by AlbertaFarmer5 View Post
                              Chuck, so all this time you've been defending equalization, and telling us what an effective system it is when us taxpayers tell you how it is broken.

                              Now that your CBC claims it is broken, suddenly you agree that it is broken and needs to be fixed?

                              It sure is a good thing that we have the CBC to tell you what your opinion is.


                              And while the article makes it sound like the solution is so complicated, it is anything but.

                              The solution is that the largest net contributors will exit confederation, the remaining Socialists will discover that equalization isn't as much fun when it involves equalizing poverty and debt as opposed to someone else's hard earned tax dollars.
                              By the way the points in the article are from economists at the U of C and U of Ottawa not the CBC.

                              Which taxpayers? You mean the right wing conservative ones in Alberta who elected government after government who squandered billions of dollars in potential public revenues from a one time finite resource? While Norway and Alaska built a sizable heritage fund based on their resource for a rainy day!

                              Norwegians and Alaskans were and are more fiscally responsible.

                              Good luck with your utopian vision for an independent oil state because it is a dream. Once the Conservatives are reelected suddenly it will be less desirable. The wexiteers will run against the Conservatives splitting the vote. That sounds like a way to win power again!
                              Last edited by chuckChuck; Nov 19, 2019, 11:45.

                              Comment

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