Is Canada’s Equalization Payment Formula Fair to All Provinces? (Part 1)

Each year, in mid-December, the federal government releases its calculation for what each province is entitled to receive as equalization. The numbers show Alberta’s recession lowered its ability to raise revenues. They show Ontario has graduated to “have” status, but (interestingly) will still receive equalization payments. They also set the stage for the upcoming Federal-Provincial-Territorial discussions over the soon-to-expire formula. And on top of all this, budget challenges in oil rich provinces of Alberta, Saskatchewan, and Newfoundland and Labrador put equalization payments front and centre in provincial political debates, where misleading claims are unfortunately all too common. Equalization is complicated, but the basics are fairly straightforward. Equalization is a federal program that transfers federal funds to provinces with below average capacities to raise revenues. Provinces with stronger economies, and with high income households and businesses, raise more revenue for any given tax rate than provinces with lower incomes. This is true not just of personal and business income taxes, but also of sales and property taxes. Importantly, resource revenues like oil and gas royalties also go into the formula, but only 50% count in the formula to preserve the incentive to develop a province’s resources. With all this in mind, equalization asks a simple question: How much revenue would each province raise with tax rates equal to the national average? This is a province’s “fiscal capacity”. If a province would raise less than the average amount, per person, the federal government tops it up. The speaker will elaborate and offer thoughts on the future of equalization. Speaker: Dr. Trevor Tombe Dr. Tombe is an Associate Professor of Economics at the University of Calgary and a Research Fellow at The School of Public Policy. Prior to joining the University of Calgary in 2012, he was an Assistant Professor of Economics at Wilfrid Laurier University. He received his BBA (Finance) from Simon Fraser University, and his MA and PhD (Economics) from the University of Toronto. His research focuses on a broad range of topics from international trade and public finance to energy and environmental policy. Currently his main focus is on economic integration in Canada, from estimating the size and consequences of interprovincial trade costs to exploring the implications of fiscal transfers between provinces (such as through equalization). In addition to his academic work, he regularly promotes the public understanding of economics and policy issues through his numerous public policy papers through the School, active social media presence, and general interest writings in various media outlets, including regular contributions to CBC Calgary. Moderator: Michelle Day Date: Thursday, March 28, 2019 Time: Doors open 11:30 am, Presentation 12 noon, buffet lunch 12:30 pm, Q&A 1 – 1:30 pm Location: Royal Canadian Legion (north door) 324 Mayor Magrath Dr. S. Lethbridge Cost: $14 buffet lunch with dessert/coffee/tea/juice or $2 coffee/tea/juice. RSVP not required