Equalization debate re-emerges ahead of finance ministers' meeting in Ottawa

Canada's long-simmering internal debate over how the federal government divvies up equalization payments among the provinces is expected to flare up yet again this week when the country's finance ministers get together for their twice-yearly gathering.

On the eve of Tuesday's meeting in Ottawa, finance ministers from some so-called "have" provinces — those that don't receive equalization payments, which are financed through federal tax revenue — say they very much intend to raise the issue, even though it's not on the official agenda.

Newfoundland and Labrador, Saskatchewan and Alberta are all promising to press Finance Minister Bill Morneau and their other provincial counterparts for changes.

They could, however, be told that they'll have to wait until 2024.

The federal government has been under fire in recent days for renewing the existing equalization formula for another five years despite strong objections from some provinces. The extension kicks in next year.

Equalization, based on a highly complex calculation, is designed to help poorer provincial governments provide public services that are reasonably comparable to those in other provinces.

The formula behind the transfers, which totalled nearly $19 billion this year, remains a divisive issue depending on whether a province receives money or nothing at all.

Six provinces split $18.96B

Newfoundland Finance Minister Tom Osborne said in an interview Monday that he had been urging Morneau to consider changes to a formula he argued has put the struggling economy of his province — and others — at a deep disadvantage.

For the 2018-19 fiscal year, the federal government transferred a total of $18.96 billion to six provinces — Quebec, Manitoba, Nova Scotia, New Brunswick, Ontario and Prince Edward Island. British Columbia, Alberta, Saskatchewan and Newfoundland didn't get anything in 2018-19 — and haven't for years.

Quebec easily received the biggest share with a transfer this year of more than $11.7 billion, which is more than 60 per cent of the overall equalization envelope. Manitoba's share was the second largest this year at just under $2.04 billion.

Osborne told The Canadian Press that equalization appears to be one of the only areas where the federation's partners refuse to budge.

He believes provinces would come to Newfoundland's aid on other challenges — but not this one.

"On almost any other issue that's put on the table, we work as nation," he said. "But when you're talking about equalization, you have... 10 provinces who each want to protect their own turf."

Osborne's province has been hit hard in recent years by the commodity slump. He's been calling for the formula to reflect both revenue and expenditures, since his sparsely populated province faces far higher costs when delivering services.

"I would challenge anybody in this country to say that, certainly over the last two years, that this province was a 'have province,"' Osborne said. "The spirit and the intent of the constitutional obligation for equalization, I don't believe, is being lived up to."

Equalization not widely discussed: Harpauer

Saskatchewan Finance Minister Donna Harpauer said Monday that she'll once again call on Morneau and her counterparts to make changes to the formula, even though the federal legislation containing the extension has already received royal assent.

Last week, Saskatchewan Premier Scott Moe put forward a plan to change equalization, which he called an "incredibly inequitable and flawed program." It has failed for years to offer support for his province despite a steep economic downturn in its resource sector, he argued.

Moe proposed a "50-50" formula that would see half of equalization continue to be calculated and distributed as it is now. The other half would be distributed on a per-capita basis.

The equalization issue came up in December, the last time the federation's finance ministers sat down together. However, it didn't get much attention, Harpauer said.

"Very little time was given to the equalization discussion in December and I was basically dismissed and asked to put it all in a letter, which I did."

A challenging discussion

She said she only learned Ottawa was leaning towards maintaining the current formula when she received Morneau's response following the federal budget, which made reference to the renewal.

"That's all disappointing, but it's not enacted until 2019," she said of the extension. "It's going to be a challenging discussion, to be sure, because not all provinces are going to be in agreement."

A spokesman for Morneau said Ottawa spent more than a year holding "intense" talks with provinces and territories on how best to move forward on equalization. Daniel Lauzon described the discussions on the issue last December as "in depth."

In the effort to change equalization, Harpauer and Osborne will likely have support Tuesday from another "have" province: Alberta.

"I'm going to be doing that as loudly as I can," Alberta Finance Minister Joe Ceci said last week when asked whether he would bring it up in Ottawa.

"Albertans have not seen the benefits of this program for decades, while they have contributed mightily to the federal coffers in this country."