"Equalization, my friends, is a federal program. Provinces do not cut cheques to other provinces in Canada. Canadians pay their federal taxes to the Government of Canada, and the federal government uses that funding for federal programs," Mr. Flaherty chastised in his speech.
(Equalization, enshrined in the Constitution, is a federal program meant to give poorer provinces enough money to provide their populations with the same services as rich provinces. Transfer payments are for all provinces and are usually meant to target specific social purposes. For now, they are based on a combination of population and fiscal capacity.)
The Tories also promised during the election campaign to make equalization payments based on the fiscal capacity of all 10 provinces, not the five provinces of today's funding. Such a promise would have the effect of enriching the program. However, Mr. Flaherty was silent on the topic yesterday.
Still, Mr. Flaherty's speech made it clear that solving the fiscal imbalance has become his government's main focus, now that the government's first five key priorities have been dealt with, either through the budget or legislation.
Economist André Plourde said Mr. Flaherty has opened a can of worms. Once Ottawa excludes non-renewable natural resources from the equalization formula, what's to stop Quebec from arguing that hydro-electricity revenues should be excluded too, he asks.
"What is the foundation of equalization? Why include some revenues and not others?" says Mr. Plourde, chair of economics for the University of Alberta. "You're looking at the fiscal capacity of provinces, and this [natural resource revenue] is part of fiscal capacity."
(Equalization, enshrined in the Constitution, is a federal program meant to give poorer provinces enough money to provide their populations with the same services as rich provinces. Transfer payments are for all provinces and are usually meant to target specific social purposes. For now, they are based on a combination of population and fiscal capacity.)
The Tories also promised during the election campaign to make equalization payments based on the fiscal capacity of all 10 provinces, not the five provinces of today's funding. Such a promise would have the effect of enriching the program. However, Mr. Flaherty was silent on the topic yesterday.
Still, Mr. Flaherty's speech made it clear that solving the fiscal imbalance has become his government's main focus, now that the government's first five key priorities have been dealt with, either through the budget or legislation.
Economist André Plourde said Mr. Flaherty has opened a can of worms. Once Ottawa excludes non-renewable natural resources from the equalization formula, what's to stop Quebec from arguing that hydro-electricity revenues should be excluded too, he asks.
"What is the foundation of equalization? Why include some revenues and not others?" says Mr. Plourde, chair of economics for the University of Alberta. "You're looking at the fiscal capacity of provinces, and this [natural resource revenue] is part of fiscal capacity."
"This, I think, takes us another step further from a philosophical commitment to a reality," Lorne Calvert said in Gimli, Man., where premiers of the western provinces and territories began their three-day meeting yesterday. "In fact, I would argue the policy framework is now set. It's been clearly enunciated by the Minister of Finance and so now let's move on to the implementation."
The western leaders will be joined later in the week by Ontario Premier Dalton McGuinty, Quebec Premier Jean Charest, the Canadian and U.S. ambassadors, and some state governors from Mexico. Mr. McGuinty, Mr. Charest and Alberta Premier Ralph Klein, who recently threatened to withdraw from equalization, had been expected to use the occasion to reiterate their objections to the equalization program, possibly creating rifts with other provinces.
Mr. Flaherty's speech yesterday may have muted some of their objections so that the group is more united by the time Prime Minister Stephen Harper drops in on the meeting Wednesday night. Mr. Klein said yesterday he was heartened by Mr. Flaherty's comments.
Mr. McGuinty said he wanted more information.
But New Brunswick, Manitoba, Prince Edward Island and, most notably, Quebec may still have some concerns. Those provinces are not rich in non-renewable commodities and would not benefit from an equalization formula that excludes resource revenue.
Manitoba Premier Gary Doer, who is hosting the meeting in Gimli, a small fishing and tourist village 90 kilometres north of Winnipeg, would not comment on Mr. Flaherty's speech yesterday. He said it would be premature and "unseemly" to discuss the issue until a final federal report on the subject is issued next week.
Excluding natural resources from equalization "was a platform commitment," Mr. Flaherty said after his speech to the Board of Trade.
"We try to keep our commitments as a government," he said. "We've got a pretty good track record. That's our intention."
At the same time as reforming the $11-billion-a-year equalization program, Ottawa will negotiate increasing per capita payments to all provinces to help them pay for postsecondary education and infrastructure, Mr. Flaherty said.
"In that way, large provinces with larger populations don't suffer, relatively speaking," Mr. Flaherty said, clearly referring to Ontario.
The Conservatives hope to have a deal on equalization before the next budget this winter, and before the next federal election. Talks over who pays for what are expected to continue through the summer, with a meeting of federal and provincial finance ministers in June and premiers meetings in Edmonton and St. John's, in June and July, respectively.
Negotiations will focus on per capita transfers for health, education and infrastructure, Mr. Flaherty said, and not on equalization.
The western leaders will be joined later in the week by Ontario Premier Dalton McGuinty, Quebec Premier Jean Charest, the Canadian and U.S. ambassadors, and some state governors from Mexico. Mr. McGuinty, Mr. Charest and Alberta Premier Ralph Klein, who recently threatened to withdraw from equalization, had been expected to use the occasion to reiterate their objections to the equalization program, possibly creating rifts with other provinces.
Mr. Flaherty's speech yesterday may have muted some of their objections so that the group is more united by the time Prime Minister Stephen Harper drops in on the meeting Wednesday night. Mr. Klein said yesterday he was heartened by Mr. Flaherty's comments.
Mr. McGuinty said he wanted more information.
But New Brunswick, Manitoba, Prince Edward Island and, most notably, Quebec may still have some concerns. Those provinces are not rich in non-renewable commodities and would not benefit from an equalization formula that excludes resource revenue.
Manitoba Premier Gary Doer, who is hosting the meeting in Gimli, a small fishing and tourist village 90 kilometres north of Winnipeg, would not comment on Mr. Flaherty's speech yesterday. He said it would be premature and "unseemly" to discuss the issue until a final federal report on the subject is issued next week.
Excluding natural resources from equalization "was a platform commitment," Mr. Flaherty said after his speech to the Board of Trade.
"We try to keep our commitments as a government," he said. "We've got a pretty good track record. That's our intention."
At the same time as reforming the $11-billion-a-year equalization program, Ottawa will negotiate increasing per capita payments to all provinces to help them pay for postsecondary education and infrastructure, Mr. Flaherty said.
"In that way, large provinces with larger populations don't suffer, relatively speaking," Mr. Flaherty said, clearly referring to Ontario.
The Conservatives hope to have a deal on equalization before the next budget this winter, and before the next federal election. Talks over who pays for what are expected to continue through the summer, with a meeting of federal and provincial finance ministers in June and premiers meetings in Edmonton and St. John's, in June and July, respectively.
Negotiations will focus on per capita transfers for health, education and infrastructure, Mr. Flaherty said, and not on equalization.
Flaherty moves to defuse rift with provinces
Published by Ceser.
Federal Finance Minister Jim Flaherty moved to placate Ontario and Alberta on the eve of a potentially acrimonious premiers conference by indicating new federal-provincial funding agreements will not cost either province money.
Mr. Flaherty said yesterday his government is inclined, as the Tories said during the election campaign, to exclude natural resource revenue from the equalization program.
Both Alberta and Ontario have been livid in recent weeks about the idea of enriching the equalization program by including oil revenues in the formula. Their taxpayers pay into the equalization pot, but receive no equalization money in return because of the relative wealth of their respective provinces.
Mr. Flaherty also said in a speech to the Toronto Board of Trade that he would be prepared to boost per capita transfers to the provinces for infrastructure and postsecondary education. Ontario, as the most populous province, would benefit the most from this proposal.
The Premier of Saskatchewan, which stands to benefit handsomely from the exclusion of natural resources from equalization, said he was "encouraged" by Mr. Flaherty's remarks.
Mr. Flaherty said yesterday his government is inclined, as the Tories said during the election campaign, to exclude natural resource revenue from the equalization program.
Both Alberta and Ontario have been livid in recent weeks about the idea of enriching the equalization program by including oil revenues in the formula. Their taxpayers pay into the equalization pot, but receive no equalization money in return because of the relative wealth of their respective provinces.
Mr. Flaherty also said in a speech to the Toronto Board of Trade that he would be prepared to boost per capita transfers to the provinces for infrastructure and postsecondary education. Ontario, as the most populous province, would benefit the most from this proposal.
The Premier of Saskatchewan, which stands to benefit handsomely from the exclusion of natural resources from equalization, said he was "encouraged" by Mr. Flaherty's remarks.