FACT 1: Canada’s equalization regime was originally created to even out the quality of public services in each province.
Equalization payments were first introduced in Canada in 1957, and were originally designed to allow provinces with a smaller tax revenue to provide the same level of public services as those with a larger revenue. Practically speaking, the system takes revenue from taxes paid by all Canadians to the federal government and transfers a portion of that money to provinces whose revenues are below the national average. Adjusted for inflation, these transfers have increased from $1 billion in 1957 when they began to $17 billion today.
FACT 2: Alberta is the largest per capita contributor to equalization.
While a portion of every Albertan’s taxes goes toward equalization every year, Alberta has not received an equalization payment from the federal government since 1963. Saskatchewan and Newfoundland and Labrador have likewise contributed without receiving payments since 2008, while British Columbia has gone even longer as a net contributor to the program.
Residents of provinces who do not receive any payments often pay the most per capita for equalization. From 2004-2008, Albertans were the largest per capita contributors, paying an average of $530 per person per year. British Columbians were also among the largest contributors, and paid an average of $356 per person per year. Quebecers paid an average of $298 per person per year in the same years. Quebec was also a significant beneficiary of the payments, however, receiving $777 per capita in those years, for a net benefit of $479 per person per year from 2004-2008.
In 2015, Quebec received a total of $9.5 billion in equalization payments, and Ontario received $2.4 billion. Nova Scotia, New Brunswick, and Manitoba received $1.7 billion each, while PEI received $361 million. Alberta, Saskatchewan, British Columbia, and Newfoundland and Labrador will not receive equalization payments this year.
FACT 3: Equalization is only one of the ways Alberta taxpayers help other provincial governments.
According to an Alberta Finance publication, from 2006-2011 the net contribution of Albertans to federal revenues was between $15-$21 billion per year, or an average of $4,000- $5,000 per person per year. In some years, as in 2009, every other province was a net recipient of federal funds, dividing up the net contributions of Albertans.
While equalization transfers only make up 6.6% of the $240 billion the federal government provides in transfers to provinces per year, equalization payments are unique because 6 or 7 provinces receive 100% of the money, while the rest receive nothing.
FACT 4: The last changes to the equalization system were made in 2007 and 2009. It will come under review again in 2019.
In 2007, the federal government implemented a formula system for equalization payments, which they changed in 2009 to limit the total amount which could be paid out to provinces. As a result of the 2007 update, Quebec’s portion of the total payments has increased. In 2013-2014, Quebec received 48.6% of all equalization payments. In 2013, the federal government passed legislation that authorizes equalization payments to proceed under the current system until 2019.
Canada. Library of Parliament. Economics, Resources and International Affairs Division, Parliamentary Information and Research Service. Canda’s Equalization Formula by Édison Roy-César. Publication No. 2008-20-E. Revised edition 2013. http://www.lop.parl.gc.ca/content/lop/ResearchPublications/2008-20-e.pdf (accessed February 10, 2016).
Department of Finance Canada. “Federal Support to Provinces and Territories.” www.fin.gc.ca. http://www.fin.gc.ca/fedprov/mtp-eng.asp (accessed February 10, 2016).
McMillan, Melville L.. “Alberta and ‘equalization’: separating fact from fiction or sorting out some implications and options in Canadian fiscal federalism.” Information Bulletin, no. 155 (2012). https://business.ualberta.ca/Centres/~/media/business/Centres/WCER/Documents/Publications/155ElectronicApril2final.pdf (accessed February 10, 2016).