SPECIAL SERIES

Special series to focus on equalization and its impact on Cape Breton

John R. MacDonald introduces an eight-part series on equalization fairness.

It is very rare to have an opportunity to try to set out the fundamental issues involved in the on-going discussion of equalization transfers in Cape Breton/Unama’ki. Thank you, then, to the Cape Breton Post which has kindly offered our organization, Nova Scotians for Equalization Fairness, the opportunity to do so in an eight-part series of articles.

The equalization program is so large in value and has such a potentially important impact on our region, despite the complexities in the debate, it seems important to attempt a comprehensive overview.

Although I have benefitted from the assistance of a number of individuals in the preparation of this series of articles, particularly Charles Sampson, any errors occurring are my sole responsibility.

Part 1: The Purpose of Equalization Transfers in a Federal System: Nova Scotia’s Perspective

In a decentralized federation, such as Canada, the federal, provincial and municipal levels of government, along with the First Nation governments, are responsible for providing vital services to their residents.

The Canadian Constitution sets out the formal division of powers and service responsibilities for the federal and provincial governments, and the rights of Canada’s aboriginal people. As well, the Constitution (section 92, (8)), establishes the fact that provincial governments in Canada have the authority over and responsibility for municipal governments and municipal or local public services and infrastructure.

If, as in the Canadian federation, there is a commitment to ensure that all citizens, wherever they live in the country, are entitled to a reasonably comparable level of public services at reasonably comparable levels of taxation (section 36 (2)), then financial transfers are essential to enable poorer areas/communities or regions of the country to be able to achieve this national standard. Equalization transfers enable jurisdictions to provide a higher standard of public services to their citizens for a lower tax burden than would otherwise be possible and the transfers are very consequential.

Nova Scotia, for example, is considered a “have-not” province with fiscal capacity below the national average and, therefore, receives an annual equalization transfer from the federal government. In 2016-17, Nova Scotia received more than $1.73 billion in equalization funding from the federal government, which represented approximately 15.4 per cent of total provincial revenue in that year.

In order to put this in context, this sum of money is more than the provincial government spent in total on education and early childhood development in that year. It is a very big number!

Not surprisingly, therefore, Nova Scotia’s provincial governments have consistently been strong advocates for the national equalization program.

In 2006, for example, the government of Nova Scotia made the case for a stronger national equalization program in a document entitled: “A Sustainable Approach to Equalization: Nova Scotia’s Perspective.”

In the document, Nova Scotia quotes section 36 (2) and then asserts:

“[e]qualization is the only mechanism in the federation today that is intended to assure Canadians of this right. It is therefore critical that, as a nation, we have the proper mechanism in place to deliver upon this commitment.”

Note the fact that, in Nova Scotia’s view, equalization transfers are a right of all Canadians!

Since 2006, the official position of successive provincial governments in Nova Scotia has not altered with respect to the significance of equalization transfers.

Indeed, Nova Scotia not only receives equalization but sought and received protection from any reduction in federal equalization entitlements that would be associated with the province’s offshore oil and natural gas royalties. This was what some commentators at the time referred to as equalization outside of equalization.

This protection was provided even though Nova Scotia argued that all natural resource revenues needed to be included in the equalization calculation because to exclude such revenues “... would seriously undermine the spirit and intent of the Equalization program by significantly understating the revenues of certain resource-rich provinces. This, in turn, would significantly reduce equalized revenues and would lead to increased disparity in the levels of public services in the receiving provinces, a result that would be at odds with the constitutional principle of section 36 (2).”

In short, Nova Scotia understands and promotes the equalization principle and commitment as set out in section 36 of the Canadian Constitution.

NEXT WEEK: The legal commitments: What do they mean?

Nova Scotia, for example, is considered a “have-not” province with fiscal capacity below the national average and, therefore, receives an annual equalization transfer from the federal government.