Equalization changes could benefit N.L. most

province’s resource revenue were included in the formula and found that provinces with fewer natural resource revenues, like Prince Edward Island and Nova Scotia, would benefit.

Another tweak the PBO considered would remove a clawback for provinces receiving equalization funds. Currently, a province can’t end up with a better fiscal capacity due to equalization money than a “have” province. Removing that cap would also be a boon to Newfoundland and “would benefit Quebec more than any other by far,” Tombe wrote.

The PBO also projected how the program would react if the overall cap on funding were removed. Right now, it’s tied to the country’s GDP — a measure brought in by the Harper government to stop the payments from skyrocketing while inequality among provinces grew.

In recent years, as recessions hit Alberta and Saskatchewan, inequality has flattened and equalization payments have been lower. As the payments sunk below the cap, the government spent the leftover money through “adjustment payments.” Controversially, Ontario was the big beneficiary of this decision, receiving $963 million in equalization money, despite becoming a “have” province.

With the removal of the cap, the PBO projects the effect on individual provinces will be small, but the government should expect the equalization program to grow substantially over the long term. By 2091, the total cost of the program could be 40 per cent higher without the cap.

Since the economy dipped in Newfoundland and Labrador, the lack of assistance from the equalization program has vexed its politicians.

“We’re certainly not a have province,” Newfoundland and Labrador Finance Minister Tom Osborne told The Canadian Press in December.

The main culprit is the three-year moving average the formula uses to determine a province’s ability to generate revenue. The program, though, isn’t designed to alleviate the effects of a recession, but to even out structural differences between provinces.

The moving average deliberately takes the focus off temporary trouble in the economy and gives a longterm picture of a province’s ability to provide services.