Equal­iza­tion for­mula up for de­bate again Prop­erty val­ues could af­fect twicea-decade up­date

Calgary Herald - - CANADA - ANDY BLATCH­FORD

• A decades-old sore spot in the Cana­dian fed­er­a­tion is days away from yet an­other flare-up as the coun­try’s fi­nance min­is­ters pre­pare to dis­cuss po­ten­tial tweaks to the for­mula be­hind equal­iza­tion pay­ments.

Bri­tish Columbia Fi­nance Min­is­ter Ca­role James said in an in­ter­view that the fed­eral gov­ern­ment is propos­ing a change to in­clude non-res­i­den­tial prop­erty val­ues as part of the com­plex cal­cu­la­tion.

The ad­just­ment would likely make it more dif­fi­cult for provinces with prop­erty val­ues well above the na­tional aver­age — such as B.C. and On­tario — to qual­ify as re­cip­i­ents of equal­iza­tion pay­ments from Ot­tawa.

Equal­iza­tion is de­signed to help poorer provin­cial gov­ern­ments pro­vide pub­lic ser­vices that are rea­son­ably com­pa­ra­ble to those in other provinces. The pro­gram is com­ing due for its twice-adecade up­date be­fore the 2019-20 fis­cal year — and since it’s a fed­eral pro­gram, Ot­tawa can make uni­lat­eral changes.

Un­der the cur­rent for­mula, the provinces that re­ceived shares of this year’s $18-bil­lion equal­iza­tion en­ve­lope — the so-called “havenot” provinces — in­cluded Que­bec, Man­i­toba, Nova Sco­tia, New Brunswick, Prince Ed­ward Is­land and On­tario. Que­bec eas­ily took in the largest share in 201718 at $11 bil­lion. The other provinces — B.C., Al­berta, Saskatchewan and New­found­land and Labrador — did not re­ceive any­thing.

The B.C. gov­ern­ment warns that in­clud­ing non­res­i­den­tial prop­erty val­ues in the for­mula would make it more dif­fi­cult for the prov­ince to qual­ify for pay­ments in the event of an eco­nomic down­turn.

The is­sue is a top con­cern for James ahead of meet­ings Sun­day and Mon­day in Ot­tawa with her fed­eral, provin­cial and ter­ri­to­rial coun­ter­parts.

James said the up­date would mean the for­mula would deem B.C. to have un­tapped ca­pac­ity to gen­er­ate ad­di­tional prop­erty tax rev­enue. She ar­gued it’s based on the as­sump­tion B.C. mu­nic­i­pal­i­ties could raise tax rates on prop­er­ties, which have seen their val­ues soar in re­cent years.

B.C. isn’t the only prov­ince with con­cerns about the pro­posal.

“When it comes to the po­ten­tial of gen­er­at­ing more rev­enue from the high prices of real es­tate, which is what Bri­tish Columbia is ar­gu­ing, we don’t have the ca­pac­ity to squeeze out more money from the sys­tem,” On­tario Fi­nance Min­is­ter Charles Sousa said in an in­ter­view.

Sousa said his prov­ince has low­ered its rev­enue ex­pec­ta­tions for the real es­tate sec­tor af­ter the in­tro­duc­tion of mea­sures to cool red-hot mar­kets, such as Toronto.

On­tario has been re­ceiv­ing equal­iza­tion pay­ments since 2009 as a have-not prov­ince. But af­ter im­prove­ments to its econ­omy in re­cent years, it’s ex­pected to re­turn to “have” sta­tus some time in the next cou­ple of years.

A se­nior On­tario gov­ern­ment of­fi­cial, who spoke on con­di­tion of anonymity, said the pro­posed change could be the dif­fer­ence be­tween whether it col­lects equal­iza­tion funds or not.

“Our con­cern is that if the last years taught us any­thing, it’s that prop­erty val­ues are volatile in both Bri­tish Columbia and in On­tario,” said the of­fi­cial, who would pre­fer a phased-in ap­proach.

The fu­ture of the equal­iza­tion for­mula will also be a pri­or­ity for New­found­land and Labrador at the meet­ings. The prov­ince’s econ­omy, hit hard in re­cent years by the com­mod­ity slump, still failed to qual­ify for equal­iza­tion pay­ments this year and Fi­nance Min­is­ter Tom Os­borne doesn’t ex­pect it to next year, ei­ther.

Os­borne said in an in­ter­view that the cur­rent for­mula only ad­dresses rev­enue and doesn’t ac­count for the dif­fer­ent costs of ser­vices be­tween provinces. He says his prov­ince, with its small pop­u­la­tion, faces the high­est costs of ser­vices in Canada.


B.C.’s Ca­role James and other fi­nance min­is­ters will gather this week to dis­cuss tweaks to equal­iza­tion pay­ments.


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