The Panel’s recommendation for a 10-province standard would return Equalization to a formula and
rules-based approach, thereby automatically reducing fiscal disparities to a level that the Panel believes is acceptable. In this respect, the return to a formula (compared with the arbitrariness of the New Framework funding levels) reduces the need for evidence-based indicators of fiscal disparities (in the sense that a furnace fitted with a thermostat reduces the need for its owner to take regular temperature readings).
No formula, however, is perfect, and having benchmarks to periodically assess its adequacy would improve public accountability and transparency. Moreover, if the federal government decides it cannot afford the
10-province standard, Canadians should have benchmarks against which they can assess the adequacy of the lower standard.
The Panel, therefore, recommends that the federal government collect and report annually to Parliament on several key indicators, including:
- Per capita fiscal capacity of provinces, pre- and post-Equalization, on an annual and multi-year basis.
- Equalization payments to receiving provinces as a portion of provincial revenues and program expenditures.
- Equalization payments as a proportion of Canada’s Gross Domestic Product, federal revenues and
- Other measures of trends in fiscal disparities including changes in tax effort, fiscal capacity and program spending among the provinces.