Executive Summary

Assessing the impact

The Panel’s recommendations result in similar fiscal capacities for all receiving provinces after Equalization.

The Panel understands that the best ideas can sound good in principle, but what people really want to know is: What’s the bottom line? Will the Panel’s recommendations have an impact on whether or not a province qualifies for Equalization, how much it would receive, and how that compares with what it currently receives?

The Panel has done a thorough technical analysis to provide a snapshot of the combined financial impact of its recommendations. It’s important to keep in mind that it’s just that, a snapshot. Actual numbers and allocations can and will vary depending on circumstances at the time.

The Panel’s projections show what the allocation to the various provinces would be in 2007–08, the first year that our recommendations could be implemented. Two comparisons are shown: one with the amounts announced for 2006–07 by the federal Minister of Finance in November 2005, and one with a base case that reflects a formula-driven approach similar to what was in place before 2004.

The analysis shows that:

• Consistent with the purpose of Equalization, the Panel’s recommendations result in similar fiscal capacities among all receiving provinces after Equalization.

Provincial Fiscal Capacity Before and After Equalization (using the Panel’s formula) for 2007–08

• The total cost of the Equalization program proposed by the Panel is more than the current program. That’s primarily because of the move to a 10-province standard and because the latest data reflect higher oil and gas prices.
• In the Panel’s view, using a formula-to-formula comparison gives the most accurate picture of the potential impact of their recommendations. In this case, because of its higher fiscal capacity, British Columbia would not be eligible for Equalization under the Panel’s recommended formula and would be entitled to only a small amount of funding under the previous formula. Newfoundland and Labrador would receive less under the Panel’s approach, primarily because of the Panel’s recommendation that no receiving province should have a higher fiscal capacity after Equalization than the lowest non-receiving province. This cap affects Newfoundland and Labrador’s entitlement to Equalization because its fiscal capacity is greater than Ontario’s.
• If you compare each province’s allocation under the Panel’s recommendations to the amounts announced under the New Framework in 2006–07, two receiving provinces receive less while the others receive more. This is primarily because of the return to a formula-driven approach which puts all provinces on a similar footing.

Provincial Fiscal Capacity Before and After Equalization for 2007–08¹

Formula-to-Formula Comparison for 2007–08

Note: Totals may not add due to rounding.

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