Achieving a National Purpose
Putting Equalization Back on Track

Expert Panel on Equalization and
Territorial Formula Financing
May 2006

Table of contents

Letter

Acknowledgements

Executive Summary

• Achieving a national purpose
• Assessing Equalization
• Putting Equalization back on track
• Assessing the impact
• Benefits of the Panel’s recommendations
• Concluding comments

Examining Equalization

• Completing a comprehensive review
• Consulting across the country
• Reporting to Canadians

Equalization 101

• The essence of Equalization
• Tracing the history
• Equalization: Then and Now
• Assessing Equalization

Identifying the Issues

• Improve the Equalization program, don’t abandon it
• Return to a principle-based, formula-driven approach
• Replace the concept of a fixed pool included in the New Framework
• Introduce a 10-province standard
• Find a better way of dealing with resource revenues
• Addressing provincial expenditure needs in Equalization may add too
  much complexity
• Provide more stability and predictability
• Improve the current process rather than introducing a permanent
  independent body
• Improve transparency, awareness, and understanding of Equalization

Putting Equalization Back on Track

• Recommendations
• Improving the Equalization formula
• Striking a balance on the treatment of resource revenues
• Improving predictability and stability
• Assessing Equalization
• Improving governance and transparency

Assessing the Impact

• Benefits of the Panel’s recommendations

Concluding Comments

Annex 1 – List of Canadians Consulted

• Roundtable and Academic Workshop Participants
• Government Representatives
• Others Who Were Consulted or Prepared Submissions

Annex 2 – History of the Equalization Standard

Annex 3 – Expenditure Need

Annex 4 – Representative Tax System Simplification

• Should the RTS be retained?
• Can the measure of revenue-raising capacity within the RTS be simplified?

Annex 5 – Property Tax

• A Brief History
• Three alternative bases for the property tax
• Testing the stratified market value approach
• The Panel’s assessment of the residential property tax base
• The Panel’s assessment of the commercial-industrial-farm property bases

Annex 6 – User Fees

• A brief history of user fees and Equalization: 1982–1999
• Should user fees be equalized?
• How could user fees be equalized?
• The Panel’s assessment

Annex 7 – Resource Revenues

• Background: the importance of natural resource revenues in Canada
• What is the appropriate inclusion rate for natural resource revenues?
• How should the capacity to raise resource revenues be measured?
• How should Equalization deal with the volatility of resource revenues?

Annex 8 – Improving Predictability and Stability

• The estimation and payment system
• Lack of a smoothing mechanism

Annex 9 – Evidence-based Indicators of Fiscal Disparities

• The Panel’s assessment

Annex 10 – Illustrative Financial Impacts of the Panel’s Recommendations

• Equalization entitlements under the Panel’s formula: 2007–08
• Selecting a base case for comparison
• Assessing the fiscal impacts
• Robustness of results with respect to oil and gas prices
• Impact of individual measures
• A further explanation of the fiscal capacity cap

Bibliography

Reports are available from the Distribution Centre
Department of Finance Canada
Room P-135, West Tower
300 Laurier Avenue West
Ottawa, Ontario K1A 0G5

Tel: (613) 995-2855
Fax: (613) 996-0518

Also on the Internet at: www.eqtff-pfft.ca

Cette publication est également disponible en français.

Cat. No.: F2-176/2006E
ISBN: 0-662-42568-5

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