Putting Equalization back on track

Assessing Equalization

The Panel’s mandate specifically asks for advice on “evidence-based measures of the evolution of fiscal disparities among provinces”. Those measures should help address the key question: does Equalization reduce financial disparities among provinces such that provincial governments are able to provide reasonably comparable services at reasonably comparable levels of taxes?

In terms of evidence-based measures for the Equalization program, the Panel recommends that:

The Panel considered a range of possible evidence-based measures for assessing the impact of Equalization over time.

Measures for Equalization should be limited to broad-based indicators of fiscal disparities pre- and post-Equalization. Such measures are consistent with the Panel’s view of the purpose of the Equalization program and with the respective accountabilities of the federal and provincial governments in our federal system.

While some may prefer more comprehensive measures and reporting,
the Panel believes that measures for Equalization should be limited to broad-based indicators of fiscal disparities pre- and post-Equalization. Such measures are consistent with the Panel’s view of the purpose of the Equalization program and with the respective accountabilities of the federal and provincial governments in our federal system.

Specifically, the Panel recommends that the federal government should 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 proportion of provincial revenues and program expenditures.
  
• Equalization payments as a proportion of national GDP, federal revenues, and federal spending.
  
• Other measures of trends in fiscal disparities including changes in tax effort, fiscal capacity, and program spending among provinces.

The Panel understands the desire by some to see more information about outcomes across the various provinces. However, as noted above, we believe that responsibility lies with the provinces.

Additional information about evidence-based measures of disparities is included in Annex 9.

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