Key Issues for the Review of Equalization and Territorial Formula Financing

ANNEX A: Expert Panel on Equalization and Territorial Formula Financing Terms of Reference

(as released at the October 24, 2004 First Ministers' Meeting)

Given:

• That the Constitution commits the Government of Canada to "the principle of making equalization payments to ensure that provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation."
• That the Government of Canada is committed to ensuring that citizens living in the Yukon, Northwest Territories and Nunavut have access to basic services, reasonably comparable to those available to other Canadians, and taking into account that Territorial Governments face higher costs in delivering services in the North, but have a more limited ability to raise revenues.
• That the Government of Canada has decided to put in place a new fiscal framework for Equalization and Territorial Formula Financing (TFF) that will need to be re-evaluated at regular intervals to reflect the evolution in fiscal disparities among provinces and in the costs of providing services in the North.
• That the Equalization program has been in effect since 1957 and Territorial Formula Financing since 1985 and have been largely successful in providing support while reducing disparities.
• That in that time, these programs have not benefited from a thorough independent review; an Expert Panel on Equalization and Territorial Formula Financing is established.

The Expert Panel will be tasked to examine and provide advice to the Government of Canada on:

• The allocation among provinces of the annual Equalization allotment set in legislation, including consideration of the current Representative Tax System approach, the treatment of various provincial and local revenue sources, such as natural resources, property taxes and user fees, other approaches to measuring fiscal capacity including those based on macro-economic variables, and if appropriate, indicators of expenditure needs. Such allocation to be evidence-based, and derived from a formula.
• The allocation among territories of the annual TFF allotment set in legislation, including consideration of the current gross expenditure base approach, the treatment of various territorial revenue sources, such as natural resources, the measurement of territorial tax effort, other approaches to measuring fiscal capacity including those based on macro-economic variables, and if appropriate alternative indicators of expenditure needs. Such allocation to be evidence-based, and derived from a formula.
• Mechanisms which would ensure that payments for programs to provinces and territories are stable and predictable, to assist in sound fiscal planning.
• Evidence-based aggregate measures of the evolution in fiscal disparities among provinces, and of the evolution of the costs of providing services in the North to provide information to governments and citizens and assist in future re-evaluations of the overall level of federal support for Equalization and TFF.
• Whether to have, on a permanent basis, an independent body, to provide ongoing advice to the Government of Canada on the allocation of Equalization and Territorial funding within the framework of legislated levels, as well as conduct periodic reviews of provincial disparities and costs of providing services in the North. If it is recommended to have an independent body, the Expert Panel is to provide advice on mandate, membership and mode of functioning of that body.

In carrying out its mandate, the Expert Panel will solicit the views of provincial and territorial governments, the academic community, research institutes and the Canadian public on these issues and consider any other relevant issues raised in these discussions. The Expert Panel should, where possible, work with provincial and territorial governments to ensure its work take into consideration their fiscal planning and accounting concerns.

In elaborating its recommendations, the Expert Panel will provide an evidence-based formula as the basis for allocations, and it will also:

• Identify any difficult or challenging issues to be encountered in implementing the allocation approach it recommends and propose ways to resolve these issues; and
• Address any significant implementation issues related to transition or to institutional changes that may be proposed.

The Expert Panel will supervise a dedicated staff to assist in its consultations and to undertake or organize research studies or prepare discussion documents it considers necessary to complete its work, subject to budgetary limits. It will call on the expertise of the federal and provincial departments of Finance (either through secondments or direct requests.)

The Experts' Panel will report with its recommendations by the end of 2005.

Last Updated: 2010-09-06		Important Notices