http://www.advfn.com/news_UPDATE-1-Ontario-to-get_29102659.html

The rate of growth of the equalization payments can be everything but unsustainable. The equalization formula is based on exploitation of natural resources. What is unsustainable is the exploitation of the oil sands, forests and other non-renewable resources. If we are to have a sustainable exploitation of those resources, we have to prevent Canadians workers and capitalists from rushing around these resources. The transfer payments are precisely achieving that: because of these transfers, residents in the have-not provinces have much less incentives to rush out of their poorer provinces. One sane way to change the equalization formula I can think of is to include in it renewable natural resources such as hydroelectricity.

[ 04 November 2008: Message edited by: Benoit ]

Just like the Canadian Wheat Board. Either all Canadian Farmers are forced to sell through it or you make it voluntary.

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The transfer payments are precisely achieving that: because of these transfers, residents in the have-not provinces have much less incentives to rush out of their poorer provinces.

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If the current system worked that might be the case but equalization in Canada has never been designed to provide for economic development to raise an area out of have-not status and provide good sustainable employment for the people of the area; essentially equalization provides just enough to make living in have-not provinces bearable while stopping short of addressing lasting inequalities of resource distribution (not to mention inequalities of federal government policies in the manufacturing sector!). Outmigration is slowed but the situation causing it is not addressed just bandaged to reduce the outflow of workers to have provinces.

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One sane way to change the equalization formula I can think of is to include in it renewable natural resources such as hydroelectricity.

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I agree 100% with you Benoit. Either all natural resources are included whether renewable or not.

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Originally posted by It's Me D:

Including renewable resources in the equalization formula would essentially punish have-not provinces with renewable resources and reward fossil-fuel dependency in the West would it not? I don't see how such a change would benefit anyone except Alberta and it seems set to have negative environmental consequences as well.

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I think, the equalization formula is searching for a peaceful way of life that can be universal and perpetual.

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What leads you to think this?

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I will argue that the sanest way to change the equalization formula is to include 100% of the economic rents generated by natural resources into the formula.

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Why? And why change the formula in the first place?

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Ottawa and Quebec would agree to stick together, to put 100% of all natural resources (non-renewable and renewable) rents in a fund dedicated only to world peace.

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Can you name such a fund?

One reason for the increased disparity may be the move from industrialization and income tax as the biggest source of revenue to resource revenues. This is again due to the population multiplier as smaller provinces with small population bases and needs can produce huge amounts of revenue from resources but cannot do so from industrialization. So as Canada moves from a more industrial economy to more of a resource-based economy not only is there a change in which provinces are wealthier but the weight of that difference.

This is worsened by policies that have encouraged growth in revenue from resources over industry which hires a large number of workers-- thereby allowing Ontario to slide for so long and for poorer provinces to make up money in revenues without actually having an industrial jobs strategy in those provinces.

The result will diminish provinces from delivering on universal shared cost programs so this would be a blow to any proposed or existing national standards or programs in healthcare, childcare, eldercare etc.

Put another way, this is doing to the provinces what the feds did to the federal government-- instead of saying no to popular programs, you simply limit the capacity of the government to undertake such expenditures. For those into conspiracy-- this is the most effective, although sneaky and underhanded, way to attack all those programs that the Conservatives would prefer to see delivered privately. Greater disparity between provinces is one way of ensuring not only smaller government at the federal level but also at the provincial one.

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Originally posted by It's Me D:

Can you name such a fund?

Nothing in your post addressed my point that including renewable resources in the equalization formula would essentially punish provinces using less environmentally damaging forms of power generation. At a time when people worldwide are talking about putting a price on pollution you are suggesting the opposite...

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The Alaska Permanent Fund has simply to be generalized to all the gifts humanity receives from nature. This fund was put in place by politicians fearing the corrupting effects of undeserved incomes on people and on the environment.

http://en.wikipedia.org/wiki/Alaska_Permanent_Fund

[ 04 November 2008: Message edited by: Benoit ]

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The Alaska Permanent Fund has simply to be generalized to all the gifts humanity receives from nature. This fund was put in place by politicians fearing the corrupting effects of undeserved incomes on people and on the environment.

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Originally posted by It's Me D:

I'd love getting free money in the mail as much as anyone but what does cutting Alaskans big cheques each year contribute to world peace?

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Originally posted by Sean in Ottawa:
It is a pity equalization is used for so many other political purposes thus making things not equal. All revenues ought to be included in the formula for it to be a valid measurement of capacity.

Side deals to accommodate provinces should be separate arrangements even if they are tied to it such as an agreement to exempt oil for Newfoundland should be a rider that whatever the difference is would get refunded but Newfoundland should go into the calculations of fiscal capacity like the others. Otherwise we place layers of complexity on programs such that the meaning of the program is lost and the accounting for its purpose and effectiveness becomes obscure. So an objective and comprehensive equalization formula could be created with accountable cashback deals where warranted. Hiding what we are doing inside of programs is less than honest for citizens. this is part of a larger problem of democratic deficits where our systems of account cannot be followed so voters cannot evaluate performance of governments.

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I agree that for the sake of democracy the equalization formula has to be transparent. Canadian adults should be able to convince themselves that this program is really equalizing access to fundamental public services through out Canada. For a province, NewFoundland for example, to get more funds, it should demonstrate that it cannot offer important public services of the same quality than what is in offer in the rest of Canada. On the taxation side, the formula should be based only on the economic criteria of fiscal capacity. The Atlantic Accord of the Liberals was based mostly on short-term, despicable, electoral criteria. To track the fiscal capacity of the provinces, the formula has to tax away from them 100% of economic rents. It is important that the formula doesn’t tax any of the other three types of income (wage, profits and interest). Rents are the only type of income that is undeserved and rents are the only type of income that can be taxed without changing the incentives of economic agents.

[ 05 November 2008: Message edited by: Benoit ]