We’re on the dole again.
The federal finance department released it’s most recent Equalization assessment on Friday and it shows the Government of Newfoundland and Labrador will receive $218 million in Fiscal Year 2024 (01 Apr 24 to 31 Mar 25)
Economist Trevor Tombe produced the chart at the head of this column and distributed it Friday via Twitter/X. The federal assessments for all provinces are easier to see in the chart below.
Equalization is a federal program that distributes federal revenue to provincial governments to address the differences in provincial government incomes from their own sources. It’s been part of the Constitution since 1982. The goal is to give provincial governments “sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation.”
To figure out what each provincial government might get, federal officials work out a national average taxation rate based on provincial taxation efforts over several recent years. It’s actually a rolling three-year average to avoid big jumps up or down in payments.
There’s a pot of money set aside in the federal budget. None of it comes from provincial governments. It’s all federal money from federal sources. It grows with inflation and the payments come out of that. Officials estimate what the government could bring in based on that average. Above the average and you’d get nothing. Below the average and there is a cheque.
But remember: the payment is not unlimited. It is share of the total pot that’s available.
There are a few things to notice. First, it’s not based on *actual* government income but on theoretical income *if* a provincial government taxed at the national average. In practice, some do or come close. Most don’t. In fact, recipient provinces like Quebec tend to tax at rates *higher* than the national average.
Second, the calculation is based on five broad categories:
personal income taxes,
business taxes,
consumption taxes,
property taxes, and
natural resource revenues.
The calculation is done a couple of ways: one that excludes half of natural resource revenues and one that excludes all natural resource revenues. The idea has been since 2006 to make it easier for provincial governments to qualify.
Third, there’s a cap to what a government actually gets in an equalization transfer to prevent a province with huge natural resource revenues from getting more in total than a non-recipient province.
Fourth, the “fiscal capacity” is worked out as so many dollars per person. The payment is based on the actual population. Quebec actually has a relatively small entitlement per person. It gets the lion’s share of the money - and a lot of unjustified criticism - because it has a larger population than other provinces.
Fifth, if you look at the second chart - the federal one - you’ll see the non-resource fiscal capacity for provincial governments. Undoubtedly some of that is influenced by resource industries but it’s important for the public discussion to look at that line and see where *all* the provinces come out on that one just as it is to see what is coming from natural resource revenues for some provinces.
There’s been a lot of public chattering about these numbers since they showed up. Saskatchewan Premier Scott Moe and a chorus of the usual western suspects have produced all sorts of charts, like this one from Moe’s Twitter feed.
“As Guilbeault and Trudeau commit to move away from fossil fuels,” Moe tweeted, “let’s have a look at the new equalization payments to provinces for 2024-25 to see how energy producing provinces help support the rest of Canada.”
Peter McCaffery is president of the Alberta Institute, one of a pile of small political action groups that call themselves think-tanks. They spread the same sort of misinformation as Moe, especially about Equalization.
“Money [for Equalization] is transferred from people in the west to people elsewhere. The fact the money transferred via the federal government doesn't change the basic fact of what's happening, and people like Max [Fawcett] hide behind word games because they have no other argument.”
Fawceett merely pointed out that the money for Equalization - or any of the federal transfers including ones the Alberta government happily collects - doesn’t come only from Alberta or even Alberta, Saskatchewan, and British Columbia. Like Moe, McCaffery and others who push some version of the Welfare Bums argument simply ignore Newfoundland and Labrador which has consistently proven the falsehood of every variation of the anti-equalization gospel.
This is a natural resource rich province that this year will collect Equalization. That's not shown in Moe's chart. And to disprove the Welfare Bums claim, Newfoundland and Labrador developed its oil and gas resources knowing it would stop getting Equalization as a result. The Welfare Bums line is that provinces like Quebec won’t develop oil and gas resourcessi they can keep fleecing the west. Nothing could be further from the truth. But that doesn’t people from pushing the lie.
Equalization does two things in Canada.
There’s the practical thing, which is to give governments extra cash to deliver essential services. For most of its time in Confederation, about half the money the Government of Newfoundland and Labrador had to spend in any one year came from federal transfers and the bulk of that was Equalization.
The EQ program was so important to the provincial economy that there was a special allowance made in the Atlantic Accord (1985) to lower Equalization gradually over a dozen years as oil and gas revenue grew. Still, the administrations of Brian Peckford and Clyde Wells had the same basic goal: get rid of Equalization so the provincial government could stand on its own feet.
“One day the sun will shine,” Peckford famously said, “and have-not will be no more.” During a row with Ottawa over the Accord and Equalization, Wells said he looked forward to the day when the province didn’t get a nickel of Equalization.
They were also talking about the other thing Equalization does, which is serve as a political touchstone provincially. Out west, it’s something to oppose for entirely provincial reasons. In Newfoundland and Labrador, it was a symbol of poverty and backwardness, which is still echoed in political attitudes toward the province and its people today. It isn’t just in the rest of Canada that you see those attitudes of poverty, backwardness, and subservience. During the Meech Lake dispute in the early 1990s, John Crosbie publicly scolded Newfoundlanders and Labradorians for biting the hand that fed them in their opposition to special constitutional status for Quebec.
Since 2003, though, the prospect of being a “have” province - that is of not receiving Equalization - is something the leading classes in Newfoundland and Labrador have opposed. Danny Williams’ row in 2004 was originally aimed at a permanent transfer from Ottawa equal to annual offshore revenues in addition to receiving offshore royalties, which the provincial government alone set and collected as if the resource belogned to the provincial government. It was basically Equalization in disguise. Williams’ rowed with Stephen Harper over changes to the Equalization, taking sometimes contradictory stands in the same argument all with the goal of keeping the dole cheques flowing.
Williams’ heirs have kept up the same fight with his Liberal heirs being no different from the Pea Sea ones. Like Williams’ hand-picked successor, Dwight Ball and Andrew Furey have gone looking for this federal bail-out or that. Ball, for example, thought he could avoid changing the disastrous financial course the provincial government was on from Williams’ time if only the federal government would give the province Equalization even though it didn’t qualify for it.
That’s the new political mantra in Newfoundland and Labrador about Equalization and it sets the province apart from its western counterparts. Out west they want to scrap the orogram. The locals want the couple of hundred million they’ll get next year and hope to see it grow even thought it is not even one tenth of the money the government will need to borrow *this* year to keep the lights on in hospitals and pay the interest on the billions in public debt and other liabilities.
Most of the debt has piled up since 2003. The reason it piles up is very simple: no matter how much money the government takes in, the politicians will always spend more not because they really need to or want to but because they want to satisfy all the public demand for more and more spending. It’s easier to do that than anything else. The result is that despite getting far more from oil and gas over the past 20 years than it would have from Equalization, the province's public debt and liabilities today are four times what they were in 2003. There is no plan to stop the debt pile from growing at the galloping rate we have seen since 2006. No plan. None.
After 15 years as a “have” province, Newfoundland and Labrador is back on the Equalization dole again. Find a politician in Newfoundland and Labrador who thinks that’s a bad thing. That’s how much things have changed in 20 years.
Congratulations on producing another very informative and important document. Just a couple of points expanding on what you have written. Equalization is based on the past five fiscal years, but the first two do not count. The third year has a weight of 50%; years four and five each weigh 25%. These facts are relevant since they force us to examine what was occurring to revenues as far back as fiscal 2019-20 and 2020-21. Looking at oil revenues, we see that the revised estimates (what the government received) were far less than was estimated in Budget 2019. Oil prices indeed declined, but production also dropped. Of course, the drop in revenues and production would also affect corporate income taxes, HST, and even perhaps income taxes. This should remind us that whether we want to like it or leave it, our collective prosperity depends on oil revenues.
We are again receiving equalization this coming fiscal year and may for the next year or so as the rolling average works its way through the system. Within a year or two, Hebron will likely reach "payout," which implies that resource royalties will significantly increase. Our dependency in the medium term will be short-lived.
Over the long term, oil production in NL will likely decrease, as will our natural resource fiscal capacity. Equalization will again be an ongoing feature of our provincial government's fiscal picture.
Good one Ed, I paid up last year, was that annual or for life? Should I ‘renew’ soon?