OTTAWA - The federal budget took aim at solving the so-called fiscal imbalance with billions more going to the provinces, some of which are already expressing their unhappiness.
The Conservatives are promising to give $39 billion to the provinces over seven years through a new equalization formula, a boost in transfer payments for post-secondary education, and changes in the way health and social spending are structured.
Key changes to the equalization system include a 50 per cent inclusion rate for non-renewable natural resource revenue; a higher 10-province equalization standard; and a fiscal capacity cap.
Some provinces will get a bigger share of the equalization pie.
Quebec -- currently embroiled in a provincial election campaign -- will see the greatest benefit under the plan, which sets out about $3.2 billion in new money for the provinces.
Based on its population, Quebec will get $919 million of that amount, just shy of one-third of the transfers allocated to the provinces in Finance Minister Jim Flaherty's Budget 2007.
That figure includes the equalization funds, and the new portion of transfer payments such as the Canada Health Transfer; the Canada Social Transfer; the environmental EcoTrust program and infrastructure funding.
During a news conference with Flaherty, Industry Minister Maxime Bernier said the budget marks an "historic day" for Quebec.
Following the budget's release, Bloc Leader Gilles Duceppe announced he would support it. The Tories needed one of the three opposition parties to back the fiscal plan, or an election could have been triggered.
"This gives us a lot of satisfaction in the sense that we have fought for this for a number of years, and now the federal government has moved substantially on this issue," Quebec Premier Jean Charest said.
Greg Sorbara, Ontario's finance minister, said the budget "made real progress and we're pleased with that progress."
Vote-rich Quebec and Ontario are expected to be key battlegrounds in the next federal election.
Under the new equalization program -- the scheme that determines how much "have-not" provinces receive from the federal government to ensure they can provide similar services at similar taxation levels as "have" provinces -- Quebec will receive $7.2 billion in 2007-08.
That marks an increase of $698 million over the guaranteed minimum the government set out earlier, and $1,621 million above the 2006-07 payment of $5,539 million.
Following are the 2007-08 per-capita equalization payments for the receiving provinces with the 2006-07 payments in brackets. (All figures in millions):
- N.L.: $477 ($632)
- P.E.I.: $294 ($291)
- N.S.: $1,308 (1,386)
- N.B.: $1,477 ($1,451)
- Que.: $7,160 ($5,539)
- Man.: $1,826 ($1,709)
- Sask.: $226 ($13)
- B.C.: N/A ($260)
Natural resources
The Conservative budget proposes to exclude 50 per cent of non-renewable natural resources from the formula used to calculate equalization payments to the provinces.
Premiers Lorne Calvert of Saskatchewan and Danny Williams of Newfoundland had lobbied hard for 100 per cent exclusion of non-renewable natural resources, but analysts had predicted 50 per cent inclusion was more realistic.
"There's no consensus among the provincial premiers, or the provincial finance ministers, so you can't expect them to come up with a solution," Finance Minister Jim Flaherty said on 麻豆影视net's Mike Duffy Live.
"So we did our job as a national government."
Flaherty added, "Everyone is doing better under this than they did previously."
Williams begged to differ.
"We did terrible, actually," he told Mike Duffy Live. "Jim (Flaherty) says there's a chicken in every pot. Well, there's no chicken in the pot of Newfoundland and Labrador and Saskatchewan."
Williams accused Prime Minister Stephen Harper of breaking a promise to the two provinces.
Flaherty said Newfoundland and Nova Scotia could go with the new formula or stay with the former formula and the Atlantic Accord.
"In that way, the commitment has been kept to honour the Atlantic Accord," he said.
Flaherty also said it wasn't fair that a province receiving equalization payments shouldn't have greater fiscal capacity than those paying into the program.
Williams rejected that, saying there are commitments to exclude 100 per cent of non-renewable resource revenues.
"If your government doesn't keep this promise to us, then how can the people of Canada in any province rely on any promise that you make to them in the future?"
The budget includes a provision that states "all provinces will receive the greater of the equalization entitlements under the formula based on a 50 per cent exclusion rate, and the amounts they would receive under the same formula based on full exclusion of all natural resources revenues."
The measure will provide incentives for resource-producing provinces and protect them against future declines in resource prices and production levels.
On Monday evening, Harper sent letters to all the provincial premiers and territorial leaders to outline what he said were the benefits of the new arrangements.
Higher equalization standard
The budget also makes an historic change in the fiscal capacity standard which serves as the dividing line between have and have-not provinces. Now, the equalization standard will be calculated based on an average of the 10 provinces.
"This standard ensures that equalization brings the revenue-raising capacity of less prosperous provinces up to the national average," reads Budget 2007.
For decades, the standard was calculated based on an average of the five-middle earning provinces, until the dying days of Paul Martin's Liberal government when a new formula was devised.
Fiscal capacity cap
The fiscal capacity cap, another new measure in the budget, is intended to ensure that the formula doesn't unfairly bring a receiving province's overall fiscal capacity to a level higher than that of any non-receiving, or "have" provinces.
Under the measure, no province can bring in more revenue than Ontario, which doesn't receive a payment from the equalization program earns less revenue than Alberta.
That cap has a significant effect on Saskatchewan, which is currently a have-not province but has significant natural resources revenue.
While Saskatchewan can choose the formula under which it can receive equalization, the amount it can receive is capped at $226 million under either formula.
The budget's efforts to solve fiscal imbalance are based largely on the recommendations of a report by Al O'Brien titled Achieving a National Purpose: Putting Equalization Back on Track.
