What is Equalization?
Equalization is a federal transfer program enshrined in the Constitution. Its purpose is to ensure "that provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation" (Section 36(2), Constitution Act, 1982).
How the Formula Works
The federal government calculates each province's "fiscal capacity" – its ability to raise revenue. Provinces below the national average receive equalization payments to bring them up. In 2023-24, receiving provinces are Quebec, Manitoba, Nova Scotia, New Brunswick, and Prince Edward Island.
Key points:
- Alberta has never received equalization payments
- The program is funded from federal general revenues (not direct provincial transfers)
- All Canadians, including Albertans, pay federal taxes that fund equalization
- Resource revenues are partially included in the formula
Criticisms of the Current System
From "Have" Provinces
- Resource-rich provinces argue they are penalized for developing their resources
- Some argue receiving provinces don't have incentive to develop their own economies
- The formula is seen as complex and opaque
From "Have-Not" Provinces
- Payments don't fully close the fiscal gap
- Formula changes have reduced some provinces' payments
- Resource exclusions benefit producing provinces
Constitutional Status
Equalization is constitutionally protected in principle, but the specific formula is determined by federal legislation and can be changed by Parliament. The current formula is reviewed every five years.
Questions to Consider
- Should wealthier provinces help fund services in less wealthy provinces?
- How should natural resource revenues be treated in the formula?
- Does the current system create proper incentives for provinces to grow their economies?