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432-00809 (Taxation)

Petition to the House of Commons

We, the undersigned citizens of Canada, draw the attention of the House of Commons to the following:

Whereas, the current Government's refusal to work with Provinces to amend the equalization formula has contributed to a national unity crisis, whereas Alberta has historically made an oversized contribution to Canada's economic well being, and that the recent global market challenges affecting Alberta's oil and gas industry have been exacerbated by the actions of the current Government;

Whereas, the current equalization formula is not responsive to the fiscal and economic realities facing Alberta and other regions of the country that are resource dependant;

Whereas, the current formula fails to acknowledge the need for jurisdictions that are long term net recipients of equalization to undertake meaningful economic development and ensure that their actions do not restrict the economic success of other jurisdictions;

Whereas, the measures the Government announced in the 2020 Speech from the Throne are wholly insufficient to address the scope of the challenges faced by affected provinces.

Therefore we, the undersigned, call on the Government to take the following actions to address the situation:

1. That the Government immediately increase and backdate the Fiscal Stabilization Program; and

2. That the Government commit to working with provinces to address the current inequities that exist in the Equalization Formula.

Response by the Deputy Prime Minister and Minister of Finance

Signed by (Minister or Parliamentary Secretary): The Honourable Chrystia Freeland

The Government thanks the petitioners for expressing their views about the current equalization formula.

As indicated in the Fall Economic Statement 2020, the government has introduced, in Bill C-30 - the Budget Implementation Act - legislative amendments to reform the Fiscal Stabilization Program to provide a more effective backstop to provinces that face an extraordinary drop in revenues. The modernization of the program would index the maximum payment of $60 per capita, which was set in 1987, to total Canadian economic growth per person since that time, nearly tripling it to $170 per person in 2019-20 and 2020-21. The higher cap would apply to 2019-20 Stabilization claims and onward. In addition, technical changes would modernize and simplify the program, effective for 2021-22 Stabilization claims and onward.

 

The Government recognizes that Alberta is indispensable to the social and economic fabric of Canada and it is committed to supporting Alberta families, workers and businesses.  The Government provides significant financial support to all provinces and territories to support social programs.  In 2021-22, Alberta will receive $6.8 billion through major transfers to help pay for health care, education and other social services.

In addition to the funding regularly provided to provinces and territories through major transfers, the Government has announced significant direct support for provinces and territories to fight the COVID-19 pandemic. The Government provided more than $1.9 billion in direct payments to the Government of Alberta through the Safe Restart Agreement, the Safe Return to Class Fund and the Essential Workers Support Fund. Budget 2021 reiterates the Government’s commitment to supporting provinces and territories through COVID-19. For instance, the Government has committed $4 billion to continue supporting Canada’s health care systems, including $465.3 million for Alberta, as well as $1 billion for our country’s immunization plan, including $116.3 million for Alberta. Moreover, thanks as well to the unprecedented investment by the federal government to help stabilize the economy with broad measures to support businesses and individuals, provincial and territorial tax bases will benefit from the economic effects of the Canada Emergency Response Benefit, Canada Emergency Wage Subsidy, Canada Emergency Business Account and other programs.

Equalization is the Government of Canada’s transfer program used to reduce fiscal disparities among provinces.  The principle of Equalization is set out in the Constitution, namely “to ensure that provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation.”  Since its inception in 1957, the Equalization program has provided benefits at some point in time to every province in Canada. Equalization is funded entirely by the federal government from general revenues; provincial governments make no contributions to the Equalization program. 

The allocation of Equalization payments is based on a measure of fiscal capacity, which represents the revenues a province could raise if it were to tax at the national average tax rate.  Equalization supports provinces that have a lower-than-average ability to raise revenues by filling the gap between a province’s fiscal capacity and the national average fiscal capacity.  Alberta does not receive Equalization because it has a higher-than-average ability to raise revenues, despite its recent economic challenges.  Equalization reduces, but does not eliminate fiscal disparities; the fiscal capacities of non-receiving provinces remain above the national average. 

Equalization payments are calculated according to a formula set out in the Federal-Provincial Fiscal Arrangements Actand in regulations made under the Act.  The legislation governing the Equalization program is reviewed on a periodic basis to ensure the program is meeting its objectives and using the most up-to-date and accurate measures in the determination of provincial entitlements.  The federal government consults regularly with provincial governments as part of the review process.  For example, regular working level meetings were held between federal and provincial officials to discuss the 2019 renewal of Equalization.  Provinces were also consulted on the renewal at the December 2017 Federal-Provincial-Territorial Finance Ministers’ Meeting.  Equalization was renewed for a five-year period beginning April 1, 2019 through the Budget Implementation Act, 2018, No. 1, which received Royal Assent on June 21, 2018.  Improvements to the accuracy and efficiency of the calculation of entitlements were made through amendments to the Federal-Provincial Fiscal Arrangements Regulations, 2007, which were published in the Canada Gazette Part II, Vol. 152, No. 14 on July 11, 2018.  The Government of Canada will continue to work collaboratively with all provinces on Equalization in the lead-up to the next renewal of the program, which must take place before March 31, 2024.

Another program – the Fiscal Stabilization Program – provides financial assistance to provinces in the event of sudden, significant declines in revenues, even if the province does not qualify for Equalization.  The program provides financial assistance to any province faced with a year-over-year decrease of more than 5 per cent in its non-resource revenues or of more than 50 per cent in its resource revenues, with adjustments for interactions between the revenue sources.  Payments are currently capped at $60 per person for a given fiscal year.

The Fiscal Stabilization program was last reviewed in 1995 and, following calls from provincial and territorial governments and academics for the program to be modernized, the federal government is proposing reforms as announced in the Fall Economic Statement 2020.

Specifically, the federal government is proposing to index the maximum payment of $60 per capita, which was set in 1987, to total Canadian economic growth per person since that time.  This means that the cap would nearly triple to about $170 per person in 2019-20 and 2020-21, and would grow thereafter in line with Canadian economic growth per person.  In years when the economy declines, the cap would remain at its preceding year’s level.  The Minister of Finance would retain the discretion to extend interest-free loans for eligible revenue declines above the cap, if requested by a province.  In addition, the federal government is proposing technical changes to modernize and simplify the program. 

The higher cap would apply to 2019-20 Stabilization claims and onward and could provide billions in additional support to provinces for revenue declines experienced in 2020-21.  For Alberta in particular, the maximum payment for 2020-21 is projected to rise from $265 million to $752 million as a result of this change.  These changes would make the Fiscal Stabilization program more generous when provinces need help the most.

The Government recognizes that energy-producing regions are facing the compounding challenges of COVID-19 and the shock to oil prices.  The federal government has therefore announced significant funding to assist oil-producing provinces, including:

  • $1 billion to Alberta;
  • $400 million to Saskatchewan;
  • $320 million to Newfoundland and Labrador; and
  • A fully-repayable loan of $200 million to the Alberta Orphan Well Association, to clean up orphan and inactive oil and gas wells. 

In addition, the federal government is providing support to conventional and offshore oil and gas companies through the Emissions Reduction Fund.

Presented to the House of Commons
Damien Kurek (Battle River—Crowfoot)
April 15, 2021 (Petition No. 432-00809)
Government response tabled
May 31, 2021
Photo - Damien Kurek
Battle River—Crowfoot
Conservative Caucus
Alberta

Only validated signatures are counted towards the total number of signatures.

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