Question Period Note: Equalization and fiscal stabilization

Fiscal Stabilization
• The Government appreciates the gravity of the situation in Alberta and Saskatchewan.
• I have also heard the concerns raised by our colleagues in these provinces about the Fiscal Stabilization program.
• The Minister of Finance will be launching a discussion on the objectives and the parameters of the Fiscal Stabilization program at the upcoming December Finance Ministers’ Meeting, with a view to considering any appropriate adjustments.

Equalization
• As set out in the Constitution, Equalization’s objective is to help provincial governments to provide reasonably comparable levels of public services at reasonably comparable levels of taxation.
• The Minister of Finance will be consulting with provincial and territorial Finance Ministers on their priorities for the next renewal of Equalization and Territorial Formula Financing, as well as the Stabilization program.

• Some provinces are pressing for reforms to the Equalization and Fiscal Stabilization programs.
• The legislation governing the Equalization program was renewed for a five-year period beginning April 1, 2019 through Budget 2018. The current legislation expires in March 2024.
• Equalization totalled $19.8 billion in 2019-20. It is paid out of federal revenues from taxes collected across the country and is unconditional. Provincial governments do not contribute to Equalization. Since 2009-10, the total Equalization payout is legislated to increase in line with nominal GDP.
• The federal government also provides financial assistance through the Fiscal Stabilization program to provinces that are facing significant year-over-year declines in their revenues resulting from extraordinary economic downturns. For a given fiscal year, the payment to a province is limited to $60 per capita. This limit was put in place in 1987 and has not been updated since. Alberta’s payments for 2015-16 and 2016-17 were constrained by this per capita limit.
• For fiscal year 2015-16, Newfoundland and Labrador received a payment of $32 million and Alberta received a payment of $251 million.
• For fiscal year 2016-17, Saskatchewan received a payment of $20 million and Alberta received a payment of $251 million.
• On December 2, 2019, the Council of the Federation expressed support for removing the cap on the Fiscal Stabilization program indicating that “Changes could include, but are not limited to, removing the per capita cap, lowering the non-resource revenue threshold and retroactive payments over the last five years”.
• The Premiers of Alberta and Saskatchewan have been critical of these programs. The Premier of Alberta claims it is unfair that Equalization payments continue to increase while Stabilization payments are subject to a cap. He has asked that the $60 per capita limit on payments under the Fiscal Stabilization program be lifted retroactively and estimated this would deliver assistance of $2.4 billion to Alberta. He has also threatened to hold a referendum on removing Equalization from the Constitution.

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