What is a sustainable equalization formula?
Mon, 2008-11-03 17:07
#1
What is a sustainable equalization formula?
Mon, 2008-11-03 17:07
#2
Flaherty said today that with changes to the funding formula, future payments under the equalization program will grow at a "sustainable rate" based on economic growth. Equalization has grown by 56 percent since 2003-04, a pace which Flaherty described as not sustainable. Flaherty said also future equalization payments will now be based on a three-year moving average of gross domestic product.
[url=http://www.advfn.com/news_UPDATE-1-Ontario-to-get_29102659.html]http://w...
The rate of growth of the equalization payments can be everything but unsustainable. The equalization formula is based on exploitation of natural resources. What is unsustainable is the exploitation of the oil sands, forests and other non-renewable resources. If we are to have a sustainable exploitation of those resources, we have to prevent Canadians workers and capitalists from rushing around these resources. The transfer payments are precisely achieving that: because of these transfers, residents in the have-not provinces have much less incentives to rush out of their poorer provinces. One sane way to change the equalization formula I can think of is to include in it renewable natural resources such as hydroelectricity.
[ 04 November 2008: Message edited by: Benoit ]
Tue, 2008-11-04 05:59
#3
I agree 100% with you Benoit. Either all natural resources are included whether renewable or not.
Just like the Canadian Wheat Board. Either all Canadian Farmers are forced to sell through it or you make it voluntary.
We should not be in a situation where some are more equal than others in government policy. That is fundamentaly wrong in a true democratic society.
Tue, 2008-11-04 06:13
#4
quote:
The transfer payments are precisely achieving that: because of these transfers, residents in the have-not provinces have much less incentives to rush out of their poorer provinces.
If the current system worked that might be the case but equalization in Canada has never been designed to provide for economic development to raise an area out of have-not status and provide good sustainable employment for the people of the area; essentially equalization provides just enough to make living in have-not provinces bearable while stopping short of addressing lasting inequalities of resource distribution (not to mention inequalities of federal government policies in the manufacturing sector!). Outmigration is slowed but the situation causing it is not addressed just bandaged to reduce the outflow of workers to have provinces.
quote:
One sane way to change the equalization formula I can think of is to include in it renewable natural resources such as hydroelectricity.
quote:
I agree 100% with you Benoit. Either all natural resources are included whether renewable or not.
Including renewable resources in the equalization formula would essentially punish have-not provinces with renewable resources and reward fossil-fuel dependency in the West would it not? I don't see how such a change would benefit anyone except Alberta and it seems set to have negative environmental consequences as well.
Tue, 2008-11-04 09:41
#5
quote:
Originally posted by It's Me D:
[b]Including renewable resources in the equalization formula would essentially punish have-not provinces with renewable resources and reward fossil-fuel dependency in the West would it not? I don't see how such a change would benefit anyone except Alberta and it seems set to have negative environmental consequences as well.[/b]
At the deepest level of collective endeavor, I think, the equalization formula is searching for a peaceful way of life that can be universal and perpetual. I will argue that the sanest way to change the equalization formula is to include 100% of the economic rents generated by natural resources into the formula. From there one has to justify the reasons for including only and arbitrarily 50% like we are doing since the O’Brien report. Try to think what arguments Ottawa would have to use to convince a separatist province like Quebec to include 100% of its hydroelectric rents into a sharing formula. It is too easy to imagine Quebec would separate leaving the rest of Canada alone to deal with the billions Quebec is now getting from Alberta. I think what would happen is the exact opposite of what we can imagine: Ottawa and Quebec would agree to stick together, to put 100% of all natural resources (non-renewable and renewable) rents in a fund dedicated only to world peace.
Tue, 2008-11-04 10:43
#6
quote:
I think, the equalization formula is searching for a peaceful way of life that can be universal and perpetual.
What leads you to think this?
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I will argue that the sanest way to change the equalization formula is to include 100% of the economic rents generated by natural resources into the formula.
Why? And why change the formula in the first place?
quote:
Ottawa and Quebec would agree to stick together, to put 100% of all natural resources (non-renewable and renewable) rents in a fund dedicated only to world peace.
Can you name such a fund?
Nothing in your post addressed my point that including renewable resources in the equalization formula would essentially punish provinces using less environmentally damaging forms of power generation. At a time when people worldwide are talking about putting a price on pollution you are suggesting the opposite...
Tue, 2008-11-04 11:04
#7
Since population is the multiplier, whichever side Ontario is important and the size of Ontario’s population will add weight to the disparity. Of course the distance of Ontario's capacity from the average is more significant than which side it is on as even a big multiplier of an extremely small number will still create a modest result. In other words, if Ontario is very close to the average (as it has traditionally been-- above but close) then regardless of whether it is above or below it will not affect the results much but if Ontario were to fall more significantly below the national average then its population multiplier will make that weight extremely great.
One reason for the increased disparity may be the move from industrialization and income tax as the biggest source of revenue to resource revenues. This is again due to the population multiplier as smaller provinces with small population bases and needs can produce huge amounts of revenue from resources but cannot do so from industrialization. So as Canada moves from a more industrial economy to more of a resource-based economy not only is there a change in which provinces are wealthier but the weight of that difference.
This is worsened by policies that have encouraged growth in revenue from resources over industry which hires a large number of workers-- thereby allowing Ontario to slide for so long and for poorer provinces to make up money in revenues without actually having an industrial jobs strategy in those provinces.
The result will diminish provinces from delivering on universal shared cost programs so this would be a blow to any proposed or existing national standards or programs in healthcare, childcare, eldercare etc.
Put another way, this is doing to the provinces what the feds did to the federal government-- instead of saying no to popular programs, you simply limit the capacity of the government to undertake such expenditures. For those into conspiracy-- this is the most effective, although sneaky and underhanded, way to attack all those programs that the Conservatives would prefer to see delivered privately. Greater disparity between provinces is one way of ensuring not only smaller government at the federal level but also at the provincial one.
With the Finance Minister saying equalization is unsustainable he is also saying so too are the national programs that rely on it.
Tue, 2008-11-04 11:45
#8
quote:
Originally posted by It's Me D:
[b]Can you name such a fund?
Nothing in your post addressed my point that including renewable resources in the equalization formula would essentially punish provinces using less environmentally damaging forms of power generation. At a time when people worldwide are talking about putting a price on pollution you are suggesting the opposite...[/b]
The Alaska Permanent Fund has simply to be generalized to all the gifts humanity receives from nature. This fund was put in place by politicians fearing the corrupting effects of undeserved incomes on people and on the environment.
[url=http://en.wikipedia.org/wiki/Alaska_Permanent_Fund]http://en.wikipedia.o...
[ 04 November 2008: Message edited by: Benoit ]
Tue, 2008-11-04 12:24
#9
quote:
The Alaska Permanent Fund has simply to be generalized to all the gifts humanity receives from nature. This fund was put in place by politicians fearing the corrupting effects of undeserved incomes on people and on the environment.
I'd love getting free money in the mail as much as anyone but what does cutting Alaskans big cheques each year contribute to world peace?
Tue, 2008-11-04 14:28
#10
quote:
Originally posted by It's Me D:
[b]I'd love getting free money in the mail as much as anyone but what does cutting Alaskans big cheques each year contribute to world peace?[/b]
Multiplying the Alaskan-style social dividends would prevent the greedy to get the money to finance armies.
Wed, 2008-11-05 10:37
#11
It is a pity equalization is used for so many other political purposes thus making things not equal. All revenues ought to be included in the formula for it to be a valid measurement of capacity.
Side deals to accommodate provinces should be separate arrangements even if they are tied to it such as an agreement to exempt oil for Newfoundland should be a rider that whatever the difference is would get refunded but Newfoundland should go into the calculations of fiscal capacity like the others. Otherwise we place layers of complexity on programs such that the meaning of the program is lost and the accounting for its purpose and effectiveness becomes obscure. So an objective and comprehensive equalization formula could be created with accountable cashback deals where warranted. Hiding what we are doing inside of programs is less than honest for citizens. this is part of a larger problem of democratic deficits where our systems of account cannot be followed so voters cannot evaluate performance of governments.
Wed, 2008-11-05 12:13
#12
quote:
Originally posted by Sean in Ottawa:
[b]It is a pity equalization is used for so many other political purposes thus making things not equal. All revenues ought to be included in the formula for it to be a valid measurement of capacity.Side deals to accommodate provinces should be separate arrangements even if they are tied to it such as an agreement to exempt oil for Newfoundland should be a rider that whatever the difference is would get refunded but Newfoundland should go into the calculations of fiscal capacity like the others. Otherwise we place layers of complexity on programs such that the meaning of the program is lost and the accounting for its purpose and effectiveness becomes obscure. So an objective and comprehensive equalization formula could be created with accountable cashback deals where warranted. Hiding what we are doing inside of programs is less than honest for citizens. this is part of a larger problem of democratic deficits where our systems of account cannot be followed so voters cannot evaluate performance of governments.[/b]
I agree that for the sake of democracy the equalization formula has to be transparent. Canadian adults should be able to convince themselves that this program is really equalizing access to fundamental public services through out Canada. For a province, NewFoundland for example, to get more funds, it should demonstrate that it cannot offer important public services of the same quality than what is in offer in the rest of Canada. On the taxation side, the formula should be based only on the economic criteria of fiscal capacity. The Atlantic Accord of the Liberals was based mostly on short-term, despicable, electoral criteria. To track the fiscal capacity of the provinces, the formula has to tax away from them 100% of economic rents. It is important that the formula doesn’t tax any of the other three types of income (wage, profits and interest). Rents are the only type of income that is undeserved and rents are the only type of income that can be taxed without changing the incentives of economic agents.
[ 05 November 2008: Message edited by: Benoit ]
Wed, 2012-04-25 12:33
#13
Boom Boom
I thought I'd bump this thread because Alberta's WRA called for Alberta to drop out of equalization (and CPP). This idea was in Harper's 'firewall' letter originally as far as I know.
and I found this item:
Equalization payments in Canada
excerpt:
Late January 2012, based on access to the uncensored version of a 2006 censored federal report by Peter Gusen, then director of federal-provincial relations at the finance department, entitled 'An Operational Expenditure Need Equalization Formula for Canada', the Toronto Star alleged that Ontario and BC were shortchanged in the equalization system because wages and cost-of-living expenses were never taken into account by Ottawa
Wed, 2012-04-25 13:09
#14
Boom Boom
The WRA's (and Stephen Harper's) plan to take Alberta out of equalization is fucking disgusting - because that province alone is responsible for the "Dutch Disease" here - not to mention being the most polluting project on earth. I think an argument can be made that Alberta should be penalized for inflicting this hardship on the rest of Canada - especially on Ontario and Quebec.
Wed, 2012-04-25 13:57
#15
Boom Boom
It has occurred to me that Tom Mulcair was right on when he spoke a while ago about the Dutch Disease - as Canada slides deeper and deeper into the Dutch Disease thanks to the Alberta Tar Sands, the rest of Canada (excluding Alberta) will need greater and greater equalization payments.