Preamble: Equalization is a federal transfer program that allows all provinces, regardless of their ability to raise revenue, to provide roughly comparable levels of services at roughly comparable levels of taxation. Eligibility to receive equalization funding is determined by a formula measuring each province’s revenue-raising capacity against a five-province standard.

Currently, eight provinces receive equalization: Newfoundland, Prince Edward Island, Nova Scotia, New Brunswick, Quebec, Manitoba, Saskatchewan and British Columbia.

Since 1999 Manitoba has seen equalization payments increase by close to $500 million.

Resolution: That the Government of Manitoba set a target to reduce its reliance on equalization payments by a minimum of 10 per cent per year with a goal to eliminate its reliance on equalization payments from the federal government in an effort to generate economic growth.

Resolution Report:

MCC Advocacy(additions since last report are in italics):

May 21, 2008: An MCC ‘Inside the Chamber’ Web Story entitled “IT HAPPENED AT THE AGM: PART 3 – MCC Announces Resolutions For 2008-2009″ provided access to each and every Resolution passed at the AGM. Notice of this story was circulated through the MCC e-Omnibus which is sent to all MCC members, Media and Government.

June 4, 2008: For the first time ever the MCC made available its handbook on ‘Policies & Resolutions’ which contains Resolutions in one handy format. An MCC ‘Inside the Chamber’ Web Story entitled “MCC Releases Policy Handbook” announced this initiative. Notice of this story was circulated through the MCC e-Omnibus which is sent to all MCC members, Media and Government.

June 6, 2008: Resolution books were sent to every MLA and every Member of Parliament that hails from Manitoba. The following had this Resolution specifically drawn to their attention with a detailed letter setting out the background to this issue, Government initiatives (where applicable), and an argument for the Resolution:

• Premier
• Minister of Finance  

October 2, 2008: Forwarded a Resolution report to the local chamber that sponsored this Resolution seeking input as to how this issue can move forward.

October 20, 2008: The 2008 third quarter edition of the Focus mentioned this Resolution in its report on the MCC AGM. The Focus magazine goes out to 10,000 businesses and community leaders across Manitoba.

December 3, 2008: A web story covering the Minister of Finance’s edition of the MCC Speaker Series highlighted this Resolution. Notice of this story was circulated through the MCC e-Omnibus which is sent to all MCC members, Media and Government.

Developments (additions since last report are in italics):

September 30, 2008: The Minister of Finance wrote to the Manitoba Chambers as follows:

Manitoba will receive $2.06 billion in Equalization in 2008/09, representing an estimated 20.9% of total core provincial revenues for the year. Since 1990/91, Equalization payments as a share of core revenues have ranged from 17.2% (in 1991/92) to 20.8% in 1994/94. I believe the higher payments over the past few years are not an indication of reliance on Equalization but an outcome of the federal government’s renewed commitment to the program and to addressing the fiscal imbalance in Canada. 

For example, in response to provincial concerns over the operation of the Equalization program and concerns over fiscal disparities, particularly concerning natural resources, the federal government announced a comprehensive review of the program by an independent panel of experts. The recommendations of the Expert Panel were accepted by the federal government and were implemented as part of the renewed and strengthened Equalization program announced in the 2007 federal budget. The new program is rules-based and issues a ‘10-provicne standard’ to ensure that Equalization brings the revenue-raising capacity of each province closer to the national average. However, revenues from user fees and 50% of natural resource revenues were excluded from the standard.

The Chamber’s resolution indicates a concern over the stability and predictability of Equalization. The renewed program introduces a number of improvements in this regard, such as a three-year moving average calculation that ensures more predictable and stable payments over time. The renewed program has also been legislated through 2013/14. The media have reported that federal Finance Minister Flaherty confirmed the federal government’s confidence in the Equalization program when he suggested the program would not be revised in response to economic developments that may raise the cost of the program, such as Ontario’s possible inclusion in 2010/11.

It should be noted that the Equalization program is just one of the three major federal transfers (in addition to the Canada Health Transfer and Canada Social Transfer) and all should be considered together when assessing transfers to the provinces.

In aggregate, it is the larger, so called ‘have’ provinces that have benefited most from the federal reinvestment in Equalization, and health and social transfers. Since 1999/2000, major transfers to Ontario, Alberta and BC have increased 169%, 131% and 110%, respectively. Manitoba’s increase (82%) was far lower and below the increase for the provinces as a while (88%). It is notable that although Manitoba has seen an increase in major federal transfers, its share of the total transfer ‘pot’ has actually declined from 7.1% in 1999/00 to 6.9% in 2008/09. Across Canada, 87% of the increases in major transfers from 1999/00 to 2008/09 can be attributable to the restoration of federal funding for health care and social programs, while only about 13% of the increase can be attributed to increases in Equalization. 

There is no evidence to support the suggestion that Equalization is a disincentive for economic growth. In fact, Manitoba’s strong economic performance proves they go hand in hand.

• Manitoba’s stable and diversified economy has expanded by almost 30% in real terms over the past decade.
• Since 2000, productivity increase (real output per hour worked) has averaged 1.5% per year, above the 1.1% national average and third highest among provinces.
• Capital investment in Manitoba is strong, up 16.8% in 2007, the highest among provinces. Private investment in 2007 was also strong, increasing 9.5% over 2006, the second-highest growth rate in the nation.
• Manitoba experienced record population growth in 2007, the fourth best among provinces, as well as an increase in interprovincial migration into Manitoba in the fourth quarter. This growth reflects confidence in Manitoba’s economy.
• Manitoba has consistently posted one of the lowest unemployment rates (4.4% – fourth lowest in 2007) and among the highest labour force participation rates (69.4% – third highest in 2007) among provinces.  

The impact of natural resource revenues on provincial fiscal capacities is significant: according to their 2008 Budgets, Alberta expects to receive about 30% of its provincial revenue from natural resources (plus another 10% in federal transfers) while Saskatchewan expects to receive 20% of its budget from natural resources (plus 15% in federal transfers). In contrast, Manitoba’s natural resource revenues including water power rentals are less than 2.5%. 

November 3, 2008: CBC News reports on a meeting with the provincial Finance Ministers and federal Finance Minister Jim Flaherty. The ministers gathered to discuss the global financial crisis, a possible recession and plans to curb growth in equalization payments, which the finance minister said were increasing at an “unsustainable” rate of about 15 per cent a year.

Flaherty again warned that without capping those cost increases, the government risks running a deficit and bankrupting the equalization program.

“Quite frankly, I don’t think Canadians will have any difficulty in saying that’s the responsible thing to do,” he said.

Ontario will get $347 million while Quebec will get $8.35 billion, Manitoba $2.1 billion and P.E.I. $340 million in transfer payments. Nova Scotia will receive equalization payments of $1.57 billion and New Brunswick $1.69 billion.

January 27, 2009: The Federal Budget stated as follows:

Budget 2009 includes three structural changes, which were announced in the November 27, 2008 Economic and Fiscal Statement:

The Government will ensure the Equalization program continues to grow in a way that is sustainable and fair. Without action, Equalization would have grown to $16 billion in 2009-10 and almost $20 billion in 2010-11, which would have been unsustainable. The Government is taking action to ensure that the Equalization program grows in line with the economy. Other transfers to other levels of government will also continue to grow. Over the forecast horizon, growth in major transfers to other levels of government is expected to average 5.2 per cent a year.

 Current Status (additions since last report are in italics):

January 28, 2009: The MCC is still attempting to get feedback from the chamber that sponsored this issue. Given the Minister’s comments as well as the economic climate, this Resolution needs to be re-evaluated.