This time, Alberta has it right about equalization reform
There goes Alberta, griping about equalization again. But hold that eye-roll. This is not another vaporous tirade about the province being forced to shovel billions of dollars eastward on a never-ending gravy train.government pays nothing into equalization, but the province’s residents pay a lot, in the form of federal taxes.thoughtful proposals
But the formula to achieve that goal has changed many times in the last six decades; it can and should change again.draw a connection, rightly, between the equalization program and the biggest public policy challenge facing Canada: how to increase economic growth rates. The current, complicated formula calculates the fiscal capacity of the provinces, using average tax rates. Those average tax rates are then applied to various tax bases to determine a province’s fiscal capacity . It’s that theoretical ability, not actual tax revenues, that determines a province’s equalization payments.
To address this problem, Alberta proposes a simplified way of calculating equalization, basing it on each province’s per capita gross domestic product. That would be the yardstick for payments. The change was intended to constrain the growth of equalization, but in recent years it has acted as a floor rather than a ceiling, with more being spent than needed to simply bring poorer provinces up to the national average. Alberta estimates that $2.3-billion could be saved in the current fiscal year if that 14-year-old rule were to be scrapped.
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