By Kate Wright
As appeared on page A1
Economists warn that changes to the federal equalization formula will prevent New Brunswick from becoming a more prosperous province.
The calculation for Ottawa’s new formula includes 50 per cent of a receiving province’s wealth from natural resources. With no major source of resource revenue like Nova Scotia and Newfoundland’s protected offshore oil revenues, New Brunswick is put at a disadvantage, said Wade Locke, senior policy analyst for the Atlantic Provinces Economic Council.
Under the old equalization formula, Locke said, there was a system of fixed funds available to help boost the province’s fiscal rating. The fixed framework ensured New Brunswick would be treated similarly to other receiving provinces in terms of equalization and per capita fiscal capacity. That refers to the provincial government’s ability to pay for goods and services.
New Brunswick has one of the lowest fiscal capacities in the country because it is one of the least populated provinces. After the equalization transfer, New Brunswick’s per capita fiscal capacity is $6,361, second only to Prince Edward Island, with a capacity of $6,316. Some provinces, such as Alberta, have nearly double that capacity.
Locke said provinces such as New Brunswick have taken a hit under the new calculation process.
“(New Brunswick) doesn’t have the same capacity to fund goods and services that others do — it’s an issue without a doubt,” he said. “The end result of the system now is after equalization is taken into account, all equalization receiving provinces will not have the same fiscal capacity they would have under the old system.”
But New Brunswick’s regional minister, Greg Thompson, said the province is already better off under the new equalization system and is being treated well by the federal government. He said it’s become nearly impossible to please all 10 provinces and changing the equalization formula to reflect individual provinces’ needs has been something governments have struggled with for decades.
He said New Brunswick is “just one province among many.”
“How do you re-jig the formula so that all provinces agree on how it might work or how it might impact on their respective provinces?”
The province is set to receive a total of $1.477 billion from the federal government this fiscal year, compared to the $1.435 billion included in the provincial budget. Last year, the province received $1.451 billion in funding from Ottawa. The federal budget gives Quebec an extra $1.6 billion, an increase of 29.3 per cent, in equalization payments while New Brunswick gets an additional $26 million, an increase of 1.8 per cent.
Premier Shawn Graham had taken issue with the equalization changes, saying the new formula doesn’t address the individual needs of each province. The premier said a merit-based approach to federal programs is vital since the equalization program isn’t addressing fiscal disparity.
Bobby O’Keefe, senior policy analyst with the Atlantic Institute for Market Studies, said being at the bottom of the fiscal capacity list isn’t necessarily a bad thing, as long as New Brunswick’s services are on par with national powerhouses like Ontario and Alberta.
He said the federal government may be getting more for its money in smaller provinces such as New Brunswick and Prince Edward Island, so the differences in fiscal capacity may even out.
But without a way to measure value for services between provinces, O’Keefe said it’s unclear whether the difference in fiscal capacities is fair.