As appeared on page A5
Never let an inconvenient fact get in the way of a good argument. That appears to be the approach of some provinces when discussing potential changes to
Equalization in principle is rather straightforward — it takes money from all Canadians and distributes it to provincial governments with comparatively weak revenue streams, so that provinces have comparable revenues from which to offer comparable public services.
The federal government has said it will fix equalization, and most reports indicate it will rely heavily on the recent O’Brien report — named for its chair, Al O’Brien, who was
Among other things, Mr. O’Brien recommends changes in the treatment of resource revenues — revenues from oil and gas, forestry, potash and hydroelectricity. Since 1981, equalization payments have been calculated using all resource revenues, except for those from
The O’Brien report suggests simplifying this by doing two things. First, it proposes lumping all types of resource revenues together — an important simplification. Second, it proposes including half of all resource revenues from all provinces in the calculation of equalization.
Believe it or not, this second point is where some provincial governments get nervous and make three popular arguments against including resources in the calculation of equalization.
First, provinces tell
The first argument is a good one — provinces do, and should, have constitutional ownership over resources. But there are two inconvenient facts in this context. First, equalization per se has little to do with ownership of resources.
The second argument is rubbish. If the cost of equalization increases, a Newfoundlander earning $100,000 will pay exactly the same for equalization as an Albertan making $100,000. Equalization is paid for out of money that
The third argument is an appeal to principle. And there is a very good principled argument to make for excluding resource revenues from equalization. Resource revenues are not the same as income tax or sales tax revenues. They are, to use accounting terms, more like the proceeds from the sale of a capital asset than they are revenues from operations. And just like the baker who uses the proceeds from the sale of his oven to pay his employees will soon go broke, so resource revenues should not be spent and considered part of annual government revenues. Hence, resource revenues should not be part of the equalization calculation.
Now, you would think that provinces that appeal to this principled argument — most often
During the past 10 years,
Rather inconvenient facts for these O’Brien report skeptics.
Ken Boessenkool, general manager of Hill and Knowlton