h.f. wolff
Active Member
Posts: 229
Posted: Sat May 27, 2006 2:01 pm
[QUOTE BY= Brother Jonathan] I hope that all of you will forgive my current ignorance of equalization payments in the questions and comments that follow; I’d appreciate learning where my current understanding is off-kilter …<br />
<ul><br />
<li>Don’t equalization payment dollars come from Ottawa, rather than from the provincial treasuries? If that is the case, does the Ontarian 20 B$ discussed above refer to Ontario’s contribution of federal income taxes, or to some other provincial pot of money?</li><br />
<br />
As far as I know its based on the taxes the feds collect in each province. The feds in turn spend this money on common expenditures such as leaky second hand submarines, pension plans (except Quebec) expeditions into Afghanistan.....you get the idea. The feds also turn over a large part of their revenues to provincial governments through cost sharing of various programs such as post-secondary education, health care, child care in Quebec, etc.<br />
<br />
All provinces and territories receive more, sometimes much more, in federal cash and services than the feds collected in that jurisdiction EXCEPT for Alberta and Ontario. Hence the statement (substantiated by independant audit) that Ontario ante's up $20 Billion more each year than it receives in federal payments and services.<br />
<br />
<li>Isn’t the equalization payment agreement already open to public scrutiny, e.g. via the <i><a href="http://laws.justice.gc.ca/en/F-8/241876.html">Federal-Provincial Fiscal Arrangements Act</a></i> / <i><a href="http://lois.justice.gc.ca/fr/F-8/243529.html">Loi sur les arrangements fiscaux entre le gouvernement fédéral et les provinces</a></i>?</li><br />
<br />
No, as I have tried to explain in a post below. <br />
<br />
<li>Given the existence of the “five-province standard” for determining the baseline revenue capacity, and given that Ontario is among those five provinces, wouldn’t a reduction in Ontario’s revenue capacity also reduce that baseline, and thereby reduce equalization payments?</li><br />
</ul><br />
[/QUOTE]<br />
<br />
Mathematically you are correct.<br />
<br />
But ask yourself these questions: <br />
<br />
Why is the baseline for transfer payments based on 5 provinces?<br />
<br />
Why not on all 10 provinces including 3 territories?<br />
<br />
Why include Alberta and/or Ontario in establishing the baseline for equalization?<br />
<br />
Mathematically the reason is to make the baseline index as high as possible, ie. increase the amount of the transfers. This is accomplished by a) leaving out the lower indecies which would reduce the average; b) include higher indecies which raise the average, ie. Alberta and/or Ontario.<br />
<br />
What in fact is done is that some sharp federal mandarins establish a mix that many people and politicians don't follow or understand, agree to in order to get the deal done, or go golfing, or for donuts. <br />
<br />
(If you think I exaggerate just look up the financing deals Toronto and Waterloo city politicians signed: It turned out the loan agreements were for more than 2x the amount the politicians and their advisors thought they had signed. Some of these turkeys (advisers / managers)were paid more than $150,000 per year! The deals were for $220,000,000 in the case for Waterloo, a city of 100,000, and $80,000,000 in the case for Toronto for computer rentals).) (That's right, 220 million and 80 million).<br />
<br />
You will note that establishing the baseline is quite an arbitrary task and has absolutely nothing to do with fairness, equity, brotherly love, etc., but strictly on what will cause the least amount of political fallout from either the payer or the payee: the squeaky wheel gets the grease.<br />
<br />
Thus Ontario will have to holler long and loud to be heard and have a more equitable arrangement implemented.<br />
<br />
H.F. Wolff<br />
<br />