Introducing 

Prezi AI.

Your new presentation assistant.

Refine, enhance, and tailor your content, source relevant images, and edit visuals quicker than ever before.

Loading content…
Transcript

Who Benefited from the program

Conclusion and Recommendations

  • British-Colombia and Saskatchewan have relatively low fiscal revenues but these low revenues are compensated with the rents from natural resources.

  • Because of its petroleum industry, the capacity of the province of Alberta to gain revenues from natural resources is also relatively higher than the other provinces.

  • With respect to Ontario, its capacity to gain fiscal resources from sectors other than natural resources prevents it often from being a recipient.

  • Quebec, Prince Edward Island, New Brunswick, Manitoba have low fiscal capacities in term of revenues from natural resources or any other revenues which makes them often recipients.
  • The Equalization Program is a redistribution program that permits an equalization of fiscal capacities with the help of transfers from richer provinces to poorer provinces.

  • The program was constantly reformed due to the formula not always satisfying for some provinces often due to the way natural resources are included and how the average is calculated with the exclusion of some provinces.

The National Standard as an Average of 2,5 or 10 provinces

  • The program was criticized by many due to the incentives it created for receiving provinces to have an inefficient strategic behavior or to spend inefficiently.

  • Also, many criticized the program for going against the constitution due to the fact that provinces are the only owner of their natural resources and shouldn't be taxed on them.
  • One other problem is that the national standard was calculated according to the average of the two richest provinces in the beginning of the program

  • It was then changed for the average based on the total number of provinces and then again, changed to be calculated based on 5 provinces eliminating the extremes. Now it is back to 10.

  • The reason was simple, if the richest provinces were included in the average, they would have to pay extremely high amounts to the other provinces

Conclusion and Recommendations

Natural Resources Rate of Inclusion

How to integrate natural resources in the equation; exclude them all, include them all or partially include them?

  • Eliminate inefficient strategic behaviors from provinces that have incentives to prevent the development of their natural resources or to under-price them with the idea of receiving grants.

  • Prevent provinces from changing their fiscal policy with the intent of receiving more equalization payments.

  • It is not reasonable to not include all of the natural resources

  • the volatility of revenues of natural resources should be a sufficient argument to exclude natural resources from the formula.

  • excluding them all would be an advantage for richer provinces that might have really high revenues from natural resources.

The rate of inclusion has changed during the years but now is at 50%.

How The program Works

Natural Resources Problem

Theoretical Model

What is the Canadian Equalization Program

Boadway and Latter (1982)

  • Provinces are the owner of the natural resources present in their territories according to the constitution.

  • If natural resources are included in the formula, it is equivalent, for some, to taxing natural resources which is anti-constitutional.

  • Natural resources are often brought in discussion when analyzing inter provincial transfers because they are the principal reason for high differences in fiscal capacities between provinces.
  • The idea behind the Equalization Program is to make inter-provincial transfers in order to achieve equivalent national standards for social services but also the ability for citizens across provinces to pay relatively similar taxes.

  • It is important to keep in mind that it is of the responsibility of provinces to choose the social services they want to provide and generate revenues with a taxation program to finance them.

« Labour is mobile between provinces and will be allocated up to the point where the after-tax wage rates and benefit from provincially provided public services are equalized across regions »

  • The program ensures equalization between provinces with lower fiscal capacities and greater fiscal capacities

  • « Canada’s Equalization system is essentially a gap-filling formula. The formula determines how much revenue a province could raise on its own if it levied national average tax rates, and compares this to a given standard. If a province’s per capita revenue-raising capacity falls short of this standard, Equalization fills the gap.» (Jean-Thomas Bernard,2012)

  • Problems with the formula
  • Natural resources inclusion
  • National Standard as an average of 5 provinces
  • The model is supportive of the equalization program and gives an argument of efficiency when saying that it has a function of redistribution until when the net fiscal benefits will be equalized across provinces .
  • The model also gives an equity argument when it says that the program creates a horizontal equity where a citizen of a poorer province will pay the same relative amount of tax as a citizen of another province while receiving the same level of quality of social services like health and education at the point where net fiscal benefits will be equalized.
  • Having to assume relatively the same fiscal burden for the same relative level of services across all provinces whether the province is poor or rich prevents from inefficient migration and permits a better repartition of labour, which causes similar marginal productivity of labour.

The Figure shows the provincial expenditures and equalization rights per resident from 2008 to 2009.

Historical Context

  • It is not until 1957, after the Second World War, that the Equalization Program was implemented;

  • And written in the constitution in Subsection 36(2) of the Constitution Act of 1982

“Parliament and the government of Canada are committed to the principle of making equalization payments to ensure that provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation.”

Arguments Against The Program

  • Incentives for inefficient strategic behavior

  • Provinces are responsible for their taxation policies and can change their fiscal capacities results to influence on the equalization revenues
  • Block development
  • Case of Quebec Newfoundland and Labrador

The Canadian Equalization Program

Historical Context

  • Recipient will more often use their money for higher expenses and higher taxes rates to increase the gap between fiscal capacities and be far from the average.

  • It is often the same recipient provinces that have higher levels of public services and, to support this argument, the case of Quebec with its lower cost for education and its famous childcare program is often mentioned.
  • The Rowel-Sirois commission was created by the federal government in 1937 with the objective of analyzing the distribution of power between the federal government and the provinces and its pertinence in a context of social and economic changes.

  • Recommendations where made in relation with the necessity to implement a system of national adjustment grants to provinces with the most financial difficulties to keep social services like health services and education in the same national standard.

Outline

The Cost of Land

  • The figure shows the annual growth rate of provincial per capita expenditures.
  • It can be observed that Alberta has the lower rate while Newfoundland and Labrador have the highest.
  • Provinces that have lower per capita incomes because of migration are compensated with lower land costs. A transfer is made inefficiently between richer provinces that pay higher rates for lands, and lagging provinces that have lower wage rates but also lower rates for lands?
  • Historical Context
  • What is the Canadian Equalization Program
  • How it works
  • Who benefited from the program
  • The natural resources problem
  • Theoretical model
  • Argument for and against the program
  • Conclusion and recommendations

The percentage of Quebec residents out of the total number of Canadian residents between 1921 and 2011 is illustrated in the figure.

  • The percentage of Quebec residents out of the total number of Canadian residents between 1921 and 2011 is illustrated in the figure.

We can observe the decrease of population after the program was implemented.

  • In 2010, the per capita income of Quebec was around 12% lower than this of Ontario.

  • Thus, living in Montreal was 11% cheaper than living in Toronto at the same time, which could be the result of lower cost of lands in Quebec.

By Amira Khadr (6586679)

November 25th, 2014

  • Incentives for inefficient strategic behavior

  • Provinces are responsible for their taxation policies and can change their fiscal capacities results to influence on the equalization revenues
  • Block development
  • Case of Quebec Newfoundland and Labrador
Learn more about creating dynamic, engaging presentations with Prezi