This presentation looks at federal government transfers for Canada. The focus is on equalization and what needs to change.

1. TRUTHS ABOUT CANADIAN
EQUALIZATION PAYMENTS
BY: PAUL YOUNG, CGA, CPA
DECEMBER
21, 2018

2. DISCLAIMER
• This presentation discusses Truth about Equalization

3. PAUL YOUNG - BIO
• CPA, CGA
• Academia (PF1, FA4 and MS2)
• SME – Risk Management
• SME – Close, Consolidate and Reporting
• SME – Public Policy
• SME – Financial Solutions
• SME – Supply Chain Management
Contact information:
Paul_Young_CGA@Hotmail.com

4. AGENDA
• GDP Growth 2010-2014
• Equalization/GDP Growth
• Comments from Alberta
• Comments from Newfoundland
• Tuition Example (Equalization)
• Bottom line

5. SUMMARY
• Equalization Payments
• https://www.theglobeandmail.com/news/politics/ontario-to-lose-equalization-payments-as-albertas-economic-fortunes-fall/article27831080/ “Ontario will
shed its status as a poor cousin of Confederation in the coming years, not because its economic fortunes are rebounding, but because resource-rich Alberta is
falling on tough times. The federal government is expected to announce how much each province will receive in the fiscal year 2016-17 from transfer payment
programs, which include equalization, before Finance Minister Bill Morneau meets with his provincial and territorial colleagues in Ottawa on Sunday evening.
• http://business.financialpost.com/pmn/business-pmn/provinces-feds-to-debate-proposed-changes-to-ever-divisive-equalization-program “British Columbia
Finance Minister Carole James said in an interview that the federal government is proposing a change to include non-residential property values as part of the
complex calculation. The adjustment would likely make it more difficult for provinces with property values well above the national average — such as B.C. and
Ontario — to qualify as recipients of equalization payments from Ottawa.
• http://www.cbc.ca/news/canada/newfoundland-labrador/tom-osborne-equalization-newfoundland-1.4445339 - Newfoundland and Labrador's finance
minister says the province should get a better equalization deal from the federal government. "When you see other provinces with a smaller geography and a
much larger population and are receiving a large portion of equalization payments, I challenge anybody to explain to me how Newfoundland and Labrador is
still considered a 'have' province," Tom Osborne told CBC's Here and Now on Tuesday evening.
• Facts:
• “The PBO report also takes a close look at the fiscal health of the provinces, warning that provincial finances are not sustainable. The report singles out
Quebec and Nova Scotia for praise, but warns that Alberta's finances stand out as a point of concern.
https://www.theglobeandmail.com/news/politics/morneau-prepares-fall-update-as-pbo-report-shows-improving-federal-finances/article36498817/
• Too many provinces have been growing their public sector payrolls faster than the private sector - http://torontosun.com/2015/06/25/public-sector-job-
growth-stronger-than-private-sector-study/wcm/cf67a4a9-9036-4eb0-a18d-c7b0ccc44920
• Too many provinces are holding up projects that would increase economic growth that would leader to higher tax dollars.
•
• The old saying it is easy to fix a problem with money, but takes
something special to fix a problem without money!!

6. FEDERAL GOVERNMENT AND EQUALIZATION
• “The Globe and Mail first reported earlier this week that the Liberal
government quietly renewed the equalization formula in its 2018
budget, so it will stay in its current form until 2024. But Tom
Osborne says it's frustrating N.L. is considered a "have" province
under that formula — despite its current fiscal situation. "We've
got a very large geography, one of the most widely dispersed
population in all of the country, we've got very rural areas. So this
province is expensive to maintain," said the finance minister Friday.
"When you look at other provinces with smaller geographies and
twice the population, that's not taken into account," he added. ” -
https://www.cbc.ca/news/canada/newfoundland-labrador/finance-
minister-wants-new-equalization-rules-1.4719209
• Equalization payments have long been a contentious issue between
the Canadian government and provinces.
• The payments are once again in the news this week, after it
came to light that the formula for how the money is
distributed will stay the same until 2024.
• Source - https://globalnews.ca/news/4290676/equalization-
payments-canada-provinces/
• Liberals hold 152 seats in areas that received
equalization
• Liberals are concerned about losing seats in AB
and SK as such focus is on their existing areas to
hold power after the next election

7. GDP GROWTH

8. GDP GROWTH / FORECAST
Source - http://www.rbc.com/economics/economic-reports/pdf/provincial-forecasts/provtbl.pdf or http://nationalpost.com/news/politics/why-are-albertans-so-mad-everything-you-need-to-know-about-the-federal-equalization-program
• Quebec has run surpluses for the
past two years
• Ontario GDP has been growing
for a few years
• Oil prices have struggle to get
above $50/Barrel
• PQ receives close to $12B in
equalization -
https://www.fin.gc.ca/fedprov/m
tp-eng.asp#Quebec Yet Quebec
refuses to allow the East-West
Pipeline to be built -
http://www.cbc.ca/news/canada
/montreal/energy-east-pipeline-
quebec-politicians-victory-
1.4338579
• Sharing between have and nots is
not working
• Trudeau cares more about votes
than he does about ensuring the
transfer program is fair and
equitable to all provinces.

9. GROWTH RATES 2016-2018 Equalization Facts:
• Ontario $1.8B in equalization for 2017
and its economy is growing at 2%+
• Quebec will receive $10B in
equalization and had a $2B budget
surplus for 2015-2016
• Pipelines to move oil from AB to east
coast refineries would increase
revenue for both SK/AB which would
help their economy and lead to more
money for equalization. Ontario and
Quebec do not support the pipeline
• Quebec has one of the lowest tuition
rates in Canada while Alberta has one
the highest
Source - http://www.rbc.com/economics/economic-reports/pdf/provincial-forecasts/provfcst-dec2017.pdf

10. COMMENTS/ALBERTA – EQUALIZATION
• Another surprising conclusion is the extent to which equalization is only part of the transfer picture: from 2007 to 2014, Albertans sent $190
billion, or $24 billion a year on average, more to Ottawa in taxes than we ever got back.
• One example of the ways this occurs besides equalization is the employment insurance program.
• The equalization fairness panel notes that EI is much easier to get, and for a lot longer, in eastern provinces. Nearly 100 per cent of the
unemployed in Newfoundland, P.E.I. and New Brunswick receive EI benefits, compared with about 55 per cent in Quebec and about 38 per cent
for Ontario and Alberta. In 2013, Albertans paid $1.9 billion more into EI than we received back in benefits.
• Many Albertans have learned first hand about one of the biggest discrepancies: fishers are one of the only self-employed groups who can get EI.
While job loss numbers show over 100,000 Albertans have lost work over the past year, there are tens of thousands more self-employed
contractors who have found themselves out of work and haven’t received a penny in regular EI benefits.
• We simply cannot afford the status quo any longer.
• The panel’s report has six recommendations to get our country moving in the right direction. They include re-evaluating what exactly the
constitutional support for equalization means, fundamentally restructuring the equalization formula, fixing regional imbalances in the current
employment insurance program and calling on the Alberta government to establish a special commission to examine the finances of the
federation
• Source - http://calgaryherald.com/opinion/columnists/jean-canadas-equalization-system-is-broken-and-we-need-to-fix-it

11. COMMENTS / NEWFOUNDLAND
• Finance Minister Cathy Bennett said Thursday she is disappointed Quebec asked the federal
government to not extend a loan guarantee for her province’s Muskrat Falls hydroelectric project.
Bennett says Quebec just announced it would post a surplus of $2.2 billion in the 2015-16 fiscal year
while receiving $10 billion in equalization payments. Bennett told reporters Newfoundland and
Labrador will face a $1.6-billion shortfall this fiscal year and is scheduled to receive nothing in
equalization. She says Quebec should take into account Canadian values in its relations with its
neighbours in Confederation. The Muskrat Falls project has seen its cost estimate increase to $11.4
billion from the initially projected $6.2 billion.
• Source - http://www.thetelegram.com/Business/2016-10-27/article-4673603/Newfoundland-and-
Labrador-reminds-Quebec-about-Canadian-values-on-hydro-project/1

12. NB / EQUALIZATION
• https://www.cbc.ca/news/canada/new-brunswick/nb-higgs-equalization-pipeline-1.4953187
• NB has forestry and mining resources that have been neglected to bad policies of the previous govts
• PQ has no incentive to do anything as they get their increases
• It is time to make bold moves to better support economic growth which in turn leads to more sharing of
taxation across Canada. Transfers are tied to GDP growth. Maybe it is time to tie equalization more to
areas like property taxation capacity or GDP growth or natural resources reserves or other areas.

13. COMMENTS/KEY POINTS
• Source : - http://www.statcan.gc.ca/daily-quotidien/160907/dq160907a-eng.pdf
Comment
• Quebec has one the
lowest tuition rates in
Canada. Quebec is also the
recipient of over $10B in
equalization.

14. MINING RANKING / CANADA
Source - http://www.thestarphoenix.com/business/energy/worst+destination+canada+investors+survey/15977452/story.html

15. NATURAL RESOURCES
Source - https://www150.statcan.gc.ca/n1/pub/13-604-m/13-604-m2018088-eng.htm

16. NATURAL RESOURCES
Source - https://www150.statcan.gc.ca/n1/pub/13-604-m/13-604-m2018088-eng.htm

17. TUITION RANKING / COST
Source - https://www.theglobeandmail.com/news/national/education/canadian-university-report/what-it-costs-
to-go-to-university-in-every-province/article32375427/

18. EAST-WEST PIPELINE
• In Atlantic Canada we need to be reminded of how the oil refining business has been sustained.
More importantly, that its presence has maintained a viable linkage to national resource
development and export trade.
• The Irving Oil people commenced refining at approximately 50,000/bld [barrels per day] in the early
1960s. It is now the largest and likely most modern refinery in Canada.
• But this feat has not been easy. Some readers will remember that at one point within the past three
decades Nova Scotia had three refineries: Gulf at Point Tupper, Texaco at Eastern Passage and
Imperial Oil at Dartmouth. The only other refinery as of this date in Atlantic Canada is the older and
smaller refinery at Come-By-Chance, N.L. A smaller refinery at Conception Bay has been shut down.
• So one can concede that there is room to use existing technology to further clean bitumen-based
petroleum and to improve pipeline technology. But society has become overconsumed with the
idiosyncrasies of social and environmental issues at the expense of economic growth. An
unintentional consequence of this reality is a form of embargo on meaningful future development of
Canada West Oil resources, including development of future technologies for oil cleansing and
value-added products.
• In Eastern Canada, Irving Oil has maintained and grown the single largest oil refining plant in the
country and likely along the Atlantic seaboard. Just recently, Irving announced completion of its new
$80-million Halifax Harbour Terminal. As a small but important region, we are indeed fortunate that
the Irvings have secured a major and forceful presence here in the refining and petroleum
distribution sector.
• Source - http://www.capebretonpost.com/Opinion/Columnists/2016-10-31/article-
4676049/Atlantic-Canadians-should-support-pipelines-/1
Comment:
• Quebec continues to fight
expansion of East-West Pipeline.
PQ receives $10B of equalization.
• Ontario has also fought the East-
West Pipeline. Ontario receives
about $1.8B un equalization
• Alberta Oil could help make Canada
Energy Independent as well as
expand exports of oil to markets.
East-West pipeline would support
refineries and exports to Europe as
well as other markets.

19. KINDER MORGAN / PROJECT
Source - http://www.delta-optimist.com/news/group-plans-blockade-of-kinder-morgan-construction-1.23122217 or http://www.conferenceboard.ca/press/newsrelease/16-01-06/economic_benefits_of_trans_mountain_pipeline_go_well_beyond_construction_period.aspx

20. 2018-2019 - EQUALIZATION
Source - https://www.theglobeandmail.com/politics/article-quebec-to-receive-14-billion-equalization-boost-while-oil-
producing/

21. FINANCE MINISTERS
Source - https://www.ctvnews.ca/politics/equalization-formula-a-hot-topic-as-finance-ministers-meet-1.4211228
It's up almost $880 million from the current year, but that amount will be split among just five provinces -- Quebec,
Manitoba, Nova Scotia, Prince Edward Island and New Brunswick. For the first time since the 2008 recession put Ontario on
the have-not province list, Ontario is not among them.
Quebec on the other hand is getting more than $13 billion from the program, an increase of nearly $1.4
billion.
Technically Ontario's economic growth was good enough in 2016-17 to push it out of have-not status, when a province's
finances are considered lower than average and qualifies them for equalization.
However because of the way the program works, Ontario still received $963 million in 2018-19.
The government was well aware it would not be qualifying this year for equalization but Ontario Finance Minister Vic Fedeli
said it's further proof of why the equalization program needs an overhaul. He said Ontario will contributed $8 billion into
equalization, and won't get anything from it. Overall Ontario will give Ottawa $12.9 billion more in taxes than it will receive
from federal spending, he said.

22. BOTTOM LINE
• Equalization agreement is up in 2018. A new deal is required to ensure there is proper balance in terms of
sharing of revenue.
• Provinces need to break down internal trade barriers. Internal trade barriers are leading to issues with
productivity as well as profitability for companies.
• PQ is holding up projects like East-West Pipeline and yet gets nearly $11B in equalization from AB, NF and SK
• Federal government and provinces need to work together to improve economic growth across Canada.
• Federal government and provinces need to focus on reducing regulations. C69 is poorly constructed bill that
could add years to getting Natural Resources projects off the ground
• All levels of governments are not doing enough when it comes to economic development
• All levels of government need to focus on being more business competitive.
https://www.slideshare.net/paulyoungcga/business-competitiveness-canada
•

23. Q&A
• Contact: Paul Young
• Paul_Young_CGA@Hotmail.com