Equalization payments in Canada - Wikipedia, the free encyclopedia. In Canada, the federal government makes equalization payments to less wealthy Canadian provinces to equalize the provinces' . A province that does not receive equalization payments is often referred to as a . The federal government addresses territorial fiscal needs through the Territorial Formula Financing (TFF) program. Calculating payments. The current formula considers five major revenue sources (see below). The objective of the program is to ensure that all provinces have access to per capita revenues equal to the potential average of all ten provinces. The formula is based solely on revenues and does not consider the cost of providing services or the expenditure need of the provinces. Equalization payments happen via the federal treasury. As an example, a wealthy citizen in New Brunswick, a so- called . However, because of Alberta's greater wealth, the citizens of Alberta as a whole are net contributors to Equalization, while the citizens of New Brunswick are net receivers of Equalization payments. Equalization payments are one example of what are often collectively referred to in Canada as . The money the provinces receive through equalization can be spent in any way the provincial government desires. The payments help guarantee . Due to the zero- sum nature of the formula, increases in entitlements for some provinces necessarily lead to decreases for others. Regional fiscal disparities in Canada. While there has been considerable convergence in provincial gross domestic product per person and personal incomes among the regions over the last fifty years, the gap between the most and the least well- off provinces continues to be a primary economic concern. Gross domestic product per capita by province - 2. In the 2. 01. 3- 2. Those revenue categories are: Personal income taxes. Business income taxes. Consumption taxes. The Equalization Program is an important component of Canadian federalism and the notion of equality between provinces regarding the social services they provide. Growing equalization payments to Ontario threaten. That’s what’s driving the equalization program right. In 2010, equalization jumped to $972. The Sales and Use Tax Law provides for a managed audit program, in which, if the State Board of Equalization determines a taxpayer’s account is eligible for the. Equalization payments are cash payments made in some federal systems of government from the federal government to subnational governments with the objective of. The federal government's Equalization Program was designed to reduce fiscal disparity between the 'have' and 'have-not' provinces. Its main objective is to allow less. Equalization Program 2009 CobaltUp to 5. 0 percent of natural resource revenue (see below)Property taxes and miscellaneous. Note: According to the Department of Finance, . The federal government would make transfer payments to the provinces to cover their needs. There was no obligation that these transfer payments had to reflect the amount collected in each province and thus wealth was always redistributed. A formal system of equalization payments was first introduced in 1. The idea was based on the proposals of American economist. James M. Buchanan and they were introduced mainly to help the struggling Atlantic provinces who were seeing low rates of growth and high rate of emigration to central Canada. The original program had the goal of giving each province the same per capita revenue as the two wealthiest provinces, Ontario and British Columbia, in three tax bases: personal income taxes, corporate income taxes and succession duties (inheritance taxes). Five years later, 5. At the same time, however, the standard of the two wealthiest provinces was lowered to the national average. In 1. 96. 7 the system was redesigned to work with every government revenue scheme with the exception of energy; this gave Canada by far the world's most generous system of equalization payments. The rise in energy prices and the resulting increase in provincial natural resource royalties in the late 1. The need for amendments to the formula became clear when the traditional . This result went against the spirit of the system and would have led to substantial costs for the federal government; it was agreed that Ontario should be excluded from receiving payments. In 1. 98. 2, the equalization standard was shifted from the national average to the average of the five . Subsection 3. 6(2) of the Constitution Act, 1. In 2. 00. 7, based on the recommendations of a federal expert panel, the program was returned to formula- driven calculations and enhanced by moving to a standard based on the national average. A fiscal capacity cap was added to ensure that Equalization- receiving provinces couldn't be raised to a fiscal capacity above that of a non- receiving province (this could potentially arise due to the partial or non- inclusion of resource revenues). In 2. 00. 9, the fiscal capacity cap was modified and a ceiling and floor on aggregate payments were added. Criticisms. The premiers of the most prosperous provinces have criticized the drain on their finances. So, for example, if a province's economy booms and the provincial government's potential income tax revenues increase, equalization payments decrease. Economist Michael Smart has argued that this gives have- not provinces an incentive to raise taxes, because any harm higher taxes do to the economy is off- set by higher equalization payments. To protect Newfoundland and Labrador's equalization payments, premier Danny Williams negotiated the Atlantic Accord . Nova Scotia reached a similar arrangement with the federal government. Late January 2. 01. Peter Gusen, then director of federal- provincial relations at the finance department, entitled 'An Operational Expenditure Need Equalization Formula for Canada', the Toronto Star alleged that Ontario and BC were shortchanged in the equalization system because wages and cost- of- living expenses were never taken into account by Ottawa. Source: Statistics Canada. Retrieved 1. 3 February 2.
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