13
OTTAWA — The federal government says it has put an end to the so-called fiscal imbalance, providing the provinces with a buffet of funding choices that makes sure no province will lose. But the reaction from provinces was mixed.
"It's certainly the end of the bickering. It's the end of the discussion. C'est fini," Finance Minister Jim Flaherty told reporters. Saskatchewan Premier Lorne Calvert called it a betrayal.
It's a grab bag of initiatives -- many of which are repeated in other parts of the budget -- that totals about $39-billion over seven years for the provinces.
The package includes a new, enriched equalization formula, increased transfer payments for post-secondary education, training and infrastructure, and key reforms to the way health and social spending is structured.
Related Articles
Interactives
Internet Links
- Graphic: How equalization works
- Graphic: Fiscal plan
- Video: Flaherty's announces the budget
- Budget 2007: Globe stories, photos, interactives, discussions and more
Some provinces will gain significantly more than others. Quebec emerges as the biggest winner, while Saskatchewan gains the least.
And while the budget attempts to resolve once and for all the provinces' long-standing requests for fairer distribution of taxpayers' money, it also promises years more of debate over distribution of power.
"We will work with the provinces to make sure the federal government spending power is well defined," said Industry Minister Maxime Bernier, who accompanied Mr. Flaherty to speak to the French media.
At the core of the fiscal-balance package are dramatic changes to the equalization formula. The former Liberal government had modified the formula on an ad-hoc basis, taking it away from a rules-based approach to a system that led to intense in-fighting among the provincial and federal governments.
Now, the Conservatives have imposed new rules, which will increase payments by about $1-billion a year. While the increase was anticipated, the structure of the new regime was not: provinces will be able to participate in a multiple-choice system of equalization.
First, provinces will be able to choose between the old system and the new system. Nova Scotia and Newfoundland and Labrador are expected to stick with the old system for a while, since their offshore accords under the old regime more than surpass the enrichments of the new regime.
Once a province has joined the new system, it can't go back to the old system. But it can choose whether it wants to calculate what it is owed based on including half of its natural-resource revenue, or based on excluding all of its resource revenues.
That choice allows for resource-rich provinces to keep their royalties and receive equalization payments at the same time, eliminating the "claw-back" that has long annoyed poorer provinces trying to improve their lot.
However, there's a cap on how much money receiving provinces can get, so that resource-rich provinces such as Newfoundland will not end up receiving transfer payments that make them richer than have-provinces such as Ontario.
Several provinces, notably Newfoundland and Saskatchewan, argued strongly against a cap, but its inclusion was crucial for Ontario and Alberta, who see it as the only way the new regime would be fair to provinces that don't receive equalization.
The premiers of both Newfoundland and Saskatchewan were quick to harshly condemn the Harper government for the cap, calling it a "betrayal" of an election promise that hampers the ability of both provinces to prosper.
But the fiscal balance package doesn't stop there. Transfers for education are being increased by about $800-million a year, distributed on a per capita basis that favours populous provinces such as Ontario. And the Canada Social Transfer -- the main funding vehicle that Ottawa uses to help provinces pay for social programs -- will rise by 3 per cent a year starting in 2009.
Both the CST and the Canada Health Transfer will be restructured so that they are on a strict per capita basis, removing all traces of equalization from those transfers that have rankled Ontario and Alberta in the past. However, there are some strings attached. The health transfers will not be restructured until the current agreement expires seven years from now. Plus, CST will now be split into an education category and a social assistance category, in an effort to suggest to provinces where they should spend the money.
But the government has imposed a floor on the transfers, so that no province will actually lose money compared with current funding levels, even after equalization factors have been sifted out. Ontario will gain about $350-million a year from the CST changes, while Alberta will see about $310-million in increased annual transfers.
2.3%
Anticipated growth in the gross domestic product this year.
$14, 800
Per capita federal debt owed even after this budget's pay-down of $700 a person.
0%
Anticipated improvement in the unemployment rate this year.
'It's a completely different fundamental approach compared to the previous government.'
CLEMENT GIGNAC, CHIEF ECONOMIST FOR NATIONAL BANK FINANCIAL
"They're not really giving anything to investors here." JACK MINTZ, PROFESSOR OF BUSINESS ECONOMICS, ROTMAN SCHOOL OF BUSINESS, UNIVERSITY OF TORONTO
"In general, seeing the debt whacked down by $9-billion and change is very positive." CATHERINE SWIFT, CANADIAN FEDERATION OF INDEPENDENT BUSINESS.
Where does the money go?
A fiscal plan
Snapshot of the federal government's financial position: After falling in 2005-2006, program expenses as a share of GDP are projected to rise this year, and the debt-to-GDP ratio is expected to fall to 29.7 per cent by 2008-2009. The last time it was below 30 per cent was 1981-1982. The lower the percentage, the less the government spends on interest.
| Actual | Actual | Projected | Projected | Projected | |
| 2004-05 | 2005-06 | 2006-07 | 2007-08 | 2008-09 | |
| Budgetary revenues | 211.9 | 222.2 | 232.3 | 236.7 | 243.5 |
| Program expenses | 176.4 | 175.2 | 189 | 199.6 | 206.8 |
| Public debt charges | 34.1 | 33.8 | 34.1 | 33.8 | 33.7 |
| Total expenses | 210.5 | 209 | 223.1 | 233.4 | 240.5 |
| Debt reduction | 1.5 | 13.2 | 9.2 | 3.0 | 3.0 |
| Remaining surplus | 0.3 | 0.0 | |||
| Federal debt | 494.7 | 481.5 | 472.3 | 469.3 | 466.3 |
| As a percentage of GDP | |||||
| Budgetary revenues | 16.40% | 16.20% | 16.10% | 15.80% | 15.50% |
| Program expenses | 13.70% | 12.80% | 13.10% | 13.30% | 13.20% |
| Public debt charges | 2.60% | 2.50% | 2.40% | 2.30% | 2.10% |
| Total expenses | 16.30% | 15.20% | 15.50% | 15.60% | 15.30% |
| Federal debt | 38.30% | 35.10% | 32.80% | 31.40% | 29.70% |
NOTE: Totals may not add up due to rounding
SOURCE: DEPARTMENT OF FINANCE
Where does the money go?
Here's a glimpse of where Ottawa expects to spend its revenues*
Money for people: $58.5-billion/25%
Subsidies and the transfers: $31.1-billion/13%
Federal departments: $59.5-billion/25.4%
Crown corporations: $6.9-billion/2.9%
Public debt charges: $33.8-billion/14.5%
Money for municipalities and provinces: $43.5-billion/18.6%
$233.4 billion 2007-2008
*Percentages may not add up to 100 due to rounding
SOURCE: DEPARTMENT OF FINANCE
