Equalization payments — how they work, and why some provinces are upset

Click to play video: '‘This is bad faith’  says Kenney of Liberal equalization formula extension'
‘This is bad faith’ says Kenney of Liberal equalization formula extension
WATCH: 'This is bad faith' says Kenney of Liberal equalization formula extension – Jun 22, 2018

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.

Several provincial politicians spoke out following Thursday’s news, blasting the federal government’s decision.

Here’s a look at what it all means:

What are equalization payments?

Equalization payments are one type of federal transfer given to provinces to help fund public programs and services.

These payments aren’t given to all provinces, though. Provinces are divided into two categories — “have” and “have not.”

Story continues below advertisement

READ MORE: Premier Scott Moe says he wants to renegotiate equalization

The idea is to give “less prosperous” provincial governments money so provinces are on a level playing field. “Have” provinces are expected to contribute to the payments.

In the 2018-2019 year, the federal government will give out nearly $19 billion in such payments.

Territories have a separate program called Territorial Formula Financing (TFF).

WATCH: NDP wonders if feds will change rules on equalization payments

Click to play video: 'NDP wonders if feds will change rules on equalization payments'
NDP wonders if feds will change rules on equalization payments

Who gets what?

Financial news and insights delivered to your email every Saturday.

The provinces are divided into the two categories based on how much they yield through factors such as natural resource revenues, income taxes and property taxes.

Story continues below advertisement

In the 2018-2019 year, provinces receiving equalization payments include: Quebec, Manitoba, Nova Scotia, New Brunswick, Ontario and Prince Edward Island.

Quebec will get the largest sum of money at nearly $12 billion.

Alberta, Saskatchewan, Newfoundland and Labrador and British Columbia will not be receiving money.

Why are some provinces angry?

Several provinces have raised concerns over how the formula works, saying it doesn’t take several key factors into account, such as expenses.

The premier of Saskatchewan, Scott Moe, spoke out on Twitter saying the federal government needs to fix equalization rather than freeze the formula.

Story continues below advertisement

Alberta’s Finance Minister Joe Ceci criticized equalization payments just a day before news spread that the system would not be changed, saying he intends to bring up the issue with his federal counterpart Bill Morneau.

Jason Kenney, leader of Alberta’s United Conservative Party, took to Facebook to criticize the government’s “unfair” decision Thursday.

READ MORE: Alberta gives more than it gets from federal government, Fraser Institute says

Kenney reiterated Friday that the decision to keep the formula the same until 2024 was seemingly made without consultation.

“This is shocking that the federal government would not have properly informed the provinces about the extension, that there was no negotiation,” he told reporters.

“This is bad faith on the part of the Trudeau government.”

What the federal government says

However, in an email to Global News, the federal finance ministry said the decision to keep the formula the same was made after one year of “intense discussion and consultation,” including with provincial counterparts.

“We will continue to work with all provinces, territories and municipalities to find ways to grow our economy, create jobs and build a strong middle class – because that is exactly what Canadians expect,” the statement read.

Story continues below advertisement

It added that the country’s finance ministers are slated to meet June 26 to discuss the topic, along with other issues such as the U.S.-Canada trade dispute.

Sponsored content