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Provinces demand changes to fiscal stabilization program — here’s what that means

Click to play video: 'Canada’s premiers meet, devise wish list for feds' Canada’s premiers meet, devise wish list for feds
WATCH: For the first time since the October federal election, Canada's premiers have gathered for a meeting. Their goal was to shape a collective agenda for their relationship with Justin Trudeau's new minority government. Eric Sorensen reports on the leaders agreed on, and what they avoided discussing – Dec 2, 2019

UPDATE: Provincial finance ministers are meeting with their federal counterpart, Bill Morneau, Tuesday to discuss the issue. Read more about the meeting here. 

After pushing the federal government to amend the formula for equalization payments — which give money to some provinces but not others — premiers upset with the formula shifted focus to changing the fiscal stabilization program earlier this month.

Premiers of provinces that don’t get equalization funds argued it was one way they could get some money back amid the oil and energy sector’s economic instability.

READ MORE: Fiscal stabilization reforms to be a focus of premiers meeting, Moe says

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Consensus possible at premiers meeting, Moe says – Dec 1, 2019

While meeting in Mississauga, Ont. Monday, Dec. 2, premiers tried to find consensus on key issues ahead of their meeting with Prime Minister Justin Trudeau in the new year. Among the four areas of consensus was a call on the federal government to reassess fiscal stabilization, which provides financial assistance to provinces amid economic downturns.

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Saskatchewan Premier Scott Moe, who had signalled earlier that he would push for the program to be expanded, told reporters Monday that consensus was reached at the urging of his province, Alberta and Newfoundland and Labrador.

“I want to thank each and every one of my fellow premiers for recognizing and addressing the economic disparity that has arisen in distinct regions of our nation,” he said.

Alberta Premier Jason Kenney added the consensus reached on the issue was a “tremendous moment of solidarity.”

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Concerns about equalization

Provinces that pushed most strongly for changes to the fiscal stabilization program were among those that have been vocal about calling equalization payments unfair.

In the 2018-19 year, Quebec, Manitoba, Nova Scotia, New Brunswick, Ontario and Prince Edward Island received transfer payments. Alberta, Saskatchewan, Newfoundland and Labrador and British Columbia did not.

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The three energy-producing provinces, Alberta, Saskatchewan, Newfoundland and Labrador, urged Ottawa in 2017 to rework the federal transfer formula but Finance Minister Bill Morneau locked in the existing formula until 2024.

Because equalization is entrenched in the Canadian Constitution, provinces don’t have a choice in whether they abide by the rules.

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What exactly is the fiscal stabilization program?

The fiscal stabilization program is part of the Federal-Provincial Fiscal Arrangements Act, the same act that includes other programs such as the equalization formula and the Canada Health Transfer.

The program allows provinces to file a claim for assistance, which is then reviewed. Provinces have to illustrate that they are “facing significant year-over-year declines in their revenues resulting from extraordinary economic downturns,” the Ministry of Finance website explains.

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There are other limitations to the program. For example, provinces must file a claim within 18 months of the fiscal year in question, and they can receive no more than $60 per capita. It also only applies to provinces facing a year-over-year decline in non-resource revenues larger than five per cent.

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

Trevor Tombe, an associate economics professor at the University of Calgary, explained to Global News that the program is receiving attention from premiers over the typically contentious equalization formula because it seems like a more “reasonable and realistic” change.

“It’s very difficult to get any agreement on equalization,” Tombe said. “Stabilization is just a program that is meant to pay provinces that experience severe drop in their own revenue. It’s kind of an insurance program, if you will.

“It’s something simple. It doesn’t create losses for any other provinces and it’s something that’s easy to justify.”

Tombe said the $60-cap was instated in 1987, and has never been adjusted for inflation.

“The $60-cap was over a quarter-century ago, and is equivalent today to about $120. So just increasing that cap is something I don’t think any province will oppose,” Tombe explained.

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How has the program been used in the past?

The program has been used by almost every province in the past, most recently by Alberta and New Brunswick.

In 2016, the federal government announced Alberta would receive roughly $251.4 million — the maximum amount for which the province was eligible under the $60 per capita rules.

Alberta Premier Jason Kenney has been calling for the cap to be lifted. During the press conference on Sunday, Kenney called on the federal government to “retroactively remove” the cap.

“At the very least, we must see the cap lifted. We want to see that lifted retroactively to recognize the pain we’ve been going through for five years,” Kenney said.

On Monday, Kenney reiterated that demand, saying, “it basically gives us a little bit back of what we put into the federation every year.”

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Is this a realistic solution?

Tombe noted that the changes to the fiscal stabilization program would be fairly simple for the federal government to make — if that’s what they choose.

“It could be easily incorporated into the next federal budget, for example,” Tombe said.

He noted, however, that both Trudeau and Morneau have been mum on the issue thus far.

However, in an email statement to Global News following Monday’s meeting, Deputy Prime Minister Chrystia Freeland said the government is open to discussing the demands made by the premiers.

READ MORE: Jason Kenney says Francois Legault has shaky grasp of history when it comes to equalization

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“We are open and keen to discuss how the federal, provincial, and territorial governments can tackle issues together, very much including: fiscal stabilization, fighting climate change, healthcare and pharmacare, infrastructure, Northern priorities, trade and market access for natural resources, among many others,” the statement read.

Kenney added on Monday that fiscal stabilization changes would not solve problems he sees in the equalization formula.

“Alberta will continue to press for reforms to the equalization program,” he said, adding that that was not the focus of the meeting.

— With files from Global News reporter Emily Mertz

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