Truths about Canadian Equalization Payments

Truths about Canadian Equalization PaymentsBy: Paul Young, CGA, CPANovember 13, 2016

DisclaimerThis presentation discusses Truth about Equalization

Paul Young - Presenter

BioCPA/CGA25 years of experience in Academia, Industry and Financial solutionsYoutube Channel - https://www.youtube.com/channel/UCAArky1bAXPSuV2NLtUnyLg

AgendaGDP Growth 2010-2014Equalization/GDP GrowthComments from AlbertaComments from NewfoundlandTuition Example (Equalization)Bottomline

4

GDP Growth

fraserinstitute.org and Government of Canada5

Growth Rates 2016-2018

FactOntario $1.8B in equalization for 2017 and its economy is growing at 2%+Quebec will received $10B and its economy is growing at 2%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 Exports lack the capacity, i.e ports, rails, pipelines, etc. Adding the capacity could expand revenues for provinces and allow more money for social programs

Government of Canada6

Comments/Alberta EqualizationAnother 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 havent received a penny in regular EI benefits.We simply cannot afford the status quo any longer.The panels 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

Comments / NewfoundlandFinance Minister Cathy Bennett said Thursday she is disappointed Quebec asked the federal government to not extend a loan guarantee for her provinces 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

Comments/Key points

Source : - http://www.statcan.gc.ca/daily-quotidien/160907/dq160907a-eng.pdf

CommentQuebec has one the lowest tuition rates in Canada. Quebec is also the recipient of over $10B in equalization.

East-west PipelineIn 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 equalizationAlberta 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.

BottomlineEqualization 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.

Q&AContact: Paul YoungPaul_Young_CGA@Hotmail.com