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August 18-31
VOL.14 ISSUE. 26
HOME / STORY

Equalization Returns

Gregory Beatty
Published Thursday January 7, 05:34 pm
With Saskatchewan in the red Brad Wall wants a deal from the feds. Where was he 10 years ago?

“History repeats itself, first as tragedy, then as farce.” —Karl Marx

That famous Karl Marx quote sprang to mind when Saskatchewan premier Brad Wall recently said the federal government should give the province a break on equalization.

“It might be time for the federal government, not through a direct bailout to any sort of sector, but to realize that Newfoundland and Labrador... Alberta and Saskatchewan perhaps should be provided some of that [money] back,” the premier told CBC’s Stefani Langenegger last month.

This isn’t the first time a Saskatchewan premier has pushed Ottawa for equalization relief. In 2005, then-premier Lorne Calvert pushed for full-on changes to the way equalization was calculated.

Tragically, that bid was unsuccessful. And now Wall is tilting at the same windmill. And his position, frankly, sounds reasonable and not farcical at all.

Or it would, if Wall hadn’t already abandoned this fight in 2007.

“Equalization is for ‘have-not’ provinces and we’re a ‘have’ province,” Wall told the Canadian Press afterdefeating Calvert’s government and dropping its equalization challenge.

What do times and tunes have in common? They both change.

Sharing The Wealth

What is equalization and why does it matter to Saskatchewan?

Along with the Canada health and social transfers, equalization is one of three federal transfer payments to provinces. It’s calculated using five indicators — personal and business income taxes, consumption taxes, property taxes and natural resource revenue — that are supposed to provide a rough measure of provincial GDP.

Equalization’s goal — a valid one — is to help all provinces provide “reasonably comparable” levels of health care, education and welfare to their citizens regardless of their economic strength.

For most of its history, Saskatchewan has been a “have-not” province. But thanks to a commodity super-cycle fed by China, India and other emerging markets, we’ve been a “have” province for over 10 years.

But with oil and many other resource prices in the crapper, our much-vaunted Sask-A-Boom is sputtering — and for the first time since the Saskatchewan Party government was elected we’re facing economic hardship.

That’s bad news. But it gets worse.

To smooth out bumps in the program, equalization calculations have a three-year time lag. That means we’ll be classed as a “have” province for two more years before the current resource slump gets factored into the formula. And that means Saskatchewan, along with Alberta, Newfoundland and B.C., will transfer around $34 billion to the six remaining provinces in 2016-17.

Ouch. Maybe the old NDP government was right to fight for a better equalization formula after all?

Back In The Day

Former premier Lorne Calvert says his government’s determination to seek equalization relief was prompted by a 2004 report by economist Tom Courchene called Confiscatory Equalization: The Intriguing Case of Saskatchewan’s Vanishing Energy Revenues.

“The point [Courchene] made was that with the structure of equalization as it is, for each new dollar Saskatchewan was seeing from increased resource production — which was primarily oil — we were losing $1.25,” recalls Calvert. “So it was a 125 per cent clawback on equalization.

“There’s something fundamentally flawed in a system that would punish a jurisdiction for developing its economy,” he says.

While equalization is protected under s. 36(2) of the Constitution Act (1982), the formula used to calculate it has been amended several times. One long-standing problem from a Saskatchewan perspective, says Calvert, is that hydro energy resources are treated differently than oil in the calculation.

“Quebec and Manitoba have benefitted significantly from that, but we have a very limited amount of hydro,” says Calvert.

“The inequity was compounded when they went to a five-province standard [for calculating equalization] from an all-province standard, and took Alberta out of the mix. That made Saskatchewan an energy giant. Then along came Newfoundland. And it was Saskatchewan and Newfoundland who were going to be punished by this equalization formula.”

Together with Newfoundland’s then-Premier Danny Williams, Calvert pressed Saskatchewan’s case with the Paul Martin-led Liberal government.

“We made interesting partners — Danny Williams being a Conservative, myself a New Democrat,” says Calvert. “But on this issue we saw eye-to-eye. Danny was here, and I was in Newfoundland, and we fought the battle.”

Several hundred million dollars a year were at stake for both provinces, but the feds refused to budge. In protest, Williams ordered the Canadian flag removed from provincial buildings in Newfoundland.

Calvert’s NDP government, meanwhile, launched a “raise a flag for fairness” campaign to drum up public support.

“Now, to be fair, Ralph Goodale, when he was finance minister, made some adjustment — not anywhere near what we thought was a complete adjustment, or a change in the formula, but he made a $300 million payment,” says Calvert.

When the Martin minority government fell in November 2005, Calvert won a promise of support from Stephen Harper and his Saskatchewan Conservative candidates to remove resource revenues from the equalization formula.

“They stood with me during the 2006 election and committed to righting this wrong,” he says. “Then, of course, when they [were elected] they promptly broke the promise.”

Still not willing to concede defeat, the Calvert government launched a constitutional challenge arguing the equalization formula treated Saskatchewan unfairly and interfered with management of its resources.

“When the Sask. Party was in opposition they didn’t support our position with much enthusiasm,” says Calvert. “I put that down to the relationship between [Mr. Wall] and the prime minister, and I’m certain Ottawa was saying, ‘Don’t get too excited about this.’”

Saskatchewan delivered 13 of 14 seats to the Harper Conservatives in 2006. But once elected, the province’s MPs not only reneged on their commitment, they even attacked the NDP government’s position.

“[Calvert’s] got an election coming up,” said Regina-Lumsden-Lake Centre MP Tom Lukiwksi in a June 2007 CBC report. “He’s 25 points down in the polls. This is grandstanding, a last-ditch effort to try to change the channel.”

There’s no word on whether Lukiwski also called Calvert a “horde”.

Harper Off The Hook

When the Sask. Party government was elected in November 2007, the resource-fuelled boom was still gathering steam and Premier Brad Wall dropped the NDP lawsuit. Wall justified the move by saying he wanted harmonious relations with the federal Conservative government.

But Harper’s broken promise cost Saskatchewan over $800 million.

“They inherited a ‘have’ province, and I think they just believed we could never see the kind of decline in oil revenue that we’ve seen [today],” says Calvert. “We were used to $20-$30 a barrel oil, that was sort of the norm. When it got to $50 a barrel, I could hardly believe it. Saskatchewan’s been in good shape economically for a number of years, but we’re starting to see the pinch.”

And now we have the spectacle of Wall — who hasn’t missed a chance to potshot Justin Trudeau since the October federal election — going cap-in-hand to Trudeau’s Liberal government for equalization relief.

“It’s more disappointment than vindication that we didn’t get to this position earlier,” says Calvert, summing up his feelings on the situation. “But Mr. Wall is at the right position now.”

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