Given the keyword search activity on this blog, it is clear that many people are trying to determine how much a given province pays into the federal equalization program and if certain provinces pay more in federal tax than they receive in equalization.
As I explained in my earlier post exploring certain myths and misconceptions about the equalization program, it is close to impossible to determine what percentage of equalization was funded by tax and other revenue from a given province. The reasons for that are primarily twofold.
First of all, as I explained in that other post, the most important thing to remember is that equalization is not funded by the provinces. It is a federal program, paid for out of the Government of Canada’s general revenues. The Government of Canada collects revenues from many sources including, but not limited to: personal income tax, corporate income tax, non-resident income tax, other taxes and duties (e.g. GST), and contributions to social insurance plans, investment income, to name but some.
Second, it is important to understand that the Government of Canada collects these taxes and other sources of revenue in the provinces, not from the provinces. This is a very subtle, but crucial difference. To the Government of Canada, it doesn’t matter where someone lives in Canada – we all pay the same rate of GST, the rate of personal federal income tax we pay depends on our taxable income, not on what province we live in, etc. Someone earning $46,000 a year will pay the same rate of federal income tax whether they live in PEI or Alberta. Someone who buys a new TV costing $899 will pay the same amount of GST whether they live in Winnipeg or St. John’s. The point here is that it isn’t the provinces sending this money to Ottawa, but individuals and businesses.
It is possible to know roughly how much money Ottawa collects from these various sources of revenue by province thanks to the Provincial Economic Accounts (PEA) data produced by Statistics Canada. PEA data are considered to be a comprehensive summary of all federal revenues (taxes and social insurance contributions) and expenditures (direct spending, transfer payments and interest payments on the federal debt) in each province. The one problem with the PEA data reports is that they are produced irregularly, therefore the data is never current. The most recent data available is for 2009. However, what this data does reveal is that the Government of Canada collects more revenues in each equalization-receiving province than that province receives in the form of equalization. Therefore, if one is going to insist that it is the provinces that pay for equalization, then each equalization-receiving province is simply getting some of its own money collected by the federal government refunded to them in the form of equalization.
The sources of revenue used in the PEA data include: direct personal income taxes, corporate and government business taxes, taxes from non-residents, contributions to social insurance plans, taxes on production and imports, other transfers from persons, investment income, and transfers from provincial governments.
Here is the breakdown showing how much total revenue the federal government collected in each province in 2009, as well as the amount of equalization received in fiscal 2008-09 by those provinces which qualified for equalization.
Federal Government Revenues Collected and Equalization Received
by Province 2009 – in $millions
Federal Revenues Collected
|Total Equalization 2008-09
As much as many like to complain about the amount of money Quebec (in particular) receives in the form of equalization payments, what we see here is that in 2009, the federal government collected close to $40-billion in revenues in the province of Quebec, and Quebec received $8-billion in equalization. In other words, Quebecers paid $31.6 billion more to the federal government than they received in the form of equalization.
Of course, as many will be quick to point out, equalization is only a small part of the overall transfers from Ottawa to the provinces. If one looks at all federal government expenditures in each province compared to revenue collected, we get much different results. The expenditures included here are: net expenditure on goods and services, transfers to persons (e.g. tax credits, employment insurance, etc.), transfers to business (tax credits, etc.), transfers to provincial governments (which would include equalization, as well as the other federal transfers all the provinces receive), transfers to local governments, interest on public debt.
Federal Government Revenues and Expenditures by Province 2009
|Province||Federal Revenues Collected $mn||Federal Expenditures $mn||Difference $mn|
This table clearly shows that, in 2009 at least, Alberta was the only province in which the revenues collected by the federal government were greater than its expenditures. In all the other provinces, including the other non equalization-receiving provinces (which in 2009 were Newfoundland and Labrador, Ontario, Saskatchewan and BC), the federal government spent more than it collected in revenues in those provinces. What is important to understand when we talk about expenditures is that we are including everything from equalization to the money Ottawa spends on National Defence in the provinces which have military bases, to infrastructure projects, to funding for festivals and other events. These expenditures are not simply handouts and tax credits. Another important point to remember when you look at the above figures – you also need to consider what this represents for each province on a per capita basis. People tend to focus on the overall amount a province receives, but many of these transfers from Ottawa to the provinces are determined on a per capita basis. Equalization is a good example of this – while Quebec gets the most equalization overall, if you look at how that breaks down on a per capita basis, PEI actually ends up with more money from equalization than does Quebec.
The big plus for Alberta, of course, is its oil industry. The federal government does not explicitly report on non-renewable revenues, partly because it does not receive direct revenues from natural resources but only through general tax revenues, therefore, it is more difficult to identify the percentage of its revenues which are directly attributable to the oil industry. However, it is safe to say that without the oil patch, Alberta would probably be in the same position as all of the other provinces – receiving more money from Ottawa than Ottawa collects in the province.