B.C. may be shafted again!

[RFL]

Have-not’ B.C. faces loss of federal money

Vaughn Palmer

Vancouver Sun

Wednesday, October 08, 2003

VICTORIA - Finance Minister Gary Collins is gearing up to fight a

federal proposal that could cost B.C. most—and perhaps all—of

its $700-million share of equalization payments.

The proposal, on the agenda for a meeting of federal-provincial

finance ministers Friday in Ottawa, would change the formula whereby

the national government tries to equalize funding between “have” and

“have-not” provinces.

The formula is a complex one. Bureaucrats joke that only about a

dozen Canadians, all of them finance officials, understand it fully

and then only because their job involves calculating the annual

entitlements.

But in essence, Ottawa compares the strength of provincial economies

and then calculates each jurisdiction’s ability to pay for basic

services.

The federal treasury then tops up each of the “have nots” with a

direct transfer of so many dollars per provincial resident.

The details of the formula are the object of much jockeying among

governments, especially when—as will be the case next spring—

the federal-provincial agreement on equalization is up for renewal.

In the past, B.C. tended to be an onlooker in equalization talks,

because it was ranked as a “have,” along with Alberta and Ontario,

and was therefore not in line to receive payments

But since the province descended to the ranks of the “have nots” at

the outset of this decade and began receiving hundreds of millions

of dollars in equalization—the current forecast is for about $700

million this year, next year and the year after -- -- it has also

developed a keener interest in changes in the formula.

And as the B.C. Liberals look at the federal proposal, they see a

significant threat to those equalization millions.

The proposal would see Ottawa, for the first time, using the

assessed value of residential properties in major cities as one

basis for calculating provincial entitlements.

B.C. would be greatly disadvantaged in such an exercise because

residential property assessments are extraordinarily high in the

Lower Mainland, particularly Vancouver, and on southern Vancouver

Island, particularly Victoria.

The financial impact would depend on the degree to which Ottawa

incorporates residential property values in equalization.

But one report, prepared for the B.C. ministry of finance, warns

that the change could offset any and all “other justifications B.C.

might have for receiving equalization payments.”

In short, with one stroke—and no net improvement in the relative

position of the provincial economy—B.C. could be redefined as a

“have” and denied any future share of equalization.

To resist that possibility, Mr. Collins has commissioned several

policy papers and some good arguments.

He’ll say that high property values, far from being a measure of

provincial wealth and ability to pay, are burden for most British

Columbians.

They are forced to spend a higher share of their income on shelter.

Their mortgage indebtedness is almost 50 per cent higher than the

national average.

Young British Columbians can’t think of owing a home in the major

centres. Low-income residents face the worst squeeze of all.

Indeed, because affordability of housing is a key measure of

economic well-being, he could argue that those high assessed values

are an argument for B.C. to receive more, not less, in equalization

payments.

In the end, this will likely come down to a political debate. For it

appears that the province to benefit most from the federal proposal

would be Quebec, where residential property values are relatively

low.

Quebec receives more than $5 billion in equalization. By one

calculation it could receive another $1 billion if the formula were

changed as per the federal proposal.

British Columbians are used to losing arguments that pit their

interests against those of the eastern provinces.

But it should be recalled that the man who is poised to become the

next prime minister, Paul Martin, has been telling British

Columbians he’ll relieve their alienation.

He’s scheduled to take office in February, a month before the

proposed new equalization formula would take effect.

I doubt “PM the PM” would want to start his term with a change that

would screw British Columbia to the extent of hundreds of millions

of dollars.

vpalmer@direct.ca

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