POLICY BRIEFING NOTE
May 26, 2004
Expanding revenue capacity of Atlantic Provinces:
full access to non-renewable resource wealth
The current equalization formula penalizes provinces which have non-renewable resource
revenues by clawing back up to one dollar on every dollar of revenues collected from equalization
payments. This discourages investment in what is fast becoming one of the key routes to growth
in Atlantic Canada – development of natural resources.
When Alberta discovered oil in the 1940s and 1950s, no such clawback existed. Prior to its
discovery of oil, Alberta, too, was a “have-not” region that received equalization-type grants from
the federal government. It is simply unconscionable that Paul Martin is crippling development in
Atlantic Canada through the punitive equalization program. Despite promises to address this
inequity, the federal Liberals have not changed the equalization formula.
Non-renewable resources such as offshore oil and gas are among the most promising avenues for
real growth in Atlantic Canada. Developing these resources provides a critical short term
investment for longer term growth. When the federal government taxes these revenues away by
70 cents to a dollar, however, they jeopardize the opportunity to establish longer term growth.
A 2001 study by former Newfoundland Deputy Minister of Finance Roland Martin for the Atlantic
Institute for Market Studies (AIMS) called for the removal of oil and gas revenues from the
equalization formula while moving towards a ten province standard for calculating equalization.
Martin wrote: “The status quo is not an option if Canada is to maintain its competitive position in
an increasingly competitive global economy. Without early and fundamental changes to the
equalization program, this cornerstone of federalism and fiscal arrangements as we have known it
could cease to be recognized as a milestone by other nations and become Canada’s fiscal
millstone.” (Roland Martin, Equalization: Milestone or Millstone,
http://www.aims.ca/Publications/Equalization/equalization.pdf, p. 41)
A Conservative government led by Stephen Harper will remove non-renewable resources
from Equalization so that Atlantic provinces would enjoy the benefit of these revenues. We
will also move towards a ten province standard for equalization. These changes will be
phased in to ensure that no recipient province will receive less money during the transition
to the new formula than the current formula provides.
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