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End equalization squabbling: Toss the GST to the provinces

Mark Milke, Director of Research with the Frontier Centre for Public Policy, thinks Ottawa should hand the GST over to the provinces in exchange for an end to equalization.

Mark Milke - February 5, 2009

If Quebec premier Jean Charest’s recent outburst is any indication - he called Prime Minister Stephen Harper a liar over Ottawa’s plan to restrict the rise in equalization payments to economic growth - no amount of federal largesse dropped into the lap of provincial treasuries is ever enough.

Charest, apparently, is of the belief that no matter the recession’s effect on federal coffers, Ottawa is anyway expected to ratchet up equalization transfers according to plans hatched when oil was at $147 a barrel.

Reality check, please: In the current fiscal year, equalization payments will cost Ottawa $13.6 billion; that’s up by $2.7 billion over three years and Quebec received most of that increase. It will garner $8 billion this year, up $2.2 billion from three years ago.

The provincial complaints will never stop so here’s a possible remedy: Ottawa should hand the GST over to the provinces in exchange for an end to equalization.

Here’s the math and how it would need to work. Permanently dump equalization ($13.6 billion for have-not provinces) along with the equalization-related offshore accords ($850 million) and territorial financing (over $2.3 billion) and the federal government saves $16.8 billion.

If in exchange, Ottawa kicks the GST over to the provinces who add it to their provincial sales taxes, that’s worth $26.8 billion to them. Ottawa is out $10 billion annually on a net basis.

But the calculations can’t stop there. A straight GST-equalization switch would benefit some provinces and cost others.

Using a rough per capita calculation, Ontario would win big: it would receive $10.4 billion in new sales tax revenue; Saskatchewan would benefit by $819 million; Alberta, which would have to replace the GST with its own PST, garners almost $2.9 billion; British Columbia would take an extra $3.5 billion to the provincial bank.

More articles by Mark Milke