What Is Nova Scotia's Position?
On Equalization
Ensure Adequacy
Nova Scotia’s bottom line is simple. The province must receive adequate funding so Nova Scotians receive about the same level of services, at about the same tax level, as other Canadians.
Getting there is not so simple.
Step 1: The federal government must increase the amount of money available for equalization. Ensuring that provinces have the funding required to provide a basic level of programs and services equal to the national average would provide an estimated $2-billion increase nationally.
Step 2: How this pot of money is shared among provinces—to ensure fairness and equity—must also change in a number of ways.
Move from a 5-Province to a 10-Province Standard
Equalization is intended to bring each province up to a certain, standard level. That standard is set by averaging the relative wealth, or fiscal capacities, of the provinces.
Prior to the 1980s, the federal government averaged the fiscal capacities of 10 provinces. In 1982, the federal government began using 5 provinces—removing the wealthiest and poorest provinces from the calculation. This significantly reduced the costs of the program for the federal government—and has cost Nova Scotia more than $3.3 billion since that time.
Nova Scotia believes the federal government must once again consider the circumstances in all provinces when setting the standard for equalization.
Include All Provincial Revenues in Calculating Equalization Entitlements
Nova Scotia believes that all revenue sources need to be considered when calculating what each province receives through equalization.
Provinces rich in natural resources generate revenue from those resources. That revenue needs to be accounted for when equalization benefits are calculated.
Similarly, user fees are a source of revenue for provinces, yet they are currently only partially included when calculating each province’s equalization benefit.
Maintain Representative Tax System to Assess Fiscal Capacity
Currently, a “representative tax system” is used to measure each province’s revenue potential, or fiscal capacity. Basically, the system compares a province’s yield from numerous tax bases to that of the current five standard provinces, in calculating how much each province can generate in taxes.
Some provinces believe that other economic indicators, such as gross domestic product, be used as a basis for calculating fiscal capacity. This, however, does not reflect each province's actual tax base.
Nova Scotia believes that the representative tax system should remain as the basis for calculating equalization benefits because the system is a closer reflection of every province’s actual taxing practices and taxing capacity.
Remove Caps on Equalization Fund
In October 2004, the federal government announced it would increase the equalization fund by 3.5 per cent annually. However, this growth rate is not based upon measurement of fiscal differences among provinces but, rather, is an arbitrary growth rate set by the federal government.
The equalization cap must be removed so funding levels take the fiscal differences and capacities of each province into account.
On Federal Transfers
Federal transfers can broadly be defined as funding provided to provinces for specific purposes, such as health care, education, social services, and infrastructure. To ensure that the funding is adequate, the funding level must be linked to both the revenues and the real costs of delivering programs and services in each province.
For example, Nova Scotia has more seniors, an above-average rate of illnesses, the second-shortest life expectancy of all Canadians, and the largest number of persons with disabilities. While Nova Scotia has significantly increased its efforts to promote better health, results will take time. In the meantime, the province will continue to face higher health-care costs to meet the needs of Nova Scotians.
As another example, the funding Nova Scotia receives for post-secondary education does not reflect actual costs. Because of Nova Scotia’s high-quality, post-secondary education schools, almost 13,000 out-of-province students are attracted to the province each year. However, federal funding is linked to our population—not to the total number of students our province educates. This costs the province an estimated additional $25 million.
As well, the province benefits from funding agreements that support a wide range of programs and services—from child care to housing to our resource sectors.
Finally, the federal government provides transfers to support projects that contribute to the prosperity of the province and, in turn, the country. One of the best examples, and highest priorities for Nova Scotia, is infrastructure—in particular, funding for our roads, our ports, our information technology, and other essential building blocks that support our progress to greater prosperity.