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Ottawa, March 21, 2005
2005-020

Minister of Finance Announces Members of Expert Panel on Equalization and Territorial Formula Financing

• Members of the Expert Panel on Equalization and Territorial Formula Financing
• Expert Panel on Equalization and Territorial Formula Financing

Minister of Finance Ralph Goodale today announced the membership of the independent Panel of Experts to review Equalization and Territorial Formula Financing (TFF). The establishment of the Panel follows on the announcement made after the October 2004 First Ministers’ meeting.

Al O’Brien has agreed to serve as Panel Chair. The other members are Fred Gorbet, Robert Lacroix, Elizabeth Parr-Johnston and Mike Percy. Panel Members were chosen on the basis of their expertise in the areas of business, finance, public policy and academia. Some will focus on Equalization issues, while others will focus on issues unique to the North and TFF.

"These individuals are widely respected for their long-standing service to the country, their extensive experience, and their sensitivity to regional concerns," stated Minister Goodale. "Their work will play an important role in strengthening these important transfer programs for the benefit of Canadians."

The Panel is mandated to advise the Government of Canada on:

• the allocation of provincial and territorial Equalization and TFF entitlements;

• ways to make these payments more stable and predictable;

• the role of interprovincial fiscal disparities, the cost of providing services in the North and the function of various provincial own-source revenues, such as natural resource revenues, property taxes and user fees, in determining overall levels of federal support; and

• whether a permanent independent body should be created to provide advice to the Government of Canada on these matters.

Minister Goodale has asked the Panel to submit its final report no later than December 31, 2005. "I am expecting the Panel to consult closely with all provincial-territorial governments so that all ideas are considered in arriving at the best possible recommendations," stated Minister Goodale.

Federal Equalization transfers help ensure that all provinces can provide comparable public services at reasonably comparable levels of taxation. TFF transfers enable the territories to provide a range of public services comparable to those offered by provincial governments.

Biographical notes of the Panel Members and the Panel’s terms of reference are attached.

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Members of the Expert Panel on Equalization and Territorial Formula Financing

Mr. O’Brien retired as Deputy Provincial Treasurer of Alberta in 1999 after a 35-year career in the Alberta Public Service. Mr. O’Brien is a Fellow of the Institute of Public Economics at the University of Alberta, and a Director of ATB Financial and of Cordiant Capital Inc. (Montréal). He is also a Senior Fellow of the C. D. Howe Institute, a member of the Advisory Council of the Institute of Intergovernmental Relations at Queen’s University, and a member of the Investment Committee of the Alberta Teachers’ Retirement Fund. Mr. O’Brien received a Masters Degree in Economics from the University of Alberta.

Mr. Gorbet is Principal in Strategy Solutions, a public policy consulting company he founded in 1997. He is also the CIT Chair in Financial Services and Co-Director of the Financial Services Program at the Schulich School of Business, York University. Mr. Gorbet spent some 24 years in the Public Service of Canada, and served in senior positions including Deputy Minister of Finance (1988–92). He held senior positions in the life insurance industry and served as Executive Director of the Task Force on the Future of the Canadian Financial Services Sector. Mr. Gorbet received a PhD in Economics from Duke University and is a member of the Order of Canada.

Dr. Lacroix is the Rector of the Université de Montréal, former Director of the Economics Department of the Université de Montréal and Founder of the Center for Interuniversity Research and Analysis on Organizations (CIRANO). Dr. Lacroix is a Board Member for the Association of Universities and Colleges of Canada as well as the President of the Conférence des recteurs et des principaux des universités du Québec. Dr. Lacroix has participated in many advisory bodies dealing with the financing of post-secondary education. He received a PhD in Economics from the University of Louvain in Belgium. He is Member of the Order of Canada, Officer of the Order of Quebec, and a Fellow of the Royal Society of Canada.

Dr. Elizabeth Parr-Johnston heads Parr Johnston Economic and Policy Consultants and served as President and Vice-Chancellor of the University of New Brunswick and Mount Saint Vincent University. She held senior positions at Inco Ltd. and Shell Canada Ltd., was chief of staff to the federal Minister of Employment and Immigration and taught at the University of Western Ontario and University of British Columbia. Dr. Parr-Johnston is a director of the Bank of Nova Scotia, Nova Scotia Power, the Social Research and Demonstration Corporation, the Canada Millennium Scholarship Foundation and the Canada Foundation for Sustainable Development Technology.

Dr. Percy is dean of the School of Business at the University of Alberta. He served as co-chair of the Alberta Premier’s 1997 Economic Growth Summit and took academic leave in 1993 to serve in the Alberta Legislative Assembly. Dr. Percy is the past president of the Edmonton Chamber of Commerce, has contributed to several health care funding review panels and is actively involved in several initiatives promoting sustainable development. Dr. Percy has authored many books and articles in the fields of public policy, international trade and economic development. He serves as director on the Boards of EPCOR Utilities Inc., Timber Investments Ltd., Riverside and Matrikon Inc. Mr. Percy received a PhD in Economics from Queen’s University.

Expert Panel on Equalization and Territorial Formula Financing

Terms of Reference

Given:

• That the Constitution commits the Government of Canada to "the principle of making equalization payments to ensure that provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation."

• That the Government of Canada is committed to ensuring that citizens living in the Yukon, Northwest Territories and Nunavut have access to basic services, reasonably comparable to those available to other Canadians, and taking into account that territorial governments face higher costs in delivering services in the North, but have a more limited ability to raise revenues.

• That the Government of Canada has decided to put in place a new fiscal framework for Equalization and Territorial Formula Financing (TFF) that will need to be re-evaluated at regular intervals to reflect the evolution in fiscal disparities among provinces and in the costs of providing services in the North.

• That the Equalization program has been in effect since 1957 and Territorial Formula Financing since 1985 and have been largely successful in providing support while reducing disparities.

• That in that time, these programs have not benefited from a thorough independent review; an Expert Panel on Equalization and Territorial Formula Financing is established.

The Expert Panel will be tasked to examine and provide advice to the Government of Canada on:

• The allocation among provinces of the annual Equalization allotment set in legislation, including consideration of the current Representative Tax System approach, the treatment of various provincial and local revenue sources, such as natural resources, property taxes and user fees, other approaches to measuring fiscal capacity including those based on macro-economic variables, and if appropriate, indicators of expenditure needs. Such allocation to be evidence-based, and derived from a formula.

• The allocation among territories of the annual TFF allotment set in legislation, including consideration of the current gross expenditure base approach, the treatment of various territorial revenue sources, such as natural resources, the measurement of territorial tax effort, other approaches to measuring fiscal capacity including those based on macro-economic variables, and if appropriate alternative indicators of expenditure needs. Such allocation to be evidence-based, and derived from a formula.

• Mechanisms which would ensure that payments for programs to provinces and territories are stable and predictable, to assist in sound fiscal planning.

• Evidence-based aggregate measures of the evolution in fiscal disparities among provinces, and of the evolution of the costs of providing services in the North to provide information to governments and citizens and assist in future re-evaluations of the overall level of federal support for Equalization and TFF.

• Whether to have, on a permanent basis, an independent body, to provide ongoing advice to the Government of Canada on the allocation of Equalization and Territorial funding within the framework of legislated levels, as well as conduct periodic reviews of provincial disparities and costs of providing services in the North. If it is recommended to have an independent body, the Expert Panel is to provide advice on mandate, membership and mode of functioning of that body.

In carrying out its mandate, the Expert Panel will solicit the views of provincial and territorial governments, the academic community, research institutes and the Canadian public on these issues and consider any other relevant issues raised in these discussions. The Expert Panel should, where possible, work with provincial and territorial governments to ensure its work take into consideration their fiscal planning and accounting concerns.

In elaborating its recommendations, the Expert Panel will provide an evidence-based formula as the basis for allocations, and it will also:

• identify any difficult or challenging issues to be encountered in implementing the allocation approach it recommends and propose ways to resolve these issues; and

• address any significant implementation issues related to transition or to institutional changes that may be proposed.

The Expert Panel will supervise a dedicated staff to assist in its consultations and to undertake or organize research studies or prepare discussion documents it considers necessary to complete its work, subject to budgetary limits. It will call on the expertise of the federal and provincial departments of Finance (either through secondments or direct requests.)

The Experts’ Panel will report with its recommendations by the end of 2005.