Thank you very much for your invitation.
Good morning. Thank you for giving me the opportunity to share my views on the federal spending power.
The federal government's spending power is not explicitly enshrined in the Constitution, and efforts to establish a framework for it under the Meech Lake and Charlottetown accords were never implemented due to the failure of those agreements. In this context, Parliament—including your committee—is responsible for working on a framework for this power.
Today I want to focus on equalization, a large-scale use of the federal spending power that, as the late Tom Kent once remarked, is now featured in our written Constitution. As stated in subsection 36(2) of the Constitution Act, 1982:
Parliament and the government of Canada are committed 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.
Despite this constitutional embeddedness of the general principle of equalization, the concrete federal equalization program and the formula used to calculate payments received by provinces that are entitled to benefit are enduring sources of controversy across the country in both receiving and non-receiving provinces.
For example, in 2024, the Government of Newfoundland and Labrador filed a lawsuit against the federal government based on the claim that the equalization program does not achieve its constitutional purpose. British Columbia and Saskatchewan decided to intervene in that court case to express their grievances about the current equalization formula.
Regardless of one's views on these developments, their very existence underscores the importance of the ongoing debate across Canada regarding the operation of the equalization program. In 1957, this program inevitably sparked controversy due to its complexity—which leaves ample room for political manipulation, with many half-truths or even outright lies circulating about equalization—its size, approximately $27 billion in 2026–27, and its explicitly redistributive nature, since only provinces with fiscal capacity below the national average receive payments from the federal government.
Obviously, equalization is not the only federal transfer. The health transfer, for example, is much larger than equalization, and all provinces receive it on a per capita basis.
Though controversial, equalization is also a necessary policy instrument to reduce horizontal fiscal inequality among provinces and help less well off provinces offer quality public services to their population without any strings attached. This unconditional nature of equalization payments is consistent with provincial autonomy while reinforcing social citizenship and fiscal solidarity across the country.
Because equalization is both controversial and necessary, but also because of changing economic and fiscal circumstances, the equalization program must be reviewed on a regular basis. The current equalization formula was adopted during the early Harper years, based on the recommendations of the 2006 report of the expert panel on equalization and territorial formula financing.
It is time for the federal government to consider establishing a new expert panel on equalization to assess the current equalization formula and the program's effectiveness in light of current economic and fiscal conditions, while considering potential changes to the calculation of provincial fiscal capacity, as well as the possibility of taking provincial spending needs into account when calculating payments to receiving provinces, and even establishing a permanent independent commission to advise the federal government on these matters.
I can, of course, say more about this later during the question period.
Thank you very much.