Saskatchewan's Brad Wall questions equalization formula

Saskatchewan Premier Brad Wall set off a debate about equalization — the revenue-sharing formula between Ottawa and the provinces — Wednesday.

In a series of media interviews, Wall called for a re-examination. Specifically, he took aim at how hydro-electric power is treated. It's a major source of energy in B.C, Manitoba, Ontario, Quebec and Newfoundland and Labrador.

"Hydro, as a resource, is basically excluded from the formula," Wall told CBC Radio's Blue Sky. "Whereas other sources of energy, especially hydrocarbons, oil and gas are properly very much part of the formula." 

Wall's assertion set off a confusing set of rebuttals.

Contradictions from Manitoba premier, Alberta economist

"The actual revenues are already counted," said Manitoba Premier Greg Selinger.

But according to an economist at the University of Alberta, Melville McMillan, it's a little of both. 

"I believe to the extent that hydro revenues accrue from sales outside the province, I believe those are included," McMillan said. "But to the extent that [a province] sells hydro to its citizens at a low cost, that subsidy is not included."

Furthermore, McMillan said just 50 per cent of resource revenues such as gas and oil are included in the formula.

Lag time offers stability: Selinger

Meanwhile, Wall also complained about the lag time in recalculating equalization when resource prices drop.

"But yet there will be a lag of three to five years before that works its way through the formula, and that could be modernized in my view," Wall remarked.

McMillan said it's three years, and has a "smoothing" effect.

"If there's been a change in the numbers from the time the initial payment was made, the following year the numbers may be corrected and improved, and there has to be some adjustment in some of the payments," McMillan explained. "With the lag, it modifies those adjustments."

He added that averaging over a period of time reduces the "rapid or unexpected adjustments" from volatile swings in resource revenues.

Frankly, does it reflect the demands and the needs of the country?- Brad Wall, Premier of Saskatchewan

"The lag issue works both ways," Selinger said. "[It] protects you if your revenues go up dramatically or go down dramatically, so it creates stability in the country."

Wall also suggested that half of the $17 billion in equalization be redirected to infrastructure or a combination of infrastructure and tax cuts.

"Frankly, does it reflect the demands and the needs of the country? And I would say that infrastructure's at the top of that list," Wall explained.

"The savings are not necessarily all that great, and the consequences for the have-not provinces are particularly large," was MacMillan's reaction.

"It's a constitutionally protected program that allows all of us to ensure that we can grow our economies, educate our people to participate in the economy, and provide essential services like health care," Selinger said.