Ontario, Oil & Unreliable Data The Complex Problems Confronting Equalization and Simple Solutions to Address Them BY ERICH HARTMANN

Figures 8 and 9: The growth in the fiscal capacity of the resource-rich provinces was further magnified by the adoption of the ten-province standard for the determination of the size of the Equalization pot (Step Two from above), as recommended by the O’Brien Report. [...] Although the O’Brien Report recommended including only 50 per cent of resource revenues in the calculation of Equalization, the ten-province standard had the effect of including a portion of Alberta’s resource wealth in the determination of the standard. [...] The combination of the change to the FCC and the introduction of the GDP ceiling allowed for Ontario to qualify for Equalization payments while containing the costs of the program. [...] Constraining the program to a fixed envelope has the effect of divorcing the Equalization standard from the determination of the total size of the program. [...] The tenfold reduction in the variance indicates that, under a formula-driven approach to calculating the size of the Equalization pot, the use of a three-year lag would significantly enhance the accuracy of the equalization of differences in provincial fiscal capacity.