A University of Alberta economics professor says Western Canada's oil price nightmare could have a significant financial impact on provinces with little or no oil wealth
That's because the massive drop in oil revenue for Alberta and other oil-producing provinces could shift the central Canadian province to "have" from "have-not" status.
Such a shift in the country's largest province would create a ripple effect for the remaining have-not provinces, which would become eligible for a greater share of the equalization program, observers say.
"Ontario may find itself a 'have' province," said Melville McMillan, an economics professor at the University of Alberta who has published research on the Canadian equalization program. "That could occur, we're moving in that direction.
"Ontario may shift [to have status] because of what's happening in Alberta, Saskatchewan and Newfoundland," McMillan said. "The price of oil goes down, their natural resource revenues go down, corporate taxes go down and personal income taxes go down as well."
The equalization program is designed to ensure provinces can deliver reasonably comparable services at reasonably comparable levels of taxation. It's historically been controversial because every Canadian pays into the program, yet funds are only given to certain provinces.
Equalization looks at the revenue each province can generate based on personal income tax, corporate tax, sales tax, property tax and 50 per cent of resource revenues.
In the last 50 years, Alberta is the only province to not receive any money from the program. Even with its economy in a recession this year, it will not benefit from the program.
Ontario is near the divide separating wealthy provinces and those less-prosperous.
The Ontario government expects its residents to contribute about $6.7 billion to equalization this year, with the province receiving about $2.4 billion in return in 2015-16. Next year, if its status changes, it might not receive a penny in return.
North American oil prices were above $100 U.S. a barrel in the summer of 2014. This week, prices are below $40 U.S.
If Ontario shifts to become a have province, the remaining have-not provinces would benefit. Ontario's $2.4-billion share this year from the program would be returned to the $17-billion fund that is dispersed among the have-not provinces.
