Federal equalization changes costly to B.C.

By BRENT JANG
Globe and Mail Update

Victoria:  British Columbia will lose $675-million in federal equalization
funds because of revisions to the way Ottawa calculates payments to
"have-not" provinces, wiping out a windfall from a record sale of
B.C. petroleum rights.

"It's a big number," B.C. Finance Minister Gary Collins said
Friday in detailing how the province's treasury won't be swelling with
payments expected from Ottawa. A complex formula involving more than 30
revenue sources is used to calculate equalization entitlements, and after
one of the revisions, $364-million will no longer flow to British Columbia
because of Ontario's slump in personal income taxes after the SARS outbreak
and the August blackout.

Alberta and Ontario are the only "have" provinces. Slower
economic growth in Ontario, combined with British Columbia performing
better than expectations, translated into decreases in payments originally
slated for the B.C. treasury.

Adjustments to census data meant a $59-million reduction in forecasted
payments to British Columbia, and surprising strength in the energy sector,
especially in northern B.C. natural gas projects, also ended up shrinking
equalization cheques. In September, the B.C. government raised a Canadian
monthly record of $418-million from the sale of petroleum rights, mostly
for northeastern B.C. natural gas properties. At the time, Premier Gordon
Campbell's Liberals expressed relief that the windfall would pay for most
of the $439-million in extra costs for fighting massive forest fires in the
province.

Friday, Mr. Collins said changes to the equalization formula for the
current fiscal year left his province out $249-million. A review of the two
previous fiscal years prompted Ottawa to retroactively take additional
B.C.-designated money out of the equalization pot, amounting to a total
loss of $675-million.

"We still are a have-not province," said Mr. Collins, who
confirmed that British Columbia remains headed for a $2.3-billion deficit
for the year ending March 31, 2004. He plans to balance the books in the
following year with a razor-thin surplus.

Including the current fiscal year, British Columbia has been tagged with
have-not status for four of the past five years, with its economy suffering
amid downturns in forestry, mining and fishing.


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