Government of Newfoundland and Labrador to Launch Challenge of Federal Equalization Program

The Government of Newfoundland and Labrador announced today that it is launching a constitutional challenge regarding the Government of Canada’s federal equalization program.
As outlined in the Constitution Act of 1982, equalization is intended to ensure provincial governments have sufficient revenues to provide comparable levels of public services at comparable levels of taxation. Essentially, fairness for all citizens. Currently, this fairness is not achieved for Newfoundland and Labrador.
The equalization formula does not consider:
1. The cost of delivering services. The Government of Newfoundland and Labrador services more than 500 communities across a large, geographically dispersed, and aging population connected by almost 10,000 kilometres of roads. To meet the objectives of the equalization program, it is only just and fair to consider the cost of providing services.
2. Total resource revenue is included in the calculation used to determine the fiscal capacity cap on equalization payments. The current equalization formula penalizes Newfoundland and Labrador for developing its natural resources, including renewables like wind energy which is used to produce green hydrogen. The province must pay the costs for development, regulation and management of resource sectors and these costs are not considered in the formula. Resources sectors are also subject to commodity price fluctuations, which impacts revenue certainty.
3. Once entitlements have been determined, any excess funding not required to equalize the fiscal capacity of provinces is only distributed to receiving provinces. The Government of Newfoundland and Labrador sides with other provinces (i.e., Alberta) that this excess funding should be distributed to all provinces, rather than only to the provinces receiving equalization.
The constitutional challenge announced today is currently being prepared and will be filed in a Newfoundland and Labrador court in the coming weeks. At that time, details of this court action will be available and appropriate notices will be delivered to relevant parties.
The Government of Newfoundland and Labrador has written to the Government of Canada and discussed its concerns which have not been addressed to date. Correspondence is available here.
Quotes
“This challenge is all about ensuring that equalization achieves what is intended in the Constitution - to ensure fairness among all provinces within Canada relating to the cost of the delivering public services. From our perspective, the Government of Canada’s equalization program is insufficient in that it does not consider the cost of delivering services in a province such as ours with a geographically dispersed population; nor does it consider the inequity caused by including 100 per cent of our natural resource revenue in the formula. We want the equalization program to treat provinces equitably.”
Honourable Siobhan Coady
Deputy Premier and Minister of Finance
“The Government of Newfoundland and Labrador is challenging the current equalization formula as being unconstitutional. When the Government of Canada dismissed our concerns and extended the equalization formula until 2029, we were left with no other alternative except to launch a court challenge.”
Honourable John Hogan, KC
Minister of Justice and Public Safety and Attorney General
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