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A formal system of equalization payments was first introduced in 1957. [7] [ Notes 1]. The original program had the goal of giving each province the same per-capita revenue as the two wealthiest provinces, Ontario and British Columbia, in three tax bases: personal income taxes, corporate income taxes and succession duties (inheritance taxes).
Equalization payments do not, technically, involve wealthy provinces making payments to poor provinces, although in practice this is what happens, via the federal treasury. As an example, a wealthy citizen in New Brunswick, a so-called "have not" province, pays more into equalization than a poorer citizen in Alberta, a so-called "have" province.
In Canada, the federal government makes payments to less wealthy Canadian provinces to equalize the provinces' "fiscal capacity" — their ability to generate tax revenues. The program began in 1957. [5] In 2016-2017, six provinces will receive $17.9 billion in equalization payments from the federal government. [6]
In the face of these long-term regional disparities, the Government of Canada redistributes some of its revenues through unconditional equalization payments and finances the delivery of comparable levels of government services through the Canada Health Transfer and the Canada Social Transfer.
1965: Canada–United States Automotive Products Agreement (Auto Pact) 1973–1979: Tokyo round of GATT; 1988: Canada–United States Free Trade Agreement; 1993: North American Free Trade Agreement (NAFTA) 1994: World Trade Organization created; 1997: Canada–Israel Free Trade Agreement (CIFTA) 1997: Canada–Chile Free Trade Agreement (CCFTA)
The 1990 Canadian federal budget capped the annual growth of the Canada Assistance Plan at 5% for provinces who did not receive equalization payments [note 1] for 1990-91 and 1991-92 fiscal years. That decision was incorporated into the Government Expenditure Restraint Act (C-69) that received royal assent on 1 February 1991.
It also recommended the creation of equalization payments and large transfers of money from the federal government to the provinces each year. Other recommendations were not adopted because of resistance from the provinces or the federal government.
But unlike equalization payments, which provinces can spend on anything, money distributed through the CHST is conditional and must be spent on health, post-secondary education or welfare. [3] Legislation such as the Canada Health Act specify standards that the provinces must maintain in order to receive funding.