Vol. 149, No. 26 — December 30, 2015
SOR/2015-248 December 11, 2015
FEDERAL-PROVINCIAL FISCAL ARRANGEMENTS ACT
Regulations Amending the Federal-Provincial Fiscal Arrangements Regulations, 2007
P.C. 2015-1272 December 11, 2015
His Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to paragraph 40(a) (see footnote a) of the Federal-Provincial Fiscal Arrangements Act (see footnote b), makes the annexed Regulations Amending the Federal-Provincial Fiscal Arrangements Regulations, 2007.
REGULATIONS AMENDING THE FEDERAL-PROVINCIAL FISCAL ARRANGEMENTS REGULATIONS, 2007
1. The Federal-Provincial Fiscal Arrangements Regulations, 2007 (see footnote 1) are amended by adding the following after section 2:
2.1 Despite any other provision of these Regulations, for the purpose of determining a revenue source or a revenue base under Part 1 or 1.1, there shall be excluded from the revenue of Ontario any amount obtained through a debt retirement charge levied under Part V.1 of the Electricity Act, 1998, S.O. 1998, c. 15, Sch. A, and from the revenue of Nova Scotia and the revenue of New Brunswick any amount levied on electricity consumption exclusively for the purpose of repaying the debt managed, respectively, by the Nova Scotia Power Finance Corporation and the New Brunswick Electric Finance Corporation.
COMING INTO FORCE
2. These Regulations come into force on the day on which they are registered.
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Regulations.)
The Federal-Provincial Fiscal Arrangements Act (the Act) provides the statutory authority for major fiscal transfers from the federal government to the provinces and territories, including Equalization and Territorial Formula Financing (TFF). Equalization is the Government of Canada’s transfer program for addressing fiscal disparities among provinces. It is meant to enable all provinces to provide reasonably comparable public services at reasonably comparable levels of taxation. Similarly, the TFF provides territorial governments with funding to support public services comparable to those provided by provincial governments at comparable levels of taxation while taking into account the higher cost of providing programs and services in the North.
Payment amounts for both transfers are largely based on the ability of a province or territory to raise own-source revenues using national average taxing practices, which is referred to as fiscal capacity. The formulas to determine both Equalization and TFF payments are set out in the Act and in the Federal-Provincial Fiscal Arrangement Regulations, 2007 (the Regulations). Among other things, the Regulations define the revenue sources and revenue bases on which the Equalization and TFF programs are based. In doing so, they refer to definitions that often point to categories of revenues as defined by Statistics Canada for the purpose of a given classification system.
In 2008, the Government of Canada informed the provinces and territories of its intention to exclude the net income of the Ontario Electricity Financial Corporation (OEFC) and the New Brunswick Electric Finance Corporation (NBEFC) from the Equalization and TFF programs. The decision was based on the fact that the revenues of those entities were used exclusively to retire the debt of public electrical utilities. Since they were not available to the provincial governments to fund public goods and services, they were not being considered as fiscal capacity for the provinces.
At the time, being that these entities were considered as government business enterprises, only the net income of the OEFC and the NBEFC entered into the categories of Statistics Canada’s classification system referred to in the Regulations. Consequently, the amendments to the Regulations that were adopted in 2008 sought to exclude the net income of the two entities from the business income base of the Equalization and TFF programs. Given that the OEFC’s and NBEFC’s revenue streams were not entering the Equalization and TFF calculations, the 2008 amendments did not include any provision in respect of them. In 2013, a regulatory amendment was adopted to also exclude from Equalization and TFF the net income of a similar entity, the Nova Scotia Power Finance Corporation (NSPFC), to ensure consistency in the treatment of electrical financing companies.
In the case of the OEFC, the largest component of its net income is the proceeds from the debt retirement charge. This charge is levied by utilities in the province on the consumers of electricity based on their usage. The revenues raised are then transferred to the OEFC. For the purpose of the November 10, 2015, edition of the Provincial and Territorial Economic Accounts, Statistics Canada has reclassified the debt retirement charge as a tax on consumers (it will now be classified as an excise tax) to better conform to the standards of the recently implemented government finance statistics and reflecting its decision that the OEFC is part of general government rather than a government business enterprise. As a result, going forward, those revenues would have to be included in the calculation of Equalization and TFF payments contrary to the policy intent underlying the 2008 and 2013 amendments to the Regulations. It would also cause inconsistencies in the treatment of electrical financing companies, as the revenues of the NBEFC and the NSPFC have not been reclassified.
The amendments seek to ensure that, despite the recent reclassification by Statistics Canada of the OEFC’s debt retirement charges, the determination of Equalization and TFF payments continues to be made in a manner consistent with the policy intent underlying the 2008 and 2013 amendments, which would also ensure consistent treatment of electrical financing companies.
The amendments to the Regulations exclude the debt retirement charges remitted to the OEFC and other similar taxes or charges levied on electricity consumption for the exclusive purpose of retiring the debt managed by the NBEFC or the NSPFC from the Equalization and TFF calculations. The Chief Statistician of Canada will exclude these levies from the data he provides for the purpose of these two programs, even if they were to be reflected in future releases of Statistics Canada’s Provincial and Territorial Economic Accounts.
The “One-for-One” Rule does not apply to the regulatory amendments, as they do not impose an administrative burden or costs on businesses.
Small business lens
The small business lens does not apply to the regulatory amendments, as they do not impose costs on small businesses.
All provinces and territories have been fully informed and consulted in regard to these regulatory amendments. Provincial and territorial government officials have not expressed any concerns with them and support the change to maintain the integrity of the current approach to determining entitlements.
The regulatory amendments are required so that the Minister can continue to calculate, by the end of December 2015, Equalization and TFF payments in a manner consistent with the underlying intent of the 2008 and 2013 amendments to the Regulations.
Without the proposed regulatory amendments, the recent reclassification made by Statistics Canada of the OEFC’s debt retirement charges would undermine the policy established in 2008 to exclude the net income of electrical financing companies from the calculations used to determine Equalization and TFF payments. Moreover, given that Statistics Canada’s reclassification does not affect the treatment of the NBEFC’s and NSPFC’s revenues, they would still be excluded from the calculations, thereby causing inconsistencies in the treatment of electrical financing companies among provinces under the Equalization and TFF programs.
The regulatory amendments will ensure that the recent methodological changes introduced by Statistics Canada, as well as potential reclassifications of the NBEFC’s or NSPFC’s revenues of similar nature in the future, do not impact upon the Government of Canada’s established policy by requiring the Chief Statistician of Canada to exclude the OEFC’s debt retirement charges, and similar revenues accruing to the NBEFC or the NSPFC, from the data it submits for the purpose of the Equalization and TFF programs.
Equalization and TFF Policy
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