{"id":268988,"date":"2020-12-08T16:55:19","date_gmt":"2020-12-08T21:55:19","guid":{"rendered":"https:\/\/policyoptions.irpp.org\/issues\/are-fiscal-stabilization-reforms-a-slap-in-the-face-or-a-modernization\/"},"modified":"2025-10-07T23:19:42","modified_gmt":"2025-10-08T03:19:42","slug":"are-fiscal-stabilization-reforms-a-slap-in-the-face-or-a-modernization","status":"publish","type":"issues","link":"https:\/\/policyoptions.irpp.org\/fr\/2020\/12\/are-fiscal-stabilization-reforms-a-slap-in-the-face-or-a-modernization\/","title":{"rendered":"Are fiscal stabilization reforms a slap in the face or a modernization?"},"content":{"rendered":"

With all the attention paid to rising COVID-19 cases, expansions to various federal emergency support programs, ongoing political machinations south of the border, and Canada\u2019s $382-billion projected deficit, you\u2019d be forgiven for missing changes to Canada\u2019s fiscal stabilization program announced in the recent federal fiscal update<\/a>.<\/p>\n

But Alberta\u2019s premier, Jason Kenney, sure noticed. It\u2019s a \u201cslap in the face<\/a>,<\/u>\u201d he said in response to the announced changes.<\/p>\n

Alberta Finance Minister Travis Toews was less overdramatic but agreed the reforms \u201cfall well short<\/a> of the proposal endorsed by premiers<\/a> from every province and territory at (the) Council of the Federation.\u201d Even former Alberta premier and current opposition leader Rachel Notley was unimpressed<\/a>.<\/p>\n

The federal government, meanwhile, calls its reforms \u201cmodernizing\u201d and says they \u201cprovide a more effective backstop to provinces that face an extraordinary drop in revenues.\u201d<\/p>\n

At a time when provinces across the country are under intense fiscal strain and looking for as much support as they can get, it\u2019s worth cutting through the political spin to unpack what was announced and what the reforms to fiscal stabilization might mean. In my view, they are a modest but meaningful change to an increasingly important transfer program.<\/p>\n

What Is fiscal stabilization and how was it changed?<\/strong><\/p>\n

Federal support for provincial finances is nothing new. It\u2019s at the core of Canadian federalism. And since the original terms of Confederation, federal transfers have provided \u201cfloors\u201d of some form or another for provincial revenues.<\/p>\n

But since 1967, a broad form of provincial revenue insurance has existed in what\u2019s called the Fiscal Stabilization Program<\/a>. I won\u2019t go into full details, but interested readers can explore the full history, functioning, and reform options for the program in this recent IRPP paper<\/a>. I\u2019ll only briefly summarize the program here.<\/p>\n

Originally, it provided payments to any province whose revenues declined by more than five per cent from one year to the next \u2014 for reasons other than provincial tax changes, of course. It was meant to help cushion the blow to provinces experiencing a large economic shock, such as a severe recession. Essentially, the federal government would absorb the full cost of the shock beyond the first five per cent drop, which would be borne by the province.<\/p>\n

Today, it functions a little differently but its core components are straightforward. A province receives a payment if:<\/p>\n