Taxation and the middle class

[tomh009]

Oh, it is a system, and it's not renegotiated each year. You can find the details here, for example:
https://www.policyschool.ca/wp-content/u...zation.pdf

It's a fairly long and detailed read, but it's very much a formula, it's not just the federal government arbitrary picking who should get money and who should not. A province's status may change, but it's only because that province is now financially better off than before.

I didn’t suggest that it is renegotiated every year. But I do keep hearing about renegotiation related to change of a province’s status. A proper system would not require renegotiation unless the fundamental purpose or organization of the system was changed. Also the whole concept of a “status” is questionable; there is a smooth continuum between poor and rich.

Imagine if the income tax system worked by establishing for each person whether they were “rich” or not; this would determine their tax rate. Every 10 years each person would lobby to be classified as “poor”; the wealthier of them would be laughed at and classified as “rich”. Some people who saved well and had gardening as a hobby would be classified as “rich” because their house was gorgeous even though they had no more income than the people down the block while others who blew all their money on gambling would manage to be classified as “poor”.

So a proper system of the same general nature as the existing one would just take some economic numbers as inputs, run them through a smooth function, and output numbers which would determine the payments, in such a way that wealthier provinces would tend to fund poor ones.

That's exactly how it works. There is no determination of "rich" or "poor" up front: the formula determines how much is paid to each province. And then the media and politicians make up terms like "have" and "have not" which are not part of the calculation at all.

And the formula doesn't take into consideration the spending habits of provinces (your comparison to gambling vs gardening), only their income. From the link I posted above:

Whatever the number of sources, the essential
calculation of a provincial government’s equalization entitlement is conceptually
straightforward. At the core of the calculation is the difference between two numbers. Letting E
denote a provincial government’s equalization entitlement per capita, it is calculated as:

E = S - F

where

S (the standard) is the estimated potential revenue a group of reference provinces could
raise if they applied a set of given (or “standard”) tax rates to specified revenue sources
within provincial jurisdiction; and

F (the province’s fiscal capacity) is the estimated potential revenue the provincial
government could raise if it imposed the same set of standard tax rates to the same
specified revenue sources within its jurisdiction