Equalization payments in Canada

In Canada, the federal government makes equalization payments to provincial governments of lesser fiscal capacity so that "reasonably comparable" levels of public services can be provided at similar levels of taxation. Equalization payments are entrenched in the Constitution Act of 1982, subsection 36(2).

The program is financed through the federal government's general revenues, which are largely sourced from federal taxes. Provincial governments make no contributions.

Payment amounts are decided relative to a province's estimated fiscal capacity, or ability to generate tax revenues. A province that does not receive equalization payments is often referred to as a "have province", while one that does is called a "have-not province".

In 2023–24, all provinces and territories will receive $94.6 billion in major federal transfers, including $23.96 billion in equalization payments in 6 provinces.

The equalization program is one significant example of transfer payments from the federal to the provincial governments. The Canada Health Transfer (CHT) and the Canada Social Transfer (CST) are also notably large transfer programs.

The territories are not included in the equalization program. Federal funding for them is instead provided through the Territorial Formula Financing (TFF) program.

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