- Equalization entitlements are determined by measuring provinces' ability to raise revenues – known as "fiscal capacity".
- Before any adjustments, a province's per capita Equalization entitlement is equal to the amount by which its fiscal capacity is below the average fiscal capacity of all provinces – known as the "10 province standard".
- Provinces get the greater of the amount they would receive by fully excluding natural resource revenues, or by excluding 50 per cent of natural resource revenues.
- Equalization is adjusted to ensure fairness among provinces while continuing to provide a net fiscal benefit to receiving provinces from their resources equivalent to half of their per capita resource revenues.
- Equalization is also adjusted to keep the total program payout growing in line with the economy. The growth path is based on a three-year moving average of gross domestic product (GDP) growth. This helps to ensure stability and predictability while still being responsive to economic growth.
- The program also maintains the benefits of the Atlantic Accords for Nova Scotia and Newfoundland and Labrador. In 2007, the two provinces were given the choice to continue to operate under the previous Equalization system or to permanently opt into the new program at any point prior to the expiry of the offshore accords. Having chosen the new program, Nova Scotia benefits from a guarantee that it will do at least as well, on a cumulative basis, as it would have under the formula agreed to at the time the Accord was signed. Newfoundland and Labrador no longer qualifies for Equalization.
Return to Federal Transfers to Provinces and Territories page