B. C. real estate boom can cost us

British Columbia would be punished for its high property values with a reduction of hundreds of millions of dollars in transfer payments if a federal panel's recommendations on the equalization program are implemented.

The recommendations would result in Quebec getting a $1.5-billion-plus annual windfall while B.C. would get nothing from the wealth-sharing equalization program.

"It punishes British Columbia by including sky-high property values as a basis for equalization entitlements when they have no relationship to taxpayers' ability to pay higher taxes or a province's ability to generate revenues," Premier Gordon Campbell said.

B.C. has the highest real estate values in the country, with the average home going for $367,000 this year compared to $192,000 in Quebec, according to the Canadian Real Estate Association.

The report, to be discussed later this week by the premiers in Edmonton, proposes a new formula to calculate payments for the $11-billion program that dispatched $459 million to the B.C. provincial treasury this year.

The panel sides with Quebec and against B.C. in a increasingly bitter debate over whether assessed property values should be included in determining whether a province can tap into the program created to ensure all Canadians receive similar levels of services.

That change alone would reduce by more than $500 million B.C.'s equalization claim under the panel's proposed new formula, while increasing Quebec's by $355 million.

The change would have only a marginal impact on other provinces.

The panel, struck by the previous Liberal government, was also wrong, Campbell argued, to include both renewable and non-renewable natural resources in a new 10 province formula for calculating provinces' ability to raise tax revenues.

He described that provision as bad for B.C. and a "stealth" version of the hated National Energy Program of the early 1980s that fuelled western alienation, especially in Alberta, for years.

Campbell questioned why the Tories' 18 B.C. MPs would want to support such a move "when it's their taxpayers and their constituents who are being asked to foot the bill.

"It so badly tilts the scale against British Columbia by including resource revenues and our property assessments as determinants of equalization, that British Columbians would never be eligible for equalization again -- even in an economic downturn."

Finance Minister Jim Flaherty was non-committal on the report, saying it would be considered along with other input as Prime Minister Stephen Harper moves ahead with reform of the transfer-payment program.

The panel, headed by Alberta economist and former provincial bureaucrat Al O'Brien, included in its recommendations a new method to take more fully into account assessed real estate values across the country.

"In the panel's view, the [former] approach consistently over-estimated the capacity of Quebec to collect property taxes while it under-estimated British Columbia's capacity," the report concluded.

O'Brien said on Monday that B.C. was already heading back towards its pre-1999 status as a "have" province which, like Ontario and Alberta, wouldn't receive equalization payments.

"I think the most important factor in the impact on British Columbia is simply improving economic and fiscal circumstances," O'Brien told a news conference.

"They're much better off and therefore, according to our calculations here, would no longer be eligible for equalization under our formula."

However, O'Brien's own report made clear that even with a strong economy, B.C. would be eligible for equalization transfers next year if the method for assessing property values wasn't changed.

Campbell, who shares Ontario Premier Dalton McGuinty's view that the equalization program already had enough funding, has urged Harper to focus on funding in areas like transportation and aboriginal programs.

But the panel instead came up with a plan that would play nicely into Harper's agenda to answer Charest's complaint that there is a "fiscal imbalance" between Ottawa and the provinces.

The panel's proposed formula would boost the equalization pot from $11.3 billion this year to $12.6 billion next year.

While the changes wouldn't impact Ontario and Alberta, they would benefit every other province except B.C. and Newfoundland -- the only two provinces to actually lose transfers under the proposal.

Quebec's $1.5 billion gain, from $5.5 billion to $6.9 billion, is by far the largest total gain, though Saskatchewan would enjoy the highest per-capita increase.

(prepared by Peter O'Neil/Vancouver Sun)