Former Prime Minister Stephen Harper and several academics wrote the Alberta firewall letter over twenty years ago to examine Alberta’s path to increased autonomy. At the forefront of the Alberta Agenda is Canada’s equalization program.
The equalization program, created in 1957, allows the federal government to transfer funds unconditionally to provinces with below-average revenue per capita to ensure all provinces provide comparable services and taxation levels.
The Government of Canada uses equalization to address fiscal disparities among provinces — financed entirely from the federal government’s general revenues — where recipient provinces spend it as they deem fit.
At the time of the Alberta firewall letter, Alberta Treasury estimated residents transferred $2,600 per capita annually to other Canadians, for a total outflow from our province approaching $8 billion a year.
Between 1961 and 2019, a study by economist Trevor Tombe suggests Alberta’s “net contribution” to Canada is $622 billion — roughly five percent of the province’s economic activity over the period and equivalent to $3,344 annually per person in 2021 dollars. According to Tombe, the net inflow to Prince Edward Island averaged nearly 30 percent of its economy.
Alberta is by far the most significant net contributor in the federation at over $3,700 per person per year over the entire 1961-2018 period and well over $5,000 per person per year — or over $20,000 annually per family of four — in recent decades. Prince Edward Island consistently saw the most significant net fiscal benefit of over $8,600 per person per year since 2010.
With the province voting in an equalization referendum, Dr. Thomas Flanagan, a political science professor at the University of Calgary, states a referendum win is not enough. The official results indicate a substantial majority in striking Canada’s equalization program from the constitution.
Flanagan argues the Alberta government needs to pass a resolution requesting a discussion of a constitutional amendment to compel Ottawa and the other provinces to discuss the issue according to Canada’s Supreme Court Decision in the Separation Reference.
Amending the constitution to remove equalization requires support in the House of Commons and the Senate, plus two-thirds of provincial legislatures, representing more than 50 percent of the Canadian population.
Though no guarantee of success, Flanagan said, “it would get the idea of Reform out in the open as the equalization formula has to be changed in any case within a couple of years.”
However, Quebec, Ontario and BC also have veto power to lay out the requirements for regional and provincial buy-in on constitutional amendments. Under that same provision, two or more Prairie provinces representing at least 50 percent of the region’s population would also have to agree, as would two Maritime provinces representing the same.
Kevin Lacey, the Alberta director of the Canadian Taxpayers Federation, describes the referendum as one of the “biggest and most significant constitutional referendums” since the Charlottetown Accord’s failure in 1992.
“Albertans delivered a clear message that while they’re willing to contribute to Canada, they won’t be taken advantage of anymore, and the results show that Albertans want to stand up and they want to see change.”
According to the Fraser Institute, the fiscal capacity gap between richer and poorer Canadian provinces shrunk dramatically, with the trend accelerating significantly after 2014/15.
Fiscal capacity refers to a province’s ability to raise own-source revenues at tax rates set to the national average, plus any additional revenues from natural resource royalties.
In 2007/08, using 2020 dollars, the fiscal capacity gap between Alberta and PEI was $10,999. By 2018/19, that number fell to $6,138. With the 2020 COVID shock and sudden fall in natural resource prices, the Fraser Institute estimates BC will overtake Alberta with the highest fiscal capacity.
“Combining revenue declines and spending increases, Alberta may see the gap between federal revenue and spending fall by nearly $9,000 per person (or from positive $4,000 per person to negative $5,000). That’s almost $40 billion overall — equivalent to over 11 percent of the entire provincial economy,” writes Tombe.
“There is no year on record where all provinces were net receivers from the federal budget, as will be the case in 2020. But Alberta benefited more than others — I estimate $650 per person more than the national average,” he added.
Dr. Ted Morton, a political science professor at the University of Calgary, says, “The same federal politicians who accuse us of not sharing their “Canadian values” have no compunction about appropriating our Canadian dollars to buy votes elsewhere in the country.”
In Budget 2018, then federal Finance Minister Bill Morneau proposed a five-year renewal of the previous equalization regime beginning April 1, 2019, until 2024. Under the Budget Implementation Act, which received Royal Assent, the federal government will gradually increase equalization payments to the provinces from $17.9 billion in 2017-2018 to $22.1 billion by 2022-2023.
“It is critical to our future that Albertans vote overwhelmingly to repeal Equalization in this Fall’s referendum, as this will trigger the “duty to negotiate” for Ottawa and other provinces,” argues Dr. Morton. “This will send a strong message that Albertans no longer accept the status and force federal-provincial negotiations to craft a fair deal for Alberta.”
But he contends these discussions must not be just about equalization.
“There must also be a frank discussion about how the same province that has benefited the most from equalization and transfers — $497 billion into Quebec since 1960 — is also the province now leading the campaign to landlock western Canadian oil and gas,” said Dr. Morton.
“A Yes vote in the October referendum will be a win-win for all Albertans because it will start a much-needed dialogue. A dialogue not just about equalization or Alberta’s future, but also Canada’s future,” he adds.
“As former Alberta premier Peter Lougheed used to say, a strong and prosperous Alberta makes for a strong, prosperous Canada.”
“We need to get this message out. Now is the time,” said Dr. Morton.
Dr. Barry Cooper, also a political science professor from the University of Calgary, said Alberta needs to forget about western alienation and go beyond a referendum on equalization by calling a referendum on separation. However, he maintains its time for a new relationship with Ottawa by resetting the agreement in confederation.
“Alberta and its western neighbours lack the power base needed to dictate the direction of their territories, let alone that of the country,” Dr. Cooper said on the podcast Conversations That Matter.
“I wouldn’t call it alienation. I would call it an injustice.”
He cites the growing awareness of western Canadians expressing heightened dissatisfaction with the ‘structural injustice’ of the Canadian experience, contending it is a problem “that will not go away.”
Dr. Cooper adds: “We have been part of an imperial […] domination from long before confederation. […] None of that has changed, and I don’t think it ever will change.
