Globe editorial: So Confederation is sticking it to Alberta, right? Not so fast - The Globe and Mail

Two decades ago, after the federal Liberals won a third consecutive majority, a group of aggrieved Albertans led by Stephen Harper called for “firewalls” around the province to guard against intrusions from Ottawa.

The demands included replacing the Canada Pension Plan with an Alberta-only version, and ditching the Royal Canadian Mounted Police for a provincial force.

Those ideas faded when another oil boom arrived. But after Mr. Harper became prime minister in 2006, he made some Alberta-friendly fiscal changes. He rethought how health funding is distributed from Ottawa to the provinces – it’s now on a strict per capita basis. He also changed the formula that calculates equalization, the constitutionally mandated program that sends federal support to lower-income provinces, and capped the size of the equalization pool.

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The big winner from all of that, according to the Parliamentary Budget Officer, was Alberta. By 2019-20, federal transfers to Alberta were $9.1-billion, close to triple the level of the mid-2000s, before Mr. Harper took office.

Last fall, however, with the federal Liberals back in power, Alberta was once more aggrieved and feeling short-changed. Oil prices were down, pipelines were in limbo, and Premier Jason Kenney, a long-time senior minister in the Harper cabinet, demanded a “fair deal” from Ottawa. He established a panel to lay out grievances and offer up ideas.

The report landed last week, and it is filled with new renditions of familiar songs. In his official response to his panel, Mr. Kenney said “feelings of frustration, anger and fear” are alive and well in Alberta. That is true, though he did not mention that he is feeding those feelings.

Among the panel’s ideas are those old chestnuts: a provincial pension plan and a provincial police force. It’s odd that the panel backed these, since its own polling shows a solid majority of Albertans opposed.

Other demands include the House of Commons moving to a stricter representation-by-population. Alberta would gain five seats. The province has a legitimate beef here, and it’s one shared by British Columbia and Ontario, which would gain three and seven seats.

But thanks to a redistribution of seats late in the Harper government, the House of Commons is fairer than ever to big provinces. It’s already close to rep-by-pop – and getting any closer would mean taking away seats from smaller provinces, such as Saskatchewan and Manitoba, and would in some cases require constitutional amendments.

The central demand is another old one: equalization.

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When Mr. Kenney campaigned to become premier last year, he promised a referendum on the subject. The panel calls for the ballot question to be the removal of equalization from the Constitution. The referendum, set for next year, is of course pantomime. Whatever the result, the Constitution will not change, since that would require the backing of Ottawa and the other provinces.

Even so, Mr. Kenney fans the flames of anger in Alberta, stoking the belief that the province is being cheated. Reality is more complex. The panel itself notes: “Provincial governments do not contribute financially to [equalization] and the regime does not affect their ability to raise tax revenues.”

The reason it looks to some people that Alberta contributes so much to equalization, and to federal programs in general, is because individual Albertans have long had higher incomes than their fellow Canadians. In 2018, even after a decline during the long oil bust, Alberta’s median after-tax income was $72,700. Ontario was a distant second at $66,200. The national figure was $61,400. Albertans are like a family that, due to a higher income, pays more income tax than their neighbours. It’s that simple.

Aggravation over equalization is a national pastime, played for personal gain by various provinces at different times. In Alberta, it’s a bipartisan sport. The previous NDP government claimed the program “doesn’t work for Alberta.” But Mr. Kenney wields this resentment as a weapon, playing to the base of his United Conservative Party. His panel leaned in to the incendiary, demanding action or else “support for secession will only grow.”

Rather than trying to inflame the situation, Mr. Kenney would better serve Albertans by toning down the rhetoric. Can Ottawa consider modifications to the equalization formula? Yes. But entirely ditching the program is, as everyone knows, legally, politically and constitutionally impossible.

An opinion column without any facts from a paper based in Toronto.

Better luck next time!

Yes, like Jason Kenney is the Premier of Alberta. It got that fact right. Rachael Notley was the Premier, it got that right.

But blaming high income on the fact that Ottawa doesn't re-invest as much tax money back into Alberta as it does other provinces *cough*Quebec*cough*, it kind of missed the mark there.

Quebec gets equalization assistance because it has low income and high provincial taxes. Alberta has high income and low provincial taxes therefore doesn’t require assistance to pay for the things that provinces are supposed to pay for. How is that hard to understand?

And the equalization system is always weighted so Alberta is always a have province, and Quebec is always a have-not, regardless of the actual economy.

How hard is that to understand?

Why equalization is not unfair to Alberta

Trevor Tombe
Published December 18, 2018

Trevor Tombe is an associate professor of economics at the University of Calgary, and a research fellow at the School of Public Policy.

Financial transfers from Ottawa – and the provinces' disputes over them – are central to the Canadian experience. They are a key reason why our country exists at all, but also a continual source of tension.

Part of this is unavoidable. Allocating scarce federal dollars is a zero-sum game, and flows to one province are lost to another. But much of the anger – especially in Alberta and Saskatchewan – is stoked by commentators and politicians who are deliberately fanning the flames.

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There is “no earthly reason why the second-most populous province receives equalization,” former Wildrose Party leader and current media personality Danielle Smith wrote in an op-ed about Quebec. Alberta’s finance minister, Joe Ceci, said the equalization system “needs fixing” and “doesn’t work for Alberta.”

UCP leader Jason Kenney went even further. “Every year, Alberta sends $20-billion in transfers to other provinces through the federal government,” he wrote in a fundraising e-mail last Saturday, proposing a referendum on the issue. “It’s time to fight for fairness in the federation."

Sensational claims drive interest and, more importantly, votes. And Ottawa is always an easy target, even as the federal government prepares to provide a $1.6-billion support package for oil and gas companies. But those claims only work because we let them. So it’s up to each of us to be informed about how equalization actually works, and why struggling Alberta doesn’t receive any while surplus-rich Quebec does.

There are three major transfer programs: the Canada Health Transfer, the Canada Social Transfer and Equalization. The first two distribute funds to provinces according to their population. Quebec is twice Alberta’s size, so it receives twice the dollars. Today, nearly three in four federal transfer dollars are based on population, making transfers as equally distributed as at any point in Canadian history.

Only the equalization program itself is unequal. But that’s deliberate: Some provinces have an easier time raising revenue than others, so equalization provides additional funds to lower-income provinces to ensure adequate public services can be provided to all Canadians.

The formula itself asks what a province’s revenue would be if all its tax rates equalled the national average. Alberta would raise $12,327 per person, more than any other province, followed by B.C. at $11,052. Quebec is far behind, at $8,123, and Prince Edward Island lags even further, at $6,648, according to Finance Canada calculations. Equalization tops up provinces below the national average, which is why a province as populous as Quebec receives payments.

One can certainly disagree with providing more transfers to lower-income regions, but this is hardly a coherent argument against a program designed to do exactly that. Instead, many argue that it is unfair to Alberta, because of the province’s large deficit and deep recession. But these arguments don’t hold water, either.

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Yes, Alberta’s recession has shrunk its economy by 12 per cent between 2014 and 2017 – but it remains on top. Alberta’s GDP per capita was nearly $77,500 last year, compared to the national average of $58,000; Quebec’s was $50,000. A strong economy means high income, and Alberta’s median household income was $93,000 in the last census, while more than two in three Albertans are employed today; both figures are higher than those in all other provinces.

Alberta’s large deficit also does not entitle it to equalization. After all, Alberta chooses to have low taxes and high spending, made possible by the luxury of high oil and gas royalties, which have now been reduced. Alberta’s politicians need to come to grips with the fiscal reality, not look to Ottawa for help. And while Quebec may be running a surplus, its taxes are double those in Alberta.

As Mr. Kenney says, Alberta does send more than $20-billion to Ottawa, though the federal government raises more from Alberta individuals and businesses than it spends in the province. My forthcoming research for the Canadian Tax Journal found that the federal revenue and spending gap represented an implicit transfer of $23.8-billion out of Alberta in 2017. And since 2007, this gap has totalled $264-billion.

But the claim is still misleading. The federal government raised nearly $400 more per Albertan in GST than it did from elsewhere, and it raised over $2,500 more per person in income taxes. Neither, however, are transfer programs; the same 5 per cent GST applies everywhere, and there is only one income-tax system.

So it’s not that Alberta pays more: high-income individuals do, regardless of where they live, and Alberta just happens to be home to a large number of them. That implicit, unavoidable transfer happens within provinces just as it does between them. But rather than unequal federal policy, it’s Alberta’s strengths, such as higher incomes and a younger population – which means fewer CPP and OAS cheques flow to Alberta – that are widening its federal fiscal gap.

We shouldn’t shy away from debates over transfer programs. They are hard conversations to have openly and honestly, but we must reject misleading claims and accept hard truths. Doing otherwise would be truly unfair.

You’re not “doing all you can” as evidenced by your low taxes. It’s that simple.

Edit:

It also pisses us off when the overtaxed and defecit ridden East tells us how to run our provincial finances.

It's not federal money, it's our money the Feds borrowed.

And we have a provincial income tax. You don't get to tell us how to run our province.

It’s federal money, from federal tax collected from every Canadian. It’s not “borrowed” either. The rest off your comments above are already addressed in my previous post.

If we get refunds on our income tax, the money was borrowed. Interest free at that.