Equalization and Alberta

Alberta is the richest Province in Canada with the highest average income in the country and it boasts the lowest taxes. Conservative Albertans complain that they are being unfairly treated by Ottawa b/c many wrongly believe Albertans are “generous” by sending money to Quebec.

Alberta doesn’t send a single penny to Quebec and never has, nor can it withdraw from Equalization even if there was a referendum: it’s constitutionally enshrined & its formula was approved by Stephen Harper and Jason Kenney himself!

It’s truly unfortunate that Jason Kenney prefers to throw gasoline on Alberta’s “Misplaced Anger” instead of explaining the program to his constituents. Mr Kenney either believes in unicorns & pixie dust that the richest Province in Canada deserves to receive equalization payments, or perhaps he’s just throwing red meat to his base to keep them angry at Quebec for not wanting Alberta’s pipeline even though Energy East actually collapsed because there was no business case for it after Trump approved Keystone?

Misplaced Anger. Western alienation and the battle over equalization

EXCERPTS added 09/10/19 from 08/26/19: “Alberta isn’t a victim of unfair treatment. Rather, much of what is lamented today is a side effect of Alberta’s economic strength. Especially when it comes to equalization.

No tweak to a program meant to transfer funds to lower income provinces should ever transfer to the richest. [Trevor Tombe. emphasis mine]

Alberta’s deficit is a choice. We choose low taxes. We choose high spending. And we pray resource revenues make up the difference. Sometimes this works out, sometimes (like today) it doesn’t. It’s not Ottawa’s fault, nor is it equalization’s. It’s our own choice. Period.

None of this is to diminish feelings of frustration and alienation in Alberta. It’s to help us guard against opportunistic partisans hoping to stoke anger and fear for short-term gain.

Blaming Ottawa in general and equalization in particular may feel good, but misplaced rage distracts from the thoughtful, practical solutions Alberta needs today.”
https://albertaviews.ca/misplaced-anger/

5 things to know about Jason’s Kenney’s fight over equalization

EXCERPTS: “The Alberta premier finds it particularly irksome that Quebec opposes pipeline development, but, through equalization, ends up benefiting from the profits generated by Alberta’s oil.

Equalization isn’t tied to any particular revenue source. It’s certainly not tied to any particular pipeline,” Tombe said.  “I think the connection is made really just because Quebec is a large recipient of equalization dollars and it’s one of the more prominent provinces opposing pipelines through that province in particular.””

The equalization history that Jason Kenney likes to forget

EXCERPTS: The Harper Conservatives, Kenney among them, brought in a new equalization formula with the 2007 budget. The more generous formula – up 20 per cent between 2006 and 2008 – also contained provisions on treatment of property taxation that delivered an even larger increase to Quebec. Quebec’s equalization payment went up 50 per cent from $4.8 billion to $7.2 billion over the two years.

Per-capita change major transfers 2007-2020 ($000,000)

EXCERPTS: .. changes to the overall federal transfer system brought in by the Harper government and continued under the Liberals have in fact benefited Alberta more than any other province.

That’s because the new equalization formula was only part of a package of changes to the transfer system that included equal per-capita cash transfers for health and social programs. Although equalization gets more attention, it represents just over 25 per cent of the $75 billion in major federal transfers to the provinces, while health and social transfers will total $55 billion in 2019.

It was acknowledged at the time that the move to per-capita funding for health and social transfers would benefit the wealthier provinces, but the enriched equalization was supposed to compensate the less wealthy ones for those losses. Unfortunately that has not happened, for several reasons. To recap:

  • In 2008 the government Kenny was part of deemed that the sudden rise in oil prices and royalties made it too expensive to fully equalize provinces’ fiscal capacity, and so put a ceiling on equalization, limiting increases to GDP growth;
  • In 2011 the Conservatives announced that the six per cent a year increases in health transfers would end in 2017, to be replaced by increases tied to the rise in the GDP;
  • In 2013, the Conservatives decided that an extra $800 million in health cash to bring Alberta to the same per-capita cash amount as the other provinces would come from the overall health transfer allotment, reducing increases to the other nine provinces from the usual 6 per cent range to anywhere from 0 (Newfoundland) to 4.3 per cent (Saskatchewan);
  • Making matters worse, future increases to CHT would be calculated on the diminished 2014-5 base.”

The resource links in Tweet tell the story (below)

2) Albertans pay $21.8 billion more in taxes than they get back, but the equalization program isn’t to blame!

On the list of richest Canada cities/capita, Calgary & Edmonton occupy the #2 & #3 spots (Ottawa #1).

Most rich people pay more taxes!

3) Don’t blame equalization for Alberta’s fiscal mess

One in 8 Albertans older than 15 earns >$100,000 a year, according to the latest census. With only 11% of Canada’s population, AB is home to 21% of Canada’s $100,000+ earners!
(theglobeandmail.com/opinion/dont-b…)

4) Is Alberta really getting shafted on equalization payments? We talked to an expert

EXCERPTS: “When Alberta says they want to re-examine and reopen discussions about equalization, don’t be surprised when the have-less provinces say, ‘Yeah, let’s reopen the discussions about why you receive the extra billion dollars in healthcare funding.’

What some Albertans don’t realize, he added, is that we also benefit from equalization in many ways, even when we’re getting a negative return.

“If you have bankrupt provinces in Atlantic Canada dragging down the Canadian dollar or dragging down the Canadian economy, that’s bad for Alberta too.””
(thestar.com/edmonton/2…)

As a result, with the exception of Quebec, equalization-receiving provinces (ERPs) like Nova Scotia received lower than average increases in total federal transfers – that’s equalization, CHT and CST – over the last 12 years.”

5) Unpacking Canada’s Equalization Payments for 2018-19 by Trevor Tombe

“Equalization is a federal program that transfers federal funds to provinces with below average capacities to raise revenues.” (policyschool.ca/unpacking-cana…)

6) How much AB & QC pay in taxes & receive in Fed monies. Avg wages higher in AB than QC which has 2x AB’s population!

QC receives less-EQ/capita than some other Provinces. Why are Albertans so mired in victimhood that they are abusive towards Quebec?

See link for explanations and more graphs
(lop.parl.ca/sites/PublicWe…)

7) This is the deep dive, 2014: CANADA’S EQUALIZATION FORMULA: PEERING INSIDE THE BLACK BOX … AND BEYOND. U of C.

“The federal government’s move to rein in the potential ballooning cost of equalization may have been understandable, from a cost-control perspective, but it ultimately defied the very purpose of equalization.”
(policyschool.ca/wp-content/upl…)

8) Provinces won’t dictate equalization: Harper

And remember when Jason Kenney approved the Equalization formula while in Ottawa? Or Harper’s sharp words to Ralph Klein? It went like this

Na Na Na Na Hey Hey Goodbye!
(theglobeandmail.com/news/national/…)

Additional resources

Alberta doesn’t send oil money to have-nots, and Ontario contributes more than Alberta

“The problem with all this noise from the right is that it appears to be less about highlighting the genuine issues and challenges that currently exist with equalization, and more about exploiting generally flawed assumptions about how equalization works, all for the sake of fuelling anger and resentment toward Quebec and the federal government.

Contrary to commonly held beliefs, the Alberta government does not actually send money to have-not provinces like Quebec. Nor do any of the revenues, collected by the Alberta government from the oil industry, make their way to Quebec through equalization. Nor are Albertans who have lost their jobs during the economic downturn currently contributing anything to equalization. Nor does any individual Albertan contribute disproportionately to equalization.”

Why equalization is not unfair to Alberta

EXCERPTS: “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.

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.

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.”

No one should feel sorry for Alberta

EXCERPTS: “Think about this: if Alberta introduced B.C.’s level of taxation – which is the second lowest in the country – it would bring in $8.7-billion in revenue. That pretty much takes care of the province’s deficit right there, without having to make any adjustments to expenditures – which Alberta politicians throughout the years have shown a reluctance to do.”

“”Alberta’s deficit is a choice and not due to broad economic factors,” University of Calgary economist Trevor Tombe told me this week. “We could have a balanced budget tomorrow and still have the lowest taxes in the country.”

But that would be hard. That would take guts. It’s much easier to complain about how mean everyone is being to them instead. Soon, however, that ploy will only engender deep, wide-scale resentment, and Alberta could feel more alone than ever.” [emphasis added]

Alberta has the highest Median Household income in not only Canada but the U.S. as well.