Let No Good Deed Go Unpunished – Canada’s Equalization Program

The $19 Billion Federal Equalization program is the target of many complaints in Alberta

It began in 1957 as a way to enable “Have Not” provinces to provide public services comparable to those of “Have” provinces. The big winners year after year is Quebec ($11 billion last year) and the Maritimes. Alberta, along with Ontario and BC, are the most consistent contributors as “Have” provinces. Saskatchewan and Newfoundland are recent ‘Have’ provinces too.

So in simplistic terms, it goes something like this. A Severely Normal Alberta family of four pays $2,000 and gets nothing back.  A Montreal family of 4 who detest the “Tarsands” pays $2000 and get back $9,500 in terms of government services.

Fed Bashing Again

As Alberta heads to a provincial election, the tried and true tactic of “Fed Bashing” is well underway, particularly from the United Conservative Party.  The Equalization Program where Quebec gets generous amounts every year, while Alberta runs up huge annual deficits, is a popular talking point.

So, when the Quebec government attacks the energy industry (all the while shuttering development of their own resources.) the hostility in Alberta grows deeper. The UCP propose to hold a referendum in Alberta as way to ramp up the “Fed Bashing” and inflame Alberta politics.

 

But the “Hell No; We Won’t Pay” approach won’t work!

The program’s intent is entrenched in the Canadian Constitution, so it isn’t going away anytime soon.  And Alberta doesn’t actually forward a cheque to Ottawa to redistribute.  The funds come from federal taxes.  The rest of Canada will see Alberta as uncharitable considering our wealth and standard of living.

Negotiation in 2019

What is up for discussion in 2019 is the method of calculating the formula!

Severely Normal Albertans should hope that in the 2019 consultation process, a fairer means of calculating equalization can be found. The areas that need to be examined are:

  1. Currently 50% of natural resources revenues are calculated into the formula. Maybe that needs to be adjusted downward so that Saskatchewan and Alberta are not perpetual cash cows.
  2. In Quebec and Manitoba, the value of hydroelectricity is calculated using the subsidized rate it sells power to its citizens, not the market rate. Thus, the two provinces appear poorer than they actually are.
  3. The program uses two-year-old data to calculate equalization. When the Alberta natural resource revenue fell by $6 billion in a single year, the equalization formula didn’t award Alberta any money. Quebec with equalization funds of $11 billion, was able to post a $13 billion-dollar surplus.
  4. The program has a built-in escalation clause of 3% per year. That is a bit illogical on one level and probably unaffordable considering federal deficits.
  5. Equalization funds don’t provide a signal to recipient provinces to make their economies more competitive – instead private sector growth leads to less equalization money.

Let’s hope that the Equalization discussion can be held in the spirit it was intended in 1957.  But……..