Canada’s equalization program is a hot-button issue for many people in Alberta.
Some political party leaders have said the equalization formula is unfair for Alberta, and promised to push Ottawa to revise or end it, if elected on April 16.
But how much sway could a province have over a federal program? What would it take to change the formula to better serve Alberta? Is it even possible?
What’s the allegation?
Both the United Conservatives and the Alberta Party have vowed to get a better deal for Alberta by way of equalization reform.
“Every year, Albertans send billions of dollars to Ottawa that aren’t spent on Albertans, but instead given away to other provinces,” Alberta Party Leader Stephen Mandel said on Monday.
“And in return, we receive rejection, scorn and attacks on our industries and our way of life. We see that with a hijacked coastline, and an unfair equalization program, and refusals to consider pipelines like Energy East.”
WATCH BELOW (March 21, 2019): Jason Kenney announces his UCP government would hold a referendum on removing Alberta from equalization payments in Oct. 2021 if certain conditions are not met.
Jason Kenney, a former MP who is now leader of the UCP, has said he would use equalization as a negotiation tool.
“We will send a clear message to Justin Trudeau that if we do not get a timely completion of a coastal pipeline, if he will not withdraw anti-Alberta laws, like Bill C-69, that we are prepared to put on the table equalization, by holding a constitutional referendum to end equalization, to assert our fight for fairness to the top of the national agenda,” Kenney said last week.
The matter would be put before voters on Oct. 18, 2021, which would be the date of the next municipal elections in Alberta, he said.
What is equalization?
Equalization was established as part of Canada’s federal system of intergovernmental transfers in 1957. It is intended to address “fiscal disparities among provinces,” according to the federal Department of Finance.
“The goal of the program is actually outlined in the Constitution,” University of Alberta political scientist Jared Wesley said.
“It’s to provide all Canadians with comparable services at comparable levels of taxation. It does that by flowing money from the federal government straight to lower-than-average-performing economies.”
Equalization was entrenched in the Canadian Constitution in 1982. Allocations are determined by measuring provinces’ ability to raise revenues from natural resources, income and property taxes.
“So, if a province is below the national average, in terms of what it can raise in money, that doesn’t mean that its citizens have to suffer from sub-standard services on one hand or well-above-average levels of taxation on the other,” Wesley explained.
WATCH BELOW (July 5, 2018): A University of Alberta political science professor weighs in on the federal government’s controversial equalization payments.
In the 2018-2019 year, Quebec, Manitoba, Nova Scotia, New Brunswick, Ontario and Prince Edward Island will receive transfer payments. Alberta, Saskatchewan, Newfoundland and Labrador and British Columbia will not.
Wesley said Alberta received equalization payments for a brief time in the late 1950s and early 1960s, before the oil and gas sector took off, but hasn’t been a “have-not” province since then.
“The biggest public misconception about equalization is that Alberta — or Albertans — send cheques through their government to other provinces like Quebec for the program. That’s simply not the way that it works.
“The federal government takes tax dollars from all across Canada and spends it on all kinds of different programs, services and transfers — like equalization — so it’s not possible for Alberta to withdraw from the program nor is it possible for Albertans to stop the payments of equalization.
“That’s something that the federal government has to decide on its own, in terms of what the formula is and how it’s distributed.”
Other federal transfers
Equalization is just one of the federal transfers distributed to provinces and territories. There are also social and health transfers, which provinces must spend on public health care and social services such as social assistance and child care.
In the 2019-20 year, Ottawa will give provinces and territories more than $78 billion in major transfer payments. The health transfer is the largest; double the $20 billion being spent on equalization in the 2019-20 budget.
In 2014, the federal Conservative government under Stephen Harper, approved changes to the way federal transfers are calculated.
“Equalization was simplified dramatically,” Wesley said. “It was actually under the direction of a former deputy minister of finance here from Alberta, Al O’Brien, who toured across the entire country hearing from Canadians about how to improve the equalization system.
“Changes were made to equalization that made the equalization pot bigger and put it on a sustainable path and a predictable path… It linked it to economic growth.
“At the same time those changes were made, there were changes made to other fiscal transfers including health care, which benefited ‘have’ provinces like Alberta.
“Alberta, out of this deal… did see a larger share of healthcare funding from the federal government to the tune of about $1 billion a year.”
In 2019-20, the government of Alberta will receive $6.4 billion through major transfers, including a $4.7-billion Canada Health Transfer and a $1.7-billion Canada Social Transfer. The per capita allocation ($1,465) is exactly the same as Ontario’s.
Can Alberta opt out of or end equalization?
Not in its current form, Wesley said.
“The only hope of not participating in revenue-sharing across the country is to remove it from the Constitution and scrap the formula. Doing that is very, very difficult considering it would require the permission of exactly those provinces that receive equalization.”
The three energy-producing provinces (Alberta, Saskatchewan, Newfoundland) urged Ottawa in 2017 to rework the federal transfer formula but Finance Minister Bill Morneau locked in the existing formula for another five years, until 2024.
Politicians in Saskatchewan and Alberta slammed the extension, saying the formula was flawed and that more consultation with provinces was needed. However, the federal finance ministry said the decision to keep the formula the same was made after one year of “intense discussion and consultation,” including with provincial counterparts.
What about a constitutional referendum?
“A provincial government can host a referendum on any constitutional question and, according to some interpretations, that would require the federal government to negotiate in good faith on that particular issue,” Wesley said.
The law does not require the federal government to hold a referendum for amendments to the Constitution but the Referendum Act does offer a framework should the government decide to do so. In Alberta, the Constitutional Referendum Act requires that constitutional amendments be subject to a provincial referendum.
Some experts argue that a 1998 Supreme Court decision means that if representatives of one province want to amend the Constitution, other provinces and the federal government must enter into negotiations to discuss the issue.
That desire could be voiced through a provincial referendum, the decision says.
“The corollary of a legitimate attempt by one participant in Confederation to seek an amendment to the Constitution is an obligation on all parties to come to the negotiating table.”
However, the court did not specify what form the negotiations must take, exactly who should participate, or at what “table” they should occur.
Rather than threatening to force a referendum on the issue, Wesley thinks it would be more effective to elect strong western Canadian voices as MPs in Ottawa.
“For years, western Canada was very well represented in the Harper government — Jason Kenney was in that government — and made some substantive, important, and, a lot of people would say, positive changes to the way equalization worked and the way that health and social transfers flowed to the province.
“So it’s a wonder now that one of the architects of that revision is now having problems with it when they could have had a lot of opportunity to change it.”
WATCH BELOW (June 22, 2018): Alberta Opposition Leader Jason Kenney criticized how the government handled the equalization formula extension and called their lack of communication on it “shocking.”
What else should I know?
Equalization is meant to address provincial disparities over the long term. Being on the receiving end isn’t something we should wish for, Wesley said.
“Alberta will never be a recipient of equalization as we know it today. The economy will never fall below the national average, and if it did, we’re in a heap of trouble as a country, economically.
“Where I think critics do have a point though, is that when Alberta and other provinces like Saskatchewan and B.C. go through tough economic times and they suffer year-over-year drops that are sudden — like we did with our most recent oil crash — that the federal government should provide more support to those provinces through fiscal stabilization.
“If you’re reading between the lines, I think that’s what the UCP is looking to do with this campaign promise through a referendum — is to get the federal government back to the table to talk about those kinds of issues.”
Provinces must apply for the Fiscal Stabilization Program, which provides “financial assistance to any province with a year-over-year decline in its non-resource revenues greater than five per cent,” according to the department of finance. In 2015-16, Alberta received $251 million.
“When Albertans get upset that they still see their hard-earned tax dollars flowing to Ottawa and not coming back in the forms of programs and services, they have a point,” Wesley said.
“It’s right to think the federal government should increase the amount that it sends to provinces like Alberta that go through tough times through the Fiscal Stabilization Fund. But it’s important to note that that Fiscal Stabilization Fund is not equalization.”
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WATCH BELOW (Dec. 10, 2018): Finance Minister Bill Morneau said Ottawa is always open to discussions about equalization for provinces, but said any changes discussed would not be implemented until the next renewal in four years.
— With files from Global’s Alyssa Julie and Maham Abedi