Equalization Ain’t Equal
On June 17th our Government released the long-awaited Fair Deal report. Moments after the report went public, the Premier announced his commitment to proposal #2: a clear referendum on equalization. It is no surprise why.
From 2007-2018 Alberta has made a net contribution of nearly $240 billion to the rest of Canada. On a tax base of 4.2 million people, that is over $57,000 per Albertan over the last decade – more than some people’s annual salary! What’s worse is that equalization is not actually equalizing.
The only mention of equalization in the Constitution Act is Section 36(2) which states:
“Parliament and the government of Canada are committed to the principle of making equalization payments to ensure that provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation.”
Equalization is a vague concept, initially created to ensure provinces had equitable essential services for their residents. It was never intended to be a program that transferred wealth from one province to another, allowing the recipient province the ability to spend to their heart’s desire. Now, the system is broken.
Based on our young working population and resource economy, Alberta has some of the highest revenues per capita of anywhere in Canada. Yet once equalization payments are paid out, our province of Alberta is actually left with the second lowest per capita revenues of any province in Canada. Not only is equalization not equalizing, it is actually leaving our province poorer than all others in Canada on a per capita basis.
The formula by which equalization payments are calculated is complex, although not directly included in the Constitution. In a nutshell, equalization is calculated by subtracting a province’s “fiscal capacity” – its ability to raise revenues – from the national average fiscal capacity. There are strange intricacies, however. For example, natural resource revenues are accounted for at 50% in the formula. But if a province chooses to nationalize their resource industry, such as Quebec has done with their hydro, the revenues derived from those resources are exempt from being counted and the calculation becomes skewed.
As one of three MLAs appointed by Premier Jason Kenney to the Fair Deal Panel last November, equalization was one of the areas that I studied the most. At our townhalls almost every speaker who mentioned equalization wanted it either altered or outrightly eliminated. From our survey responses, 94% of respondents expressed the same sentiment. Albertans are tired of being short changed.
Unfortunately, there is no simple way to either alter nor halt equalization payments. Equalization payments are paid out by the Federal government through tax revenues, not by individual Provincial governments. Further. because equalization is enshrined in the Canadian Constitution, any alteration to the formula or existence of the program is required to pass through the Senate, House of Commons, and two thirds of the Provincial Legislative Assemblies before coming into effect. The only approach a province could take is to host a successful referendum against Section 36(2), which would force the federal government into at minimum, negotiating.
Our Panel recommended just that: a referendum to remove Section 36(2) altogether from the Canadian Constitution. If we were to fail at abolishing equalization as a province, at least separating it from the Constitution would allow for the formula to be amended and molded more easily to current market realities. With it remaining under the Constitution, equalization remains essentially untouchable.
The fight against equalization will not be easy, but it will be essential if Alberta wishes to finally obtain fair treatment from Ottawa. The days of Albertans sending their children to school in overcrowded classrooms and driving to work on crumbling highways while Quebec runs a multi-million-dollar government surplus must end. With the release of the Fair Deal Report, our Government has promised this critical referendum on equalization will happen in 2021, and it will only be our first step of many in pursuit of a more prosperous and self-reliant Alberta.
The Fair Deal Panel also recommended 24 other proposals. The Fair Deal Report can be read in entirety at www.alberta.ca/fair-deal-panel.aspx
By Miranda Rosin, MLA
