“Should section 36(2) of the Constitution Act, 1982 – Parliament and the government of Canada’s commitment the principle of making equalization payments – be removed from the [Canadian] constitution?”
According to Albertans, the answer to that question when posed on the municipal election ballot last month was an unequivocal yes.
On October 18th through provincial referendum, Albertans gave our government a decisive mandate to pursue efforts to cease sending hard-earned taxpayer money to those in our country who work actively against our economic and cultural interests.
Albertans voted against equalization.
The only mention of equalization in the Constitution Act of 1982 is Section 36(2) which vaguely 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.”
The existence of equalization is nothing more than a vague concept, created initially 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 at the other’s expense. Now, that system is broken, and equalization is no longer equalizing.
From 2007-2018 Alberta 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 in a decade – more than many people’s annual salary.
Based on our young working population and strong resource economy, Alberta has some of the highest revenues per capita of anywhere in Canada. Yet once equalization transfers are paid out, our province is 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 nearly all others in Canada on a per capita basis.
In budget year 2019-20, Quebec ran a $32 million surplus – their sixth consecutive surplus since 2014 – while still being a net recipient of equalization.
The program’s initial constitutional intent has deteriorated entirely, and equalization has become merely a wealth transfer rather than something that exists to guarantee essential services.
The formula by which equalization payments are calculated is complex, although not directly included in the Constitution. 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.
Natural resource revenues are accounted for at 50% in the formula. Yet if a province chooses to nationalize their resource industry, such as Quebec has done with their hydroelectricity, the revenues derived from those resources then become exempt from the calculation. This skews the formula against provinces who believe in self-determinant free market principles, in favour of provinces who do not – effectively punishing entrepreneurial spirit while rewarding irresponsible governance.
Further, as Danielle Smith recently pointed out, Quebec’s nationalized, subsidized, equalization, exempt hydroelectricity is charged to Quebec residents at just seven cents per kilowatt-hour, in stark contrast to the 23 cents per kilowatt-hour charged on their outward exports. If Quebec would merely charge a six cent per kilowatt hour increase, still well below the going market rate, with a dividend back to the government similar to Alberta’s oil and gas royalties they would generate nearly enough own source revenue to completely displace their need for Alberta’s equalization dollars.
Unfortunately, the only approach a province can take to alter the equalization formula or attempt to abolish the program altogether is to host a successful referendum against Section 36(2) which would force the federal government into, at minimum, negotiating. On October 18th, Alberta did just that.
Because equalization payments are distributed by the federal government with taxes collected from the provinces, and because equalization is enshrined in the Canadian Constitution, any alteration to 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 road to fairness for our province will be a long and challenging one, but as Albertans decided on their referendum ballots, it will be a worthwhile journey.
Alberta has remained a generous member of the Canadian federation through boom years and bust, but we cannot settle for being treated as second-class citizens in our own country any longer. The days of allowing other provinces to run multi- million surpluses with our money while simultaneously campaigning to shut down our industries and shut out our people must end.
On October 18th, Albertans spoke. Now, our government begins the work.
Miranda Rosin, MLA
