Albertans contribute disproportionately to the CPP and other programs

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Appeared in the National Post, April 4, 2019
Albertans contribute disproportionately to the CPP and other programs

There’s a palpable rising frustration in western Canada, particularly in Alberta, regarding the give-and-take of national programs—a growing sense (again) that Ottawa just doesn’t understand the West. Unfortunately for the country, increased western alienation could impose significant costs on the rest of Canada that Ottawa should recognize.

Countries such as Canada and the United States were forged in part on a compact of compromises by each province or state in exchange for the benefits of belonging to a larger country. It’s difficult to criticize Albertan frustration with the current compact, given its disproportionate contributions to federal programs, when other provinces are doing little to assist Alberta during this challenging time. For example, the ongoing legal impediments to pipeline expansion imposed by British Columbia, the $1.4 billion increase in equalization for Quebec at a time when Ottawa is effectively providing Quebec a veto over a west-east pipeline that both Alberta and New Brunswick support, and the inability of successive federal governments to increase pipeline capacity in any meaningful way.

It seems clear that many provincial governments and the federal government are either unaware of frustration in Alberta or they simply choose to ignore it.

A new study documents the contributions of Albertans to the Canada Pension Plan (CPP) and provides specific, concrete information about what Alberta’s withdrawal from the CPP—though not recommended—would mean for the rest of the country.

It’s first important to understand why Albertans contribute disproportionately more to national programs such as the CPP. The province has a younger population (less retirees), a higher employment rate (less unemployment payments) and higher incomes than the rest of the country. For example, in 2017, despite a weak economy, Alberta’s employment rate (66.7 per cent) was more than 5.0 percentage points higher than the rest of the country. Similarly, in 2016, Alberta’s average income was more than $7,400 higher than the corresponding average for the remaining provinces.

The combination of a younger workforce and less retirees meant that in 2017, Alberta workers accounted for 16.5 per cent of the total contributions to the CPP while Alberta retirees consumed 10.8 per cent of CPP expenditures. The result was a net contribution by Albertans to the CPP of $2.9 billion in 2017 and $27.9 billion over the last decade (2008-2017).

For context, the net contribution over the same 10-year period by Ontario, which has a much larger population and workforce than Alberta, was $7.4 billion, slightly more than one-quarter of Albertans’ contribution.

To illustrate the importance of Albertans’ disproportionate contributions to the CPP, it’s helpful to imagine what would happen if the province withdrew from the program and administered its own parallel provincial plan (as Quebec decided originally in the mid-1960s).

Using the standard methodology employed by the Office of the Superintendent of Financial Institutions, which regulates and monitors the CPP’s finances, a recent analysis found that the basic CPP rate (9.9 per cent) would have to increase to 10.6 per cent if Alberta withdrew, resulting in up to $367 in additional contributions (in the form of payroll taxes) for workers outside of Alberta. Meanwhile, Albertans would pay just 5.85 per cent for a CPP-like program for the province.

This is not meant to promote Alberta’s withdrawal—though a re-evaluation of the expanded CPP that began in 2019 is well-warranted—but rather to clearly illustrate the disproportionate contributions of Albertans to national programs.

There will always be regional strains within federalist countries such as Canada. However, the status quo is increasingly unacceptable to Albertans, and the rest of Canada, including Ottawa and other key provinces, would be well-advised to understand the real and significant contributions Albertans make to national programs when denying them accommodation.