Canada still relies on its wounded golden goose

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Appeared in the Calgary Sun, April 29, 2020
Canada still relies on its wounded golden goose

Albertans have suffered tremendous economic pain in recent years. Steep recessions in 2009 and 2015/2016 (which was among the worst recessions in provincial history) rocked the province and the recovery has been tepid and uneven. Now, with oil prices cratered and the economy reeling from the economic effects of COVID-19, Alberta is entering its third recession in just over a decade.

Despite all of this economic pain one important thing has remained consistent—Albertans still make a disproportionate contribution to the health of the federal government’s finances. Why? Because Alberta’s population is relatively young (and therefore receives less direct federal spending) and has relatively high incomes (and therefore pays more income taxes). As a result, Albertans pay more in federal taxes than they receive in federal spending and transfers. Without Alberta’s contribution, Canada’s federal finances would be in much worse shape than they are today.

In a recent Fraser Institute study, we measured Alberta’s net contribution to Confederation in recent years. In other words, we compared the amount of money Albertans send each year to Ottawa to what they get back in transfers and services. Between 2014 and 2018, Alberta’s net contribution to Confederation totalled $94.9 billion. The second-largest net contributor was Ontario (despite having a population about three times larger than Alberta’s) at approximately $60 billion.

In short, the net fiscal contribution of Alberta’s approximately 4.3 million residents throughout the last half-decade has been enormous. Again, without it, Ottawa’s books would have looked much worse in recent years. Between 2016/17 and 2018/19, for instance, the federal deficit would have been twice as large as it actually was without Alberta’s net contribution.

Clearly, Alberta has been a golden goose for Canada, supplying a large net contribution every year. It should therefore worry Canadians across the country that in recent years Alberta’s annual net contribution (though still substantial) has been far below where it was prior to the 2015 recession. Canada’s golden goose is sick.

Specifically, Alberta’s net contribution to the federal government peaked in 2014/15 at $27.4 billion. In 2018, Alberta’s net contribution was $15.3 billion. Still a huge amount of money, but far less than a half decade before. Without Alberta’s net contributions, Canada would have racked up upwards of $100 billion more debt since 2014.

Now Alberta’s economy has been hit by yet another recession, which may be even steeper than the last one. If Alberta’s recovery is as tepid as it was last time, while the province will almost certainly remain the largest net contributor to federal finances for the foreseeable future, its net contribution could continue to fall and certainly won’t rebound to its pre-2014 peak.

Canada can’t reach its full potential without a strong and economically vibrant Alberta. As such, Alberta’s economic challenges are a national rather than provincial or regional problem. Canada’s golden goose is sick. We all need it to get well soon.

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