Any ‘Fair Deal’ for Alberta requires fundamental rethink of fiscal federalism in Canada

On February 4, we had the honour of presenting to Alberta’s “Fair Deal Panel,” which will make recommendations to the province on how it can secure a fair deal for Alberta within Confederation. As we noted to the panel, Albertans are right to feel frustrated. Albertans, after all, send Ottawa $20 billion more in federal taxes than they get back in federal spending. That’s $20 billion annually from Albertans to help keep taxes lower and fund government services in other provinces—including provinces that are actively trying to restrict Alberta’s economy.

As with most things, the first step is the hardest part of making significant change. In Alberta’s case, it must force the other provinces and the federal government to come to the table and negotiate a new fiscal arrangement. As University of Calgary Professor Rainer Knopff recently noted, this is perhaps best done through an equalization resolution by Alberta’s legislative assembly. Such a resolution would unambiguously impose the “duty to negotiate” on the other provinces and Ottawa, and could be used to force a broader national discussion on relations between Alberta, other provinces and the federal government.

In our view, Alberta should push for three large scale changes.

First, significant reforms to equalization, a program that’s clearly broken, including scrapping the “GDP growth rate rule,” which mandates that total equalization payments grow each year even when the fiscal capacity of recipient and non-recipient provinces converge.

Reforms should also link equalization to the cost of providing government services. It makes no sense that the current equalization program implicitly assumes that the cost of providing services is similar—if not identical—in each province. And Alberta should push for consistent treatment of resource revenues, both renewable and non-renewable across the country.

Finally, in addition to changes to the actual equalization program, Alberta should also emphasize what scholar David MacKinnon has coined “unseen equalization”—the “equalizing” aspects found in other major federal programs including employment insurance, federal employment, regional economic development agencies and cultural programs. The regional subsidies in these programs may be much larger than the equalization program itself.

Second, decentralization of health care. Right now, Ottawa significantly influences provincial decisions on health care by threatening to withhold part or all of its Canada Health Transfer to Alberta ($4.7 billion in 2019-20) unless it abides by the current federal government’s interpretation of the sometimes-vague Canada Health Act. Given that the Alberta government is ultimately responsible for delivering health care, it should be allowed to determine health policy without federal interference, with the only condition being that the system remains universal and portable across provinces. This would allow Alberta to make changes to health care that would more closely align with the world’s best-performing universal health-care countries.

Third, Alberta should explore its participation in national programs such as the recently-expanded Canada Pension Plan (CPP) and employment insurance. Albertans contribute disproportionately to the CPP—from 2008 to 2017, Albertans made a cumulative net contribution of $28 billion to the program. Simply put, this national program relies on Albertans’ contributions and that reliance must be understood and recognized in the rest of Canada.

Like the CPP, employment insurance (EI) has normally relied on Alberta providing a relatively large net contribution. Indeed, between 2007 and 2018, Alberta workers contributed a net $12.3 billion to EI, and while Alberta’s net contribution has narrowed, the province still provides a positive net contribution despite its severely wounded economy. Moreover, there will be increasing pressures for EI reform as Canada’s population continues to age. Alberta has an opportunity to start that discussion about how best to reform and improve EI for the reality of a 21st century workforce.

While we applaud Alberta Premier Jason Kenney and the Fair Deal Panel for seeking ideas for reforming Alberta’s role within Canada, real change is needed. Acting now offers the entire country an opportunity to improve and modernize fiscal federalism in Canada.