A new deal with Canada? How about a new deal FOR Canada

Economist Trevor Tombe says we have a choice to make in the aftermath of the 2019 election: we can choose to concentrate on the policies that divide us, or on those that will unite us.

Saskatchewan Premier Scott Moe has made 3 demands. Economist Trevor Tombe suggests 3 others

Saskatchewan Premier Scott Moe says the Prairies need a new deal with Canada, but economist Trevor Tombe says it would be wiser to consider the words of former prime minister John Diefenbaker and seek a new deal for Canada. (Michael Bell, Chuck Mitchell/Canadian Press)

Canada's 2019 federal election is over, and the results reveal a concerning split between west and east, rural and urban.

"There is no escaping the fact that this is a country divided," concluded the CBC's Chris Hall in his post-election analysis.

In all major eastern cities, the Conservative vote share declined. Of the 50 seats in Toronto, the Liberals won all but five. 

In the three Prairie provinces, the Liberals were almost completely shut out. Of the 48 seats in Alberta and Saskatchewan, the Conservatives won all but one.

In response, the Premier of Saskatchewan, Scott Moe, wasted no time in calling for "a new deal with Canada." In an open letter, he makes three demands:

  1. Cancel the federal carbon tax.

  2. Commit to negotiate a new equalization formula that is fair to Saskatchewan and Alberta.

  3. Commit to develop a plan to ensure Saskatchewan and Alberta can get our exports to international markets. This means pipelines.

In voicing these frustrations, the premier is not alone.

Regional alienation — primarily in the West — is on the rise. In recent polling from Environics, 45 per cent of Canadians feel their province isn't "treated with the respect it deserves in Canada." In Alberta, this sentiment is shared by a staggering 71 per cent.

But it's hard to think of more divisive policies to focus on if the goal is to strengthen national unity.

Of course disagreement and debate is natural. And federal policies will always affect different regions differently. Such disagreements, though, should be seen for the family squabbles that they are. Important to hash out, but not at the expense of the whole.

Provinces don't need a "new deal with Canada," but the federal government may need a new deal for Canada.

Instead of the three demands laid out by Premier Moe, consider three others: improve internal trade, ease labour mobility, and expand federal transfers to better protect provinces in need.

With concrete improvements in these areas, Canada can kill two birds with one stone: improve national unity and increase prosperity at the same time. 

Internal trade

Much has been written about the damaging effects of barriers to inter-provincial trade (see, for example, the recent report from the Senate of Canada.)

I won't rehash that, but instead I'll make another point: if our trade linkages were stronger, economic shocks to one province (both good and bad) would spread to other provinces.

Businesses in Alberta buy from suppliers in Ontario and Quebec. And businesses in Quebec buy from suppliers in British Columbia and Newfoundland. Provinces currently trade more than $370 billion per year with each other. That's about 18 per cent of total GDP in the country.

These linkages bind economies together, but trade barriers in Canada keep these linkages weaker than they could be.

Those inter-provincial trade numbers could be larger. Much larger.

Recently published analysis by the IMF (I was a member of the research team) suggests that if internal barriers to trade between provinces were eliminated, total trade volumes would increase by about $300 billion per year. 

With a near doubling of trade between Canadians in one province and suppliers in another, we could more clearly see how our own success is tied to the success of fellow Canadians elsewhere.

Labour mobility

Moving goods and services across provinces is one way to bind economies together. Moving people is another. 

In Newfoundland and Labrador, for example, workers earned roughly $1.1 billion in 2014 from jobs in other provinces. That's nearly 10 per cent of total labour earnings for the entire province.

Workers often live in one place but work in another, so reducing economic barriers between provinces will help the country as a whole, says economist Trevor Tombe. (Left:, Right: Associated Press)

In Quebec, $5.2 billion is earned by work in other provinces. In Ontario and B.C., that amount is roughly $4 billion.

Nationally, more than $21 billion was earned by nearly half a million workers who lived in one province but worked in another in 2014. And one-third of them chose to work in Alberta.

But policies make this type of work unnecessarily hard.

If you are certified to work in one province, you aren't necessarily allowed to work in another. If these restrictions were eased, labour could flow more freely. Opportunities in one region would therefore have a better chance of benefiting others.

It would bring Canada's extended family closer together. 

Improve federal transfers

Finally, when talking about equalization reform, Moe is missing the lowest-hanging fruit to both improve federal transfers and bring provinces closer together: better federal insurance for the provinces.

Federal policy connects our provinces through myriad revenue and spending programs. These programs can be improved, starting with ways to help buffer provincial budgets when revenues suddenly drop.

The current "Fiscal Stabilization Program," which provides insurance to provinces in sudden need, is weak. 

When oil prices fell, Alberta received only $251 million. Barely a drop in the bucket, due to a $60-per-person limit implemented in 1986 that hasn't been adjusted since.

Prime Minister Justin Trudeau looks on as Calgary Mayor Naheed Nenshi speaks during an infrastructure announcement in in May 2018. Economist Trevor Tombe says the federal government could modernize its Fiscal Stabilization Program to better support regions during hard economic times. (Jeff McIntosh/Canadian Press)

To be clear, Alberta knowingly, willingly, and repeatedly takes known risks in funding public services with volatile resource revenues. This need not be insured. But even insuring declines in non-resource revenue more fully would have seen much more than the $251-million payment Alberta received.

I estimate that if the federal stabilization program operated as it did originally in 1967, but excluded natural resources, Alberta would have qualified for roughly $2 billion in 2016. 

However the program is improved (and enlarged), tighter fiscal connections between provinces will also help spread one province's gains and losses more equitably among the whole. Canadians already contribute collectively when natural disasters strike. We can similarly share in the burden of economic disasters, too.

At the very least, it's a conversation worth having.

A better way forward

Federal policy affects different regions differently. This is unavoidable. 

We can debate the pros and cons of policies like C-69, C-48, equalization, or whatever else, but on their merits. There is no need to escalate the debate to inflame regional animosity.

Our focus should be on policies that unite us, not divide us. Improved internal trade, labour mobility, infrastructure, federal transfers, and so on, can and should be higher federal priorities.

I'm reminded of the words former prime minister John Diefenbaker spoke often on the campaign trail over 60 years ago: "I have come to discuss with you the future of Canada — not just of this section or that — but of the nation as a whole."

He ran on a platform of "One Country — One Policy — One Canada." 

Today, we have an opportunity to do the same. To boost both national prosperity and national unity. 

We should look, as Diefenbaker said, to the nation as a whole.

This column is an opinion. For more information about our commentary section, please read this editor's blog and our FAQ.


Trevor Tombe is an associate professor of economics at the University of Calgary and a research fellow at The School of Public Policy.


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