Forget equalization, it's fiscal stabilization that needs reform, says report
Analysis shows Alberta can afford to contribute in boom times, but needs more help in the busts
Fiscal stabilization in Canada needs reform to better serve Alberta in the midst of a downturn, but equalization is a non-starter for the province, according to a new report from the Calgary School of Public Policy.
It's a hot topic in Alberta, where Premier Jason Kenney has made equalization and fiscal stabilization a favourite rhetorical punching bag and has vowed to hold a referendum on equalization at the same time as next year's municipal elections.
The referendum would have no direct impact on equalization because it's a federal program, and to eliminate equalization entirely would require a constitutional amendment.
Kenney has also been pushing hard to have Ottawa retroactively recalculate its fiscal stabilization fund, meant to backstop steep economic declines for provinces and territories.
Alberta, which lost billions in revenue when the price of oil crashed, has been paid $248 million. Kenney wants Ottawa to pay $2.4 billion for the province's losses.
Alberta is biggest contributor
Robert Mansell, one of the report's authors, says they looked at federal fiscal balances for each region dating back to 1961 and found Alberta is by far the largest contributor to the federation on a per capita basis over that time — giving approximately $5,000 per person more annually to the federation than received through federal expenditures.
"It means that, for example, about 20 per cent of the personal income in the Maritimes is through these transfers from the richer provinces, about 10 per cent of Alberta's personal income goes to other regions," said Mansell.
Alberta's outsized contribution, at least over the past two decades, has largely been the result of higher incomes in the province, which fuels larger tax payouts and higher per capita spending. The province also has a younger population that doesn't draw as much on things like the Canadian Pension Plan.
Mansell and his fellow researchers examined 10 different factors that contribute to Alberta paying more than it receives.
"Unless the Alberta economy were to really crash, unless our resource revenues would just shrink to an insignificant number, unless we had a sales tax, it is unlikely that Alberta would ever quality for equalization payments," he said.
Fiscal stabilization reform
He doesn't think reforming equalization would have much impact on the province, but changing the fiscal stabilization program could.
Mansell points out that Alberta's provincial revenues fell by almost $9 billion in 2014-15 and has seen a net outflow of funds to the federation of about $20 billion per year in recent decades.
The federal government has paid out $248 million through its fiscal stabilization fund. Mansell says that's not a very effective insurance policy.
He argues that when the economy is strong, it makes sense for Alberta to pay billions to other regions, and Albertans don't complain, but when the economy suffers, there has to be a more effective backstop in place.
"You have to offset that drain of $20 billion before you make a lot of progress in stabilizing the economy," he said.
He says reforming the fiscal stabilization fund and having more federal procurement take place within Alberta could have a significant impact on the economy, as two examples.
With files from Elise von Scheel