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How Equalization Matters to Albertans 

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By Bill Bewick

The provincial government has said it accepts the “Fair Deal Panel” recommendation that Alberta hold a referendum on equalization to trigger negotiations with the federal government. A number of commentators assert that this is merely a rhetorical exercise since no reform to equalization would make a difference to a “have” province like Alberta. Others, of course, claim that equalization is far and away the biggest federal issue Alberta needs addressed.

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At fairnessalberta.ca we have shown that neither perspective is correct — equalization’s flaws matter to Alberta, but this program in particular is only a piece of Alberta’s fiscal fairness problem. With a public vote on the horizon, however, it is essential that we get broader clarity on what is and is not, at stake; to that end our report “8 Ways to bring more Fairness to Equalization,” is meant to be an accessible, factual primer to the program and its flaws.

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What the critics of this topic tend to miss above all, however, are the many ways the federal government systematically redistributes Albertans’ tax dollars to the eastern half of the country. As our billboard and online campaign at Fairness Alberta has shown, the total net transfer from Albertans to Canada (taxes and premiums paid beyond the benefits and spending that comes back) has ranged from $15 billion to $27 billion annually. The staggering $324 billion total since 2000 works out to $318,000 per Alberta family of four that was sent to Ottawa and spent in other provinces.

Those who claim that the charges against equalization are overblown do have a point: The overall net transfer is possible because Albertans’ higher incomes mean higher taxes, and, given that Albertans pay roughly 16.5 per cent of federal revenues, the $20 billion equalization program draws in “only” $3 billion of our annual $15 billion to $27 billion net transfer. This is still a significant sum, but we risk losing sight of the bigger picture of federal redistribution by focusing narrowly on equalization.

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Fairness Alberta’s first and most significant reform reduces the equalization duplication by taking aim at the biggest intrusion into provincial jurisdiction: the Canada Health Transfer (CHT) and Canada Social Transfer (CST). The 16.5 per cent share of revenues from Albertans’ higher productivity noted above means we pay about $9 billion into CHT and CST, but our per capita payments only get us about $6 billion back.

Health and social services fall under provincial jurisdiction, so why should Ottawa be quietly sending $3 billion from Albertans to other provincial governments on top of the $3 billion from Albertans they more openly send via equalization proper?  To resolve this unnecessary duplication and intrusion into provincial jurisdiction, we propose that the CHT and CST be replaced with a tax point transfer. This would essentially drop the federal tax bill for Albertans by $9 billion and let the provincial government raise its tax bill by $6 billion to replace those federal grants. Notably, MLAs in Edmonton could choose to raise the tax bill a few billion more if needed for health and social services and still be delivering a net tax reduction to Albertans.

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We also make recommendations in our equalization report addressing its size and scope.  Currently, the program expands with GDP growth despite the inequality between provinces shrinking dramatically, and regardless of short-term economic crises in the so-called “have” provinces.  We propose gradually lowering the cap on equalization by 50 per cent and reducing payments in years when provinces are more equal. We also have a complementary proposal to fund a robust fiscal stabilization program within the equalization envelope to make some of those dollars accessible to provinces like Alberta and Saskatchewan when their resource-based economies take a downturn.

Two of these reforms — the tax point transfer and fiscal stabilization — would directly benefit Albertans in both good times and bad. The others, by reducing equalization spending, free up general revenues for things like debt reduction, which is increasingly urgent and obviously benefits Albertans.

Our report also highlights other flaws in the program that are less directly relevant to Alberta, such as the equalization formula ignoring the relative costs to deliver services in have-not provinces, and its improper accounting of hydroelectric and non-renewable resources. It can be read in full at fairnessalberta.ca/equalization.

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While equalization and the federal fiscal framework are a bit murky and complex, it is important that we be clear about what is at stake as the referendum debate takes shape over the next year. Put simply, while equalization is flawed and matters to Alberta, it is to a considerable extent only a symbol of the bigger problem of Ottawa’s overreach into provincial jurisdiction.

Albertans will continue to pay a price for that overreach without significant reforms to the federation. If this referendum debate can draw Canada’s attention to those critical broader reforms, it will be worth it regardless of the outcome.

Dr. Bill Bewick is the executive director of Fairness Alberta.

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