Ottawa ignored 'fiscal stabilization' amendments for years, costing Albertans billions of dollars

Conservative politicians and autonomy advocates have lauded the inherent 'unfairness' of the equalization program for the better part of a decade. Ottawa also repeatedly ignored amendments to the fiscal stabilization program.

  • Rebel News
  • May 29, 2023
  • News Analysis
Ottawa ignored 'fiscal stabilization' amendments for years, costing Albertans billions of dollars
Rebel News
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Tory MP Tom Kmiec introduced a bill on February 1, 2021, in hopes Ottawa would amend the federal fiscal stabilization program that he says has shortchanged Alberta billions of dollars. Bill C-263, the Equalization and Transfers Fairness Act, boasted increased transparency and fairness to Canada's equalization and transfer regime.

"The Fiscal Stabilization program is designed to help provinces who experience a massive drop in revenues," said Kmiec. The bill advocated fairness for Alberta by removing the $170 per capita cap on fiscal stabilization payments to prevent the federal government from unilaterally changing the equalization formula. 

"In 2015/16, Alberta's revenues dropped by $8.8 billion. At the time, however, there was a $60 per capita limit on fiscal stabilization payments, resulting in Alberta receiving only $248.3 million from the fiscal stabilization program. Without the cap, Alberta would have received $2.9 billion," continued Kmiec.

In Budget 2018, then-federal Finance Minister Bill Morneau proposed a five-year renewal of the previous equalization regime from April 1, 2019, until 2024. Under the Budget Implementation Act, the federal government gradually increased transfer payments to 'have-not' provinces from $17.9 billion in 2017/18 to $22.1 billion by 2022/23.

"Even with the modified cap, the fiscal stabilization program will fall well short of its original purpose of protecting provinces from adverse revenue shocks," then Alberta Finance Minister Travis Toews told reporters in December 2020. He said the program is "not even a half measure" of what the premiers wanted.

Since 1961, Alberta's net federal fiscal transfers have amounted to more than $600 billion to Ottawa.

"There's a recognition across the country, by other provincial governments, of Alberta's contribution to our net federal fiscal equation," said Toews. 

In 2019, all Canada's premiers signed a statement calling for Ottawa to remove the cap. Instead, the federal government increased the cap from $60 to $170 per capita after Ottawa released its Fall Economic Statement in 2020.

Alberta would have qualified for nearly $3 billion without a fiscal stabilization cap in 2020/21, but the measure only allotted Alberta $750 million that fiscal year.

While Bill C-263 generated greater dialogue for Alberta's forthcoming equalization referendum — making it "impossible to ignore" — the bill did not make it to Second Reading and was ultimately quashed.

Alberta received nearly 62% support in a 2021 referendum to remove equalization from the constitution, but support for that federally is likely low, according to University of Calgary economist Trevor Tombe.

"Many in Alberta, the government included, think about equalization as symbolic of other challenges in the federation," he said. "It's fair to say the current premier would equate issues like pipelines and energy policy with equalization."

Amending the constitution to remove equalization requires support in the Commons and the Senate, plus two-thirds of provincial legislatures, representing more than 50% of the Canadian population.

However, Quebec, Ontario and B.C. have veto power to lay out the requirements for regional and provincial buy-in on constitutional amendments. Under that same provision, two or more prairie provinces representing at least 50% of the region's population would also have to agree, as would two Maritime provinces representing the same.

However, Tombe said the case for significant reforms to equalization is getting stronger because economic pressures in different regions are growing increasingly unequal, partly due to aging populations.

"We currently don't have any fiscal arrangements that think hard about how to support regions that are aging much more than others," he said, pointing to the Atlantic provinces as an area where shifting demographics create challenges.

"The fiscal capacity of older regions might have some challenges keeping up, and so we need to think about ways of supporting them, and equalization is a natural place to do that."

However, in Budget 2023, Ottawa looked to lock in the equalization formula until 2029 through an omnibus motion in Parliament. 

In the fiscal year 2023/24, Québec will receive $14.037 billion in equalization payments, followed by Manitoba at $3.51 billion — a $577 million increase from the previous fiscal year — and Nova Scotia, New Brunswick, P.E.I. and Ontario in decreasing amounts, totalling $23.963 billion.

Last month, the Saskatchewan Party revisited amending the equalization formula to a per-capita basis, but that gained little traction since first proposed in 2018.

"A number of provinces wished to be further consulted, and it is disappointing that the federal government would move forward with these changes without further consultation," said Saskatchewan Finance Minister Donna Harpauer.

"Amending the equalization formula is a first step and should be a goal, but ultimately misses the mark," added Maverick Party leader Colin Krieger. "The original premise for the equalization formula was to bring a level of service to all Canadians."

He said this is now "entirely attainable in every area of the country without equalization."

Rebel News asked Krieger if the Maverick Party would support the fiscal stabilization program as an alternative to removing the equalization formula from the constitution.

"This is a difficult question," he said, "as every Western Canadian would like to have this equalization question solved immediately, but the fact is this — we didn't get here overnight."

"For context, Alberta was eligible to receive $750 million from the feds in 2020/21, but that could have been $6 billion if they removed the per capita cap, lowered the threshold for when provinces would qualify and made payments retroactive to 2015," continued Krieger.

"For instance, Québec has substantial oil and gas reserves but chooses not to pursue them. Why should the West give away its wealth when the East has every opportunity to generate its own?"

He lauded the equalization formula as an "outdated idea" that needs to be abolished because "it creates division and resentment."

"If Canada is to reunite its national identity, this must be addressed," said Krieger. "There can be no unity without equality. A fair deal. And equalization payments aren't fair."

Alberta Canada Ottawa News Analysis
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