Alberta Premier Danielle Smith suggests modifying federal equalization to favour smaller provincial economies, such as those in Atlantic Canada. Newfoundland and Labrador concurs, believing the current rules disadvantage them.

"(E)qualization is intended to ensure … fairness for all citizens. Currently, this fairness is not achieved for Newfoundland and Labrador," Greg Gill, a spokesperson for the Newfie Liberal government, told the National Post yesterday.

In a Monday livestream, Smith stated that Ontario and Quebec, with their larger economies, should not receive equalization payments.

"We have no issue with Alberta continuing to subsidize smaller provinces with their needs, but there is no excuse for such large and powerful economies … to be subsidizing one another," she said at the time.

"That was never the intent of equalization, and it needs to end."

University of Calgary economics professor Trevor Tombe states that the scale of economic redistribution can be deceptive. The Maritime provinces, excluding Newfoundland and Labrador, will receive higher per-capita equalization payments than Quebec.

He acknowledged valid worries exist when "have-not" provinces intentionally hinder their economies, for instance, by prohibiting resource development.

Gill stated that Newfoundland is penalized by the current equalization formula for developing offshore oil and other natural resources. 

Tombe argued that equalization payments contribute to artificially low electricity prices in Quebec, hindering energy sector innovation and growth.

The federal government makes annual equalization payments based on the ability of provinces to raise revenues. It does not take into account the narrowing fiscal gap between "have" and "have-not" provinces.

Premier Smith tabled a paper critical of overcompensating provinces that "under-report certain sources of revenue." It proposed redistributing excess GDP to all provinces on a per capita basis after the fact. 

Smith warned of consequences if Prime Minister Mark Carney did not reset Ottawa's relationship with Alberta. 

Following the 2008 financial crisis, Ontario became eligible for equalization payments, marking the last major change. Subsequent adjustments have been minor and technical.

Former finance minister Jason Kenney stated that equalization payments would increase annually at the national economic growth rate, irrespective of the disparity between wealthier and less wealthy provinces.

Newfoundland filed a court challenge against the program in June 2024, arguing it doesn't fulfill its constitutional purpose in its current form. 

Andrew Furey, the former premier, concurs that the transfer formula is "fundamentally broken,"  adding that Ottawa has shortchanged them $1.2 billion in each of the last five years. 

In fiscal year 2025/26, the equalization program will allocate a record $26.2 billion to "have-not" provinces. The largest recipients are Québec ($13.6 billion), Atlantic Canada ($7.3 billion), Manitoba ($4.7 billion), and Ontario ($546 million).

"The federal government must provide to Alberta the same per capita federal transfers and equalization as is received by the other three largest provinces, Quebec, Ontario and British Columbia," Smith said Monday in her address.

This fiscal year, Alberta will receive $8.6 billion in major federal transfers, equating to $1,695 per person. This per-person amount is $1,464 less than Quebec, $33 less than Ontario, and equal to British Columbia.

Several provinces have griped about equalization transfers over the past year, with a growing number of premiers calling for reform.

Newfoundland contends that equalization payments fail to adequately compensate its residents due to the high cost of providing services in its remote, sparsely populated regions.

"(We) service… more than 500 communities across a large, geographically dispersed, and aging population connected by almost 10,000 kilometres of roads," wrote Gill, who did not say whether the four largest provincial economies should cease subsidizing each other through equalization.

Alberta and Saskatchewan Premiers Danielle Smith and Scott Moe support legal action against equalization, which doesn't provide payments to their provinces. The former hasn’t received payments since the mid-1960s, which has cost them $67 billion since 1957.

An omnibus parliamentary motion in 2023 quietly amended the equalization formula until 2029, drawing criticism from Western premiers over no consultations.

Most Albertans (61.7%) wish to remove it from the constitution, though Smith has not explicitly stated if that option is on the table.

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