Premier Smith wants equalization program overhauled

A Fraser Institute study calculated Alberta’s net contribution to federal coffers at $244.6 billion between 2007 and 2022. Québec received $327.7 billion more than it contributed, during that period.

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  • August 16, 2024
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Premier Smith wants equalization program overhauled
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Alberta Premier Danielle Smith has joined the frenzy of provinces calling for Ottawa to overhaul the unpopular equalization program. The current system is broken and holds Alberta back, she contends.

A Fraser Institute study, published Tuesday, calculated Alberta’s net contribution to federal coffers at $244.6 billion between 2007 and 2022. Coming in a distant second place is British Columbia, at $46.9 billion.

Alberta punches above its weight class, and equalization encourages "dysfunctional policies that stifle growth in other provinces," Smith posted to X. Québec received $327.7 billion more than it contributed to the rest of the Federation, during that period.

In December 2022, Finance Minister Chrystia Freeland said Québec would receive $14.04 billion in equalization for the 2023/24 fiscal year. Manitoba got $3.51 billion, followed by Nova Scotia, New Brunswick, and Prince Edward Island (PEI) at $2.8 billion, $2.63 billion, and $561 million, respectively. Ontario received $421 million.

Newfoundland and Labrador will receive equalization for the first time in 15 years, taking home $218 million this fiscal year.

Payments have increased despite a shrinking gap between 'have' and 'have-not' provinces from 27% in 2014/15 to 6% in 2018/19. Nevertheless, Alberta led the country in private-sector employment growth at 7.8% in 2022. The rest of the country observed 4.5% private sector growth.

Alberta led the pack in net provincial migration, with 56,245 Canadians relocating to the prairie province. Home to 11.6% of Canada’s population, it accounted for 17.9% of the country’s real GDP growth. 

Ontario, an equalization recipient, had the most outward interprovincial migration, with 41,929 residents leaving for greener pastures elsewhere.

Between January and March, the influx of interprovincial migration to Alberta continued. A net influx of 12,482 residents moved to the province during that period.

The Fraser Institute study concluded if Alberta were an "average contributor," it would have resulted in a fiscal shortfall of $16.9 billion in 2022. That is equivalent to increasing the federal GST rate by 2.2%.

Several premiers, from coast to coast, debated equalization payments during the recent Council of the Federation meetings in Halifax.

Québec Premier François Legault justified equalization as a means to offer equivalent services to have-provinces. He aims to weed off payments by creating wealth. 

"It is a complex formula to apply," Legault said. "There are 34 criteria that are used, but the underlying principle … is to have fiscal capacity that is equivalent once you take into account these equalization payments," said Legault. 

In 2009, then-Prime Minister Stephen Harper said equalization payments would grow annually with the national economic growth rate—regardless of the gap between richer and poorer provinces.

Under the equalization program, provinces qualify for payments based on their "fiscal capacity" or their ability to generate revenue, plus any additional revenues from natural resource royalties.

As part of budgetary legislation for Budget 2023, the feds quietly locked the new equalization formula until 2029, courtesy of Bill C-47, An Act to implement certain provisions of the budget tabled in Parliament. The Trudeau government increased equalization transfers by $2 billion to $23.963 billion this fiscal year.

Premier Andrew Furey admitted the transfer formula is "fundamentally broken for Canadians right now." The current formula does not address the rising costs of serving its aging province.

"There is a calculation problem, a formula problem," he said, claiming Ottawa shortchanged them $1.2 billion in each of the last five years.  The feds have rejected calls to overhaul the funding formula. 

The Maritime province launched a suit May 30 against the payment scheme, with British Columbia joining suit last month.

"It's not OK," Premier Eby said. He condemned the growing cash flows to Québec and Ontario, in particular, which he said demonstrates "special treatment" for those provinces.

Premiers Smith and Scott Moe expressed a willingness to join legal action but did not clarify further. A majority (61.7%) of Albertans voted to strike equalization from Canada's constitution. 

"It’s up to us … to come together, with a new formula, that will work for all of us, and hopefully be able to have a partner in the federal government who will modify it," Smith told other premiers last month.

Premier Moe concurred the formula is "very flawed" and hopes to have "grown-up" conversations moving forward. He prefers a formula that distributes half the money on a per capita basis and the remainder under the existing framework.

Premier Smith supports the idea. "We also have pressures associated with the high growth in education and health care as well," she said. "I think there needs to be a revamp of the equalization formula."

Last year, Smith tabled a paper condemning the overcompensation of some provinces and "under-reporting certain sources of revenue." It suggests redistributing excess GDP to all provinces on a per capita basis, starting in 2029.

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