Provinces not consulted on equalization amendments, amplifying 'western alienation,' says Project Confederation

Québec will receive $14.037 billion in equalization payments this fiscal year, followed by Manitoba at $3.51 billion. 'Have-not' provinces will receive $23.963 billion in equalization in 2023/24.

Provinces not consulted on equalization amendments, amplifying 'western alienation,' says Project Confederation
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With Parliament's omnibus motion likely to pass before the summer recess, Ottawa is on the verge of quietly amending the equalization formula until 2029.

The equalization program, created in 1957, allows the federal government to transfer funds unconditionally to provinces with below-average revenue per capita to ensure all provinces provide comparable services and taxation levels. Financed entirely from federal revenues, 'have-not' provinces spend it without federal intrusion.

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 $18.3 billion in 2017/18 to $22.1 billion by 2022/23.

According to Bill C-47, An Act to implement certain provisions of the budget tabled in Parliament, Québec will receive $14.037 billion in equalization payments this fiscal year, followed by Manitoba at $3.51 billion — a $577 million increase from the previous year. In descending order, Nova Scotia, New Brunswick, P.E.I., and Ontario will also receive funds, totalling $23.963 billion among all 'have-not' provinces.

Josh Andrus, Executive Director for Project Confederation, condemned Ottawa for not consulting 'have' provinces again on the equalization amendments.

"The fact that further consultations with the provinces, specifically regarding equalization, weren't even attempted demonstrates that the federal government has very little concern for the voices of Albertans, especially in the wake of the 2021 Alberta equalization referendum," he said.

"By achieving a clear majority on a straightforward question, the provincial government had the legal authority to pass a legislative resolution to seek constitutional changes."

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

However, Andrus pointed out 'deep concerns' about the lack of progress under former Premier Jason Kenney to reclaim provincial autonomy and challenge Ottawa on equalization.

"That led to heightened rhetoric during the leadership race to replace him," he said.

The latest pledge to renew the formula another five years comes nearly 200 pages into a 400-plus page motion tabled in the Commons in April.

On June 8, they passed Budget 2023 — ending a five-week-long 'filibuster' by the Conservatives. A thrilling 177 to 146 vote passed the cabinet's half-trillion budget bill.

"Unless the Bloc Québécois or New Democrats sided with the Conservatives, the filibuster would not have prorogued the budget to the fall session," said Andrus.

"The makeup of Parliament made it relatively easy for the Liberals to push through the budget whenever they wanted to, despite the filibuster," he told Rebel News.

While health and social transfers are paid to provinces per capita, Ottawa makes annual equalization payments based on the ability of provinces to raise revenues.

"Under Canada's current equalization program, provincial governments receive or do not receive equalization payments based on their "fiscal capacity" — essentially, their ability to generate revenue," said the Fraser Institute.

In 2009, Kenny served in then-Prime Minister Stephen Harper's cabinet. He introduced that equalization payments grow annually with the national economic growth rate. "In other words, now, it doesn't matter whether the gap between richer and poorer provinces grows or shrinks — payments continue to grow at the same rate as the Canadian economy," said the Fraser Institute.

The fiscal capacity gap between 'have' and 'have-not' provinces has shrunk from 27% in 2014/15 to 6% in 2018/19, despite equalization payments growing yearly. By 2018/19, using 2020 dollars, the gap between Alberta and P.E.I. fell to $6,138 from $10,999 in 2007/08.

The Canadian Taxpayers Federation (CTF) calculated equalization has cost Albertans $67 billion since its inception in 1957, or $20,200 per person. 

Andrus told Rebel that equalization was designed to create "financial evenness" nationwide. "However, over time, it has become more and more unfair and uneven," he said.

The Executive Director clarified that most federal programs are designed in that fashion — "it is an element of the political structure of Canada where federal money buys votes in voter-rich, resource-poor parts of the country." 

"Reforms need to be made not just to these federal programs to ease tensions across the country but also to restore national unity," he said.

Since 1961, economist Trevor Tombe revealed Alberta's "net contribution" to Canada is $622 billion — roughly 5% of its economic activity over the period and equivalent to $3,344 annually per person in 2021 dollars. 

On fiscal stabilization — a program designed to help provinces with declining revenues recuperate some equalization funds from Ottawa — Andrus had reservations about whether it would soothe the growing Western alienation.

"I'm not sure a fairer fiscal stabilization policy is enough to soothe budding frustrations as ambitious federal climate policies — such as the Impact Assessment Act (Bill C-69), the Oil Tanker Moratorium Act (Bill C-48), net-zero targets on electricity by 2035, and an emissions cap on Alberta's oil and gas sector at the end of 2023 — are amplifying tensions," he said. 

Tory MP Tom Kmiec introduced Bill C-263, the Equalization and Transfers Fairness Act, on February 1, 2021, to facilitate amendments to the fiscal stabilization program that had 'shortchanged Alberta billions of dollars.'

"In 2015/16, Alberta's revenues dropped by $8.8 billion," he said. "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."

Despite his attempts to boast more transparency and fairness to Canada's equalization and transfer regime, the bill never received a Second Reading in the House and fell through.

Bill C-263 advocated removing the cap on fiscal stabilization payments to prevent Ottawa from unilaterally changing the equalization formula. 

In 2019, all of 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.

"Equalization is certainly a flashpoint, but it is one of many," said Andrus. "I fully anticipate the governments of Alberta and Saskatchewan to take strong measures to protect the future of their provinces."

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