Equalization

Since 2005, Alberta taxpayers have contributed, on average, $23 billion dollars more per year to the federal government in federal taxes than they received back in projects, benefits and other spending from Ottawa.

That’s a net loss to Albertans of nearly a half a trillion dollars in just 20 years. Most of those redistributed Alberta tax dollars are spent by Ottawa in Quebec and other Liberal-leaning provinces across the country.

And part of that massive fiscal transfer out of Alberta comes through the federal equalization program which has seen Alberta pay over $67 billion dollars into the program since 1957, while receiving back not a single penny since 1965.

In 2021, Albertans voted in a referendum to remove equalization from the Constitution, but Ottawa completely ignored us.

Take the Survey

So what next?

Alberta can’t stop these federal transfers on its own. The Alberta government doesn’t write a cheque to Ottawa each year, and we can’t ask Albertans to stop paying their federal taxes.

The fact is, fixing this problem will require political support from other provinces.

One option, that would be appealing to most other provinces, is to have the federal government transfer a larger share of overall taxes from Ottawa to the provinces.

Currently, Ottawa collects over 60% of all the federal and provincial taxes that Canadians pay. The Ottawa bureaucracy takes its portion, with the remainder inefficiently and unequally distributed to the provinces. The dollars we do get back have a lot of strings attached, forcing us to run our provincial programs and build infrastructure the way Ottawa wants us to.

So, what are the benefits of Alberta choosing to withdraw from the CPP to create its own pension plan?

A big upfront payout

Alberta would get back a significant lump sum by exiting the CPP. The Chief Actuary in Ottawa has indicated our share would be at least $140 billion. That’s plenty to start and build a strong Alberta Pension Plan from day one.

Better Benefits for Seniors

Lower premiums for Alberta Workers

Thanks to our younger, more productive population, an Alberta Pension Plan could result in Alberta workers paying lower pension premiums on their paycheques or seniors enjoying higher pension benefits – or a mix of both.

Local control & boosting our economy

An Alberta Pension Plan would be managed right here at home, creating more jobs and growing Alberta’s financial sector. We would also be insulated from the economic and demographic decline in Canada. Our investment decisions could also be steered clear of ideological decision making, and instead remain focused on the long-term rate of return for Alberta pensioners.

But there are some risks to consider:

Uncertain payout

The CPP exit rules aren’t clear in the federal legislation, and Ottawa is notoriously anti-Alberta with its decisions, so the size of the lump sum Alberta is offered could be lower than it should be. This could result in a lengthy court battle with the federal government, and it could lower our ability to increase benefit payments for seniors or lower premiums for workers.

Long-term risk

As with any pension plan, if the plan is mismanaged or Alberta’s economy and demographics fall behind Canada, premiums would have to rise in the future in order to guarantee our seniors the same benefits they enjoy today under the CPP. Regardless, as with Quebec, Alberta’s government would still be able to guarantee that an Alberta Pension Plan provide the same or better benefits to Alberta seniors as they now enjoy under the CPP.

Portability concerns

The Quebec Pension Plan and CPP have an agreement in place to ensure pensioners get the same single pension regardless of where they worked or lived in Canada during their career. Alberta would expect a similar arrangement with Ottawa, but it is not guaranteed.

FAQ

How would a tax point shift work?

The federal government would end many of its transfers and other programs that violate provincial jurisdiction, then cut federal tax rates by that amount. Provinces would fill that tax room and not have to count on Ottawa for provincial funding.

We get equal per capita payments in health and social transfers, why not let Ottawa pay?

There is only one taxpayer. Given that Albertans pay more taxes per person, even when we get the average back from Ottawa we have lost dollars that could stay in Alberta to support our services.

Doesn’t Ottawa have a role to play in supporting services nation-wide?

There are some shared areas of jurisdiction, but in general, our constitution says no.

Whenever Ottawa comes in to help with funding something, there are one-size-fits-all strings attached, added bureaucracy, and no assurance they will maintain the funding. Autonomy in service delivery means we can tailor our spending to our priorities and plan better for the future. Different provinces trying different approaches is a good thing.

There is a good reason our constitution set out so many areas as provincial.

Shouldn’t there be equalization payments? It is in the Constitution.

Equalization is a principle affirmed there in 1982, but the requirements are fairly vague and the formula is not defined.

Currently, the program is bloated and flawed. Its payments grow with GDP regardless of how equal the provinces are. The payments are so large that in most years billions are sent to recipients even after they have reached the national average. Ontario now gets a payment because the “have nots” are getting pushed above it!

Equalization contributes to the subsidy problem Albertans face, but if most of the indirect forms of interference and redistribution were fixed then a reformed, transparent equalization formula could be broadly supported.

One issue B.C. and Newfoundland have identified is large provinces like Ontario and Quebec getting subsidized by small provinces through equalization. One solution that has been proposed is that the four largest economies should not be directly subsidizing each other via Ottawa. Quebec currently has lower productivity than the other three, but should the second largest economy in Canada be getting a $13 billion cheque every year? For equalization, after the smaller provinces are brought close to the national average, a reformed formula could see the four large provinces share in the rest of the budgeted amount evenly, or not spent at all.

Is reforming Fiscal Stabilization still needed as well?

Yes. The Fiscal Stabilization program is meant to give a one-year boost to stabilize finances when a province has a sudden drop in revenues. When Alberta’s revenues dropped $8 billion in 2015 our “stabilization” payment was $0.25 billion. Albertans routinely provide $5,000 per capita to stabilize federal revenues, but when we were in need Ottawa’s help was capped at $60 per person.

Provinces unanimously agreed five years ago that the cap should be lifted, and that Alberta should get a retroactive payment for 2015 and 2016. The Feds ignored the retroactive payment and only raised the cap to $172 per person.

Ideas to assert Alberta’s sovereignty within a United Canada

Federal Transfers and Equalization