The $16-billion-a-year federal equalization program is up for renegotiation and renewal in 2014. While Quebec, New Brunswick and other provinces on the federal dole have been arming themselves and rallying for the fight for several years, Alberta has been completely missing in action.
As the province with the most to lose, westerners look to Alberta for leadership in resisting federal pickpocket schemes like equalization. But if Alberta is willing to take it on the chin and accept a renewal of the current equalization program in 2014, we can hardly expect British Columbia and Saskatchewan to put up a fight on our behalf.
Only Saskatchewan Premier Brad Wall has publicly taken a tough stand on equalization, and his province — representing just three per cent of Canada’s population — has little chance fighting Ottawa and the recipient provinces without allies.
Quite simply, without Alberta’s leadership, the federal equalization program will be renewed in its current form, and Albertans will have no one to blame but themselves. It will be surrender without a fight.
But fight Alberta must.
In 2011, Alberta’s finance department calculated that Alberta taxpayers provided $18.9 billion — or $5,012 per Albertan — more in annual revenue to the federal government than we received in services and transfers. This contribution is more than the entire equalization program budget.
While Germany and several small northern European countries bail out large swaths of the debt-ridden eurozone on an ad hoc basis, Alberta, British Columbia and Saskatchewan bail out a majority of provinces on a legislated, regular basis. While eurozone donor countries have the option to withhold their bailout dollars if recipient countries fail to get their act together, Alberta has no choice.
While Greece was forced to raise its retirement age and rein in spending in order to obtain bailout dollars, Quebec and Nova Scotia continue to rack up debt and pursue economically destructive policies without consequence, thanks to equalization dollars.
But it’s not just Alberta and the small band of equalization losers that are failed by the program. Provinces receiving equalization dollars are forced into a dependency trap that provides them fewer economic opportunities than the rest of the country.
The most incredible example of the equalization program incentivizing destructive behaviour by recipient governments is Paul Martin’s 2005 Atlantic Accord. This deal for Newfoundland and Labrador and Nova Scotia stated that these provinces would get an equalization bonus payment if their respective debt loads were in the highest four in the country.
Not surprisingly, Nova Scotia’s former finance minister, Graham Steele, bragged about the province’s high-debt status paying dividends for equalization.
Quebec actively retards resource development, as not doing so would increase its fiscal capacity, and therefore decrease the cash it gets from equalization. In fact, its separatist premier, Pauline Marois, recently posted a video to the Parti Quebecois website where she states in French, “If one day, we produce oil and gas in Quebec, why would we let half of this wealth go down the road to Ottawa?”
Meanwhile, Alberta doesn’t receive a cent from equalization because we have developed our resources. Moreover, most Albertans are proud that our oilsands are an economic driver for all Canadians. This includes the many Quebec companies that benefit from the oilsands by providing much of the hardware: Prevost builds the buses, Groupe Canam provides the steel, Ezeflow sells the valves, and SNC Lavalin provides billions in engineering support.
Equalization should be transitioned from a federal welfare program to a federal fiscal recovery program. Rather than incentivize substandard government, this new program should provide bridge funding to poorer provinces on the condition that they make necessary economic and fiscal reforms.
For example: rather than incentivize Nova Scotia’s government to run up its debt, a reformed federal fiscal recovery program could use the cash at its disposal to match provincial debt repayments, dollar for dollar.
Rather than hand Quebec $7.8 billion a year in equalization payments, the federal government should count that province’s fiscal capacity as if it had already developed its natural resources the way Alberta and Saskatchewan have. This would have a two-fold effect of shrinking the cash payout, and removing the disincentive to build its economy.
Taxpayers in both Alberta and Quebec would be better for it.
Yet, there is no chance of even moderate reform unless Alberta’s leaders — beginning with Premier Alison Redford and our federal MPs — stand up and be counted.
The premier — and some MPs — may be hoping that Prime Minister Stephen Harper simply decrees a decision on equalization without any haggling at a so-called first ministers’ meeting, which he may well do. Equalization meeting or not, the prime minister will react within the realm of the political demands being made. If the only demands he hears are from MPs and premiers from recipient provinces, the status quo will be sure to prevail.
But if the prime minister doesn’t face serious demands from the West’s federal and provincial leaders, he will not be to blame. The premier and our MPs will be.