Despite the beating its economy has taken in recent years, Alberta won’t be getting the equalization payments enjoyed by other disadvantaged provinces from the federal government, sources say.
While Ottawa is doling out CAN$20.9 billion to Manitoba, Nova Scotia, Prince Edward Island, New Brunswick and Quebec — which gets the $13.3 billion lion’s share — none will go to Alberta. That province would only qualify if its resource revenue fell to zero and its non-resource fiscal capacity declined 12%. Despite the gloomy reports emanating from its oil and gas industry, that isn’t likely to happen.
Alberta will hold a referendum in October to determine its support for the equalization program in future, Kassandra Kitz, press secretary for Finance Minister Travis Toews, told Resource World magazine. Alberta has not received an equalization payment since 1964-65 but between 2014 and 2019 the province made a net contribution of $100 billion to the federal government through taxes, and in the past 25 years contributed more than $400 billion to the nation in tax dollars than they received in federal spending.
“Equalization is fundamentally unfair to Alberta,” Kitz said, “pulling billions of dollars out of our province – even during times of economic recession – and funnelling them into provinces with strong, even booming, economies.
“What’s worse, politicians in other parts of the country who benefit from Alberta’s generosity often turn around and attack our economic interests and bring in policies designed to harm our province and our people . . . Equalization does not work for Alberta.”
Provinces don’t request equalization payments, which were introduced in 1957. They are doled out by Ottawa based on a fiscal formula that ensures all are able to provide basic services despite per-capita revenue shortfalls. Alberta, for example, can raise 70% more in per capita tax revenue than PEI and because it has the greatest ability to raise funds cannot qualify for equalization, said a federal government source.
“Early last year Alberta was dealt three serious blows: the greatest global economic recession since the Great Depression, an unprecedented drop in energy prices, and the Covid-19 pandemic. These three things have combined to hit Alberta and our resource-based economy much harder than most other provinces,” said Kitz. “However, Alberta’s fiscal capacity remains significantly above the 10-province average, meaning that Alberta does not expect to qualify for equalization within the foreseeable future.”
Despite the recent cancellation of the TC Energy Corp. [TRP-TSX, NYSE], Keystone XL pipeline project adding to the industry’s woes, the Canadian Association of Petroleum Producers (CAPP) isn’t worried about equalization funding and in fact forecasts a 14-per-cent increase in upstream investment this year.
“The increase in capital spending expected for 2021 (up $3.36 billion to $27.3 billion) signifies a stabilizing of the industry but is still far off the $34 billion of investment the industry saw in 2019,” said CAPP spokesperson Jay Averill, who noted the industry investment has steadily declined since 2014, when it reached $81 billion. But in its Vision for Canada’s Recovery report, CAPP cites a 2018 study that indicated the right federal government policies would bring $20 billion annually in investment, 120,000 new permanent jobs, a $45-billion increase in GDP, and a $7.5-billion annual jump in government revenues.
“Right now we believe the industry is at the start of a long road to recovery, the speed of which is dependent on the effectiveness of vaccines and the opening up of economies around the world,” said Averill. “The upstream oil and natural gas sector helped drive the Canadian economy through past recoveries . . . and the industry is poised to do that again.
“Canadians can continue to count on the oil and natural gas sector and our highly-skilled workforce.”
By Bruce Lantz