Alberta wants equalization reforms as Ottawa aims to lock in formula until 2029

Alberta's United Conservative Party government released a position paper Friday calling for a series of reforms to the equalization formula, arguing that the program in its current form hurts wealthy provinces and disincentivizes growth in receiving ones.

Equalization is a federal program, funded through general revenues, largely sourced from federal taxes, which is used to ensure comparable services across the country.

Earlier this week, the federal Liberal government indicated its plans to lock in the equalization formula for payments to provinces until 2029 in an omnibus budget motion.

Among the recommendations in the Alberta paper is a recommendation that Canada change the way it measures how provinces raise revenue. It's what Trevor Tombe, a professor of economics at the University of Calgary, referred to as the paper's "core recommendation."

It would involve a move from the current formula, based on a province's "fiscal capacity," to one based on the measure of a province's underlying economic strength.

"It's something that I think deserves merit in the conversation and could potentially improve the formula in several important ways," Tombe said, adding such an approach has a long history, tracing back to the 1950s.

However, the approach would also come with trade-offs, Tombe said. For example, British Columbia's ability to raise revenue is larger than its economy would suggest because it has a unusually strong property tax base, which is currently measured in the formula.

"So there are trade-offs. A macro one is simpler, but wouldn't as precisely measure a province's actual ability to raise revenues," he said. "So reasonable people can differ on on this proposal, but it's certainly an interesting one."

Tombe said beyond seeking to add a macro formula to equalization, the Alberta government is also seeking to dramatically reduce the scale of the program itself. He said that would be a non-starter for any federal government, regardless of party.

Federal government eyeing 2029

In announcing the government's position paper Friday, Alberta Premier Danielle Smith did not hold a press conference, instead releasing a video, calling equalization an unfair "gravy train."

"It's past time we end it," she said.

Ottawa's current plans to lock in the current formula until 2029 harkens back to a series of events in 2018, when it similarly passed a 584-page budget implementation bill to extend the formula until 2024.

It drew criticism from provincial officials in Alberta and Saskatchewan, who said they were caught off-guard.

At that point, Joe Ceci, Alberta's finance minister for the then-governing NDP, told reporters he had been communicating his concerns with the program to the federal government for months.  

"Frankly, I think that the feds aren't doing as much as they can for provinces like this, who hugely contribute to the wealth of this country," Ceci said at the time.

Saskatchewan Premier Scott Moe also suggested he had been surprised by the move, and then-Alberta Opposition leader Jason Kenney called it a "slap in the face." Moe has, for years, been proposing that the equalization formula be changed to per-capita.

Contacted by The Canadian Press for comment on the latest plan, Saskatchewan's finance minister said the province had raised concerns about equalization with federal, provincial and territorial finance ministers earlier this year, adding it was "disappointing" the federal government would move ahead with changes without more consultation.

Debate over equalization often surfaces around election time, and had been a key focus of Kenney's push to secure a "fair deal" for Alberta during his time as premier.

His government went so far as to hold a referendum on equalization payments during Alberta's 2021 civic election. Though the province has no power to unilaterally change the program, Kenney said he believed such a referendum would force the federal government to negotiate in good faith. 

That referendum saw 62 per cent of voters support the removal of a Constitutional clause committing Canada to equalization. A few months later, responses to the Confederation for Tomorrow national survey report suggested 57 per cent of Albertans support equalization.

In a statement to CBC, the office of Federal Finance Minister Chrystia Freeland noted, "equalization ensures that Canadians receive the same quality and level of service, such as health care or education, everywhere across the country." 

Adrienne Vaupshas, press secretary to Freeland said, the formula, by law, is reviewed and renewed every five years.

"The federal government regularly speaks with provincial and territorial counterparts about Equalization, and the Deputy Prime Minister did so with all Finance Ministers at their in-person meeting in Toronto in February."