Equalization is a good constitutional bargain. Albertans should not vote to scrap it
There are ways to secure a fairer deal for Alberta in Confederation. This referendum is not one of those ways
This column is an opinion from Ken Boessenkool, a professor at the Max Bell School of Public Policy at McGill University and a research fellow at the C.D. Howe Institute, and Jared Wesley, an associate professor of political science at the University of Alberta. For more information about CBC's Opinion section, please see the FAQ.
This month, Albertans are being asked whether "Canada's commitment to the principle of making equalization payments" should be removed from the constitution.
Whether you favour (as one of us does) or are skeptical (as one of us is) of Alberta's push for more autonomy, you should vote No.
The strongest arguments for a Yes vote come from Fairness Alberta, a group led by a former UCP policy guru and endorsed by the government. Their referendum website says vote Yes because equalization is "unfair, unaffordable, unnecessary," and therefore "unacceptable." We disagree on all four counts.
Unfair?
The equalization referendum is the first major salvo in the government's "fight back" strategy to secure a "Fair Deal" for Alberta in Confederation. In federations like Canada, fairness is negotiated. We must evaluate the Jason Kenney government's strategy from that standpoint: will it make Canada fairer for Albertans?
The vote itself is not meant to secure constitutional change. Premier Kenney is clear on this point: "I've always said that a yes vote on the principle of equalization does not automatically change equalization, it doesn't remove it from the Constitution. We cannot do that unilaterally. What it does is to elevate Alberta's fight for fairness to the top of the national agenda."
This push for fairness isn't new. Two decades ago, one of us helped pen a letter on the subject. The "firewall letter" outlined ways that Alberta could gain more autonomy unilaterally, without getting the consent of other provinces or the federal government. Kenney's fair deal agenda contains some firewall policy prescriptions — an Alberta police force and pension plan.
But the referendum gambit is not like that. It goads other governments into negotiations by threatening to eliminate a key source of their constitutional autonomy and funding. This will provoke pushback, removing Alberta's control over the process and putting a couple of grand bargains at risk.
Equalization is part of two Gordian knots – a pair of intricate and tightly-tied pacts that are not easily unwound. The first is constitutional. When governments across the country negotiated the patriation of the constitution in 1982, the equalization principle was one among many components on the table. As with any grand bargain, trade-offs were made.
The deal allowed provinces with natural resource endowments to keep those revenues and use them to run their own affairs. Provinces without such endowments were assured that they would have sufficient revenues – through equalization – so they too could afford to run their own affairs. Opening this deal threatens to unwind it. And that could put at risk Alberta's control of natural resources.
Whether you think equalization and the rest of Canada's system of federal transfers is unfair to Alberta, threatening to remove the equalization principle from the constitution is no guarantee of changing any of that. In fact, it may well leave Albertans worse off.
Vote No to preserve a good constitutional bargain.
Unaffordable?
The second Gordian knot surrounding equalization is fiscal.
Changes made to federal transfers under the Chrétien, Martin and Harper governments involved trade-offs between enriching equalization and putting health and social transfers on a more equitable footing for Canadians in various parts of the country.
Among Alberta's chief negotiators, Ralph Klein was a proponent of equalization as a singular program, but he opposed equalizing other federal transfers based on need. He supported equalization transfers, but insisted that health and social transfers be distributed to provinces on a per capita basis. Equalization, yes. But equalization only once. It took the Alberta government decades to achieve this balance.
It was ultimately the Harper government that put federal fiscal transfers on a more sustainable path, shifting from open-ended or ad hoc formulas to building in per-capita funding and escalators tied to economic growth. This not only ensured affordability over time, it also provided provincial governments with the predictability they sought when budgeting for things like health care and education.
Harper's changes – retained by the Trudeau government – are of immense benefit to the province of Alberta, which nets an additional $1 billion in annual health funding alone.
More recently, Alberta has received more than its fair share of federal pandemic funds, a boost to the fiscal stabilization formula, and sizable federal investments in the oil and gas industry (including the purchase of a pipeline and orphan well recovery funding).
In recent days, Alberta has seen Canadian military assistance and support from other provinces to battle its deadly fourth wave of the pandemic.
Given these developments, Canadians outside Alberta can be forgiven for questioning Alberta's timing, motives, and objectives in holding this equalization referendum.
And having just failed to win enough Quebec seats to get their majority, the federal Liberals are more likely to tilt eastward than westward in any constitutional or fiscal negotiations. Far more so than the Harper government, which had a sizable western contingent in caucus and cabinet, including then-minister Jason Kenney.
If voting Yes in this referendum is a call for Canada to re-examine its system of federal-provincial transfers, current political and economic realities suggest Alberta's hand is weaker than proponents wish it were.
Vote No to lock in Alberta's transfer gains.
Unnecessary?
Alberta premiers from Lougheed to Klein to Notley and Canadian prime ministers from Mulroney to Chrétien to Harper have all agreed that equalization maintains national unity and the integrity of Canada's social and economic union.
Stephen Harper made bolstering equalization a key part of his push for open federalism. Indeed, it is one of the Harper government's most important and lasting legacies.
By contrast, Fairness Alberta argues that, "given the heavy federal involvement in provincial affairs, Equalization could disappear tomorrow and there will still always be a high level of support for poorer provinces."
The question becomes: does the federal government flow those funds without conditions to poorer provinces through equalization, or does it embed needs-based funding into all federal-provincial transfers, tying conditions to how it is spent?
Alberta has historically resisted the latter approach to maintain control over its own affairs, but may be inadvertently triggering it through another round of fiscal federalism negotiations. More on the case for autonomy below.
Vote No to secure a necessary part of Canada's system of fiscal federalism.
Unacceptable?
Fairness Alberta closes its case by arguing that, "For the sake of national unity it is time for serious fiscal reforms, starting with Equalization." Here is perhaps the root of the government's strategy and its greatest risk.
By borrowing a page from Quebec's brinksmanship handbook, Alberta is overestimating its capacity to exert influence over other provinces and the federal government. While the size of its economy is roughly the same as Quebec, Alberta has less than half the population and, crucially, less than half the number of MPs — only two of whom now sit in the governing party's caucus.
More than this, however, Alberta is missing one key asset from Quebec's intergovernmental arsenal: a legitimate threat of separation. At least for now. Quebec politicians have exerted authority over fiscal federalism discussions because they have the numbers and because they are able to tie their arguments to real threats around national unity.
Yet, in a bit of dangerous irony, by both legitimizing the menace and creating unattainable expectations for success, the Alberta government is actually stoking the fires it's promising to extinguish.
Unlike the government of Quebec, Alberta has identified no clear end goal for its Fair Deal project. It has not committed to any next steps, nor foreshadowed what will occur if its demands are not met. That vacuum leaves room for its critics on the populist right to gain traction at a time when the government is most vulnerable.
A Yes vote in this equalization referendum is likely to lead to losses for Alberta, both constitutionally and fiscally. And the only ones who would celebrate that are Alberta's nascent separatists. We are quite sure this is not what the premier meant when he said the referendum "takes a page out of Quebec's playbook."
Vote No for the sake of national unity.
The case for No
Thus far we have dissected the case for Yes and found it wanting. We now turn to the case for No. In short, we mount a defence of both the principle and the program of equalization.
Autonomy
Equalization is a key constitutional pillar that gives richer provinces the flexibility to run their own affairs.
Without the revenues provided by equalization, poorer Canadian provinces would be left begging the federal government to run and fund their health, education and social assistance programs directly out of Ottawa. And it is only a short step from there to having Ottawa run more and more programs that Alberta (and other rich provinces) can run themselves.
If history offers any lessons, a Liberal government in Ottawa would balance off any equalization cuts by re-introducing needs-based formulas for health and social transfers. And those new funds would be conditional, that is with many strings attached.
The equalization program, by being unconditional, equalizes opportunities for provinces to provide similar services, but it doesn't force them to do so. So Quebec can raise taxes higher than Alberta and lower its spending below ours in order to create a Generations Fund that now exceeds the Heritage Fund.
Equalization is a small price that people and businesses in richer provinces pay to allow all provinces to run (more of) their own affairs.
Vote No because equalization is necessary for Canada to remain a decentralized federation.
A stronger social and economic union
Equalization takes money from all Canadians and sends it to provinces with less ability to raise revenues. So a portion of Quebec's equalization payment comes from Quebec residents, as well as from Ontario and Alberta residents. Equalization does not transfer money from the government of Alberta to other provincial governments.
In this sense, equalization is a commitment by all Canadians to ensure other Canadians have access to comparable services and taxation rates no matter where they live. By supporting provincial governments to deliver quality education, health, and social services from coast to coast, equalization helps ensure all Canadians can contribute to society and the national economy.
Large disparities in provincial wealth and endowments mean that, without equalization, poorer provinces would offer far less generous government programs than richer provinces. These differences would be big enough to induce people to move merely to access higher quality public services. This type of migration strains richer and poorer provinces.
Equalization makes it more likely that people move for economic reasons (which we want for a healthier economic union) and not policy reasons (which would result in a weaker social union).
For generations, many people have moved to places like Alberta in search of economic prosperity. In so doing, they have contributed greatly to Alberta's social fabric, creating strong kinship ties with other parts of the country.
Vote No to continue strengthening the Canadian community.
Conclusion
Equalization is part of a broad system of constitutional and fiscal trade-offs. With good reason, many prime ministers — like Justin Trudeau — have avoided renegotiating these grand bargains altogether. Stephen Harper was the last to secure a fair deal – one that benefits Alberta to this day.
The conditions that surrounded that successful deal no longer exist – and not just because we don't have a prime minister from Alberta. In the midst of a pandemic with a Quebec-backed Liberal government in Ottawa, reopening that deal puts Alberta's gains under Harper at risk.
Yet even if gains were possible, the Alberta government's strategy is still ill-advised.
Equalization is a symbol of what it means to be Canadian and a pillar of our social and economic bargain that allows Alberta to run more of its own affairs. Threatening to remove it from the constitution will not only undermine this bargain. It will also bolster the cause of separatists here at home.
Holding a referendum on removing equalization from the constitution amounts to leading with our chin. History demonstrates there are ways to secure a fairer deal for Alberta in Confederation. This referendum is not one of those ways.
We urge Albertans to vote No to removing equalization from the Canadian constitution.
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