Tegan Hill and Jason Clemens are economists with the Fraser Institute.
Last week, Alberta’s “Fair Deal Panel” – commissioned by Premier Jason Kenney last year – submitted its long-awaited report after months of public hearings. Two of the report’s most noteworthy recommendations are referenda on the federal equalization formula in 2021 and the province’s participation in the Canada Pension Plan (CPP). For Albertans, this review panel emerged out of a sense of unfairness, and as the provincial government considers the report and as Ottawa and the provinces begin to talk about fiscal federalism – the financial relationship between the federal and provincial governments – that spirit that animates these recommendations must not be forgotten.
Indeed, understanding why Albertans feel like they are contributing disproportionately to national programs will be critical if the pending negotiations are, as hoped, to produce a stronger country. This national discussion, which is just getting started, will only be an opportunity to improve Canada for everyone if the rest of the country understands the situation and is willing to compromise.
Fiscal federalism includes the functioning of federal programs such as equalization, and national programs such as the CPP and employment insurance (EI). Ottawa collects various taxes, then redistributes money to the provinces and/or Canadians, depending on the program. But in 2018, Albertans’ contributions to such programs outstripped their use of the programs by $15.3-billion.
Alberta also has a comparatively young population right now, with fewer retirees. It has demographic and income advantages, including higher rates of employment and higher average incomes, despite the province’s weak economy. That results in Albertans disproportionately contributing to national programs.
Consider the CPP. In 2017, Alberta workers contributed 16.5 per cent of the total premiums paid, while retirees in the province received only 10.6 per cent of the payments – a net contribution of $2.9-billion. Put differently, Albertans contributed $2.9-billion more to the CPP than they consumed in 2017. From 2008 to 2017, Albertans’ cumulative net contribution to the CPP was $27.9-billion – that’s almost four times greater than Ontario’s net contribution, which ranked in second place.
This disproportionate contribution to the CPP matters to all Canadians, because if Alberta withdrew from the program, the CPP’s contribution rate for the rest of the country would have to increase from 9.9 per cent to 10.6 per cent to remain sustainable. (At the same time, a Fraser Institute study has suggested that a provincial-only program would have a contribution rate as low as 5.85 per cent.)
Similarly, employment insurance relies on disproportionate contributions from Albertans. In 2014, workers in Alberta contributed 15.2 per cent of EI’s total revenues while receiving only 9.4 per cent of EI’s benefits. That year, Albertans’ net contribution to EI was almost $2-billion. And from 2007 to 2018, Albertans’ cumulative net contribution was $12.3-billion, although recent increases in unemployment in Alberta have reduced its net contribution.
Simply put, in their current form, both the CPP and EI rely on Alberta’s participation; its withdrawal would produce fundamental changes to these programs including higher contribution rates (i.e. taxes) and potentially reduced benefits.
This need not be the case, however, if the rest of Canada recognizes Alberta’s key role in national programs. Again, that recognition could form the basis for new agreements in areas meaningful to Albertans including changes to the regulatory system for large national infrastructure projects (which would mean a rethink of Bill C-69, also known as the federal Impact Assessment Act), reversal of the West Coast tanker ban (as spelled out in federal Bill C-48), fixing equalization or reforming the national carbon tax.
The fair deal report represents an opportunity. But achieving that fair result starts with Canadians outside Alberta developing a better understanding of the province’s role in the federation. Canada would be a better country for it.
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