Ottawa has failed to deliver anything meaningful

Fiscal stabilization decision a slap in Albertans' faces, writes Bill Bewick.

Overlooked in the federal fiscal update by Finance Minister Chrystia Freeland in early December was an announcement of changes to the fiscal stabilization program. While the eye-popping deficit numbers certainly deserved the bulk of attention, the federal government's failure to deliver anything meaningful for Alberta will reverberate in 2021 as the fall referendum on equalization comes into focus.

Fiscal stabilization is a rarely used federal program designed to cushion the blow to core services when provincial revenues drop more than five per cent. Since the 1980s there has been a hard cap of $60 per person that effectively nullifies the ability of these payments to stabilize much of anything: in 2015 Alberta revenues dropped $8 billion but our payment was capped at $250 million, or three per cent of the loss. As our analysis at www.fairnessalberta.ca argues, Ottawa should in this case revert to the original 1967 formula for the program, which would mean a $7-billion payment to Alberta over 2015 and 2016.

Not surprisingly, leaders from both the UCP and NDP in Edmonton were disappointed by the minister's decision to only adjust that cap for inflation ($170), but the premier took criticism for calling it a “slap in the face.” University of Calgary economist Trevor Tombe analyzed these changes in the magazine Policy Options where he suggested the premier's reaction was “overdramatic.” What his otherwise helpful article fails to mention explicitly, however, is that at the end of 2019 Alberta managed to get the unanimous support of all 13 premiers to not only lift the cap entirely (which they could all benefit from) but to make it retroactive to 2015 in order to compensate Alberta in particular.

Any political watcher can confirm that it is not unusual to see premiers unanimously call for more money from Ottawa. What is unusual is seeing them use political capital for the sake of only one province.

While unusual to obtain, the broad support for a specific payment to Alberta is easy to justify. Albertans have been providing “fiscal stabilization” to federal finances every year for 60 years; $600 billion more has come from Alberta tax revenues than has been spent back in Alberta over that time. This is hardly just a boom-time phenomenon, either: over the last five years, Albertans have sent $90 billion to Ottawa that was spent on people, governments and infrastructure in other provinces.

Looking again at 2015, which started off strongly for Alberta, the net total Ottawa enjoyed from Alberta taxpayers to stabilize its budget was a staggering $25 billion. When the $8 billion, or 20 per cent, drop in provincial revenues hit Alberta later that year, the stabilization payment of $250 million meant Ottawa sent back to Albertans exactly one per cent of their net contribution despite the economic collapse.

Even if it met the outdated guidelines of the program, it is manifestly unfair to rigidly observe a $60 per person cap in assistance to a province bleeding jobs and revenues while at the same time happily taking from them a net $6,000 per person to spend elsewhere in the country.

Clearly, fiscal flows between Alberta and Ottawa are broken. This type of unfairness is why so many Albertans are demanding drastic changes to the federation, up to and including separation.

When a provincial leader manages to convey this strongly enough that every premier asks to have changes to an obscure program made retroactive solely for Alberta's benefit, that should provide the impetus as well as political cover for Ottawa to make at least some token gesture.

When, instead, the federal government rejects the idea of making even a modest update to the fiscal stabilization program retroactive for Alberta's sake, it is hardly “overdramatic” to see that as a slap in the face.

If nothing else, it should serve to increase further the interest Albertans have in the upcoming equalization referendum, and in revisiting various federal fiscal programs that could come as a result of that process.