In hindsight, it was probably a mistake to send Jason Kenney to Ottawa to plead Alberta’s case. What they should have done, clearly, was send a preternaturally wise child, angry and articulate, who would scold the assembled adults with phrases such as, “How dare you widen the discount from West Texas Intermediate?” and, “My generation will never forgive you for stealing our futures as rig operators and well-site geologists.”
But alas, there was poor Jason, inescapably middle-aged, along with eight members of his cabinet, doing the usual rounds – speech to the Canadian Club, multiple media availabilities, pressing foreheads with the Prime Minister for an hour – and all, it would seem, for naught. The carbon tax is staying, of course – indeed, Mr. Kenney’s government is now imposing one, albeit only on heavy emitters, with Justin Trudeau’s seal of approval.
And as for the rest – a firm deadline for construction of the Trans Mountain pipeline expansion, repeal or amendment of the Impact Assessment Act (C-69) together with the ban on tankers off the coast of northern B.C. (C-48), etc. – about all the Alberta Premier received was a polite hearing. The feds are willing “to talk about implementation” of C-69, said Jim Carr, the Prime Minister’s special adviser on Western issues, but not to change it; they are committed to Trans Mountain, but can’t give a fixed date on its completion, etc., etc.
To his credit, Mr. Kenney chose to accentuate the positive, as frustrating as the experience must have been. Still, on one of his demands in particular – reform of the federal Fiscal Stabilization Program, designed to compensate provinces that experience sudden, sharp reductions in revenues, on terms advantageous to Alberta – the feds would be well advised to hang tough.
This seems to have replaced reform of equalization on the Premier’s list of demands, perhaps because the latter would have required other provinces to receive less. The former, however, simply adds Alberta to the list of beneficiaries of federal largesse, without costing any other government a nickel, which no doubt accounts for the unanimous support it received at the recent premiers’ conference.
Still, it’s an odd request, in as much as it is designed to recompense the province, not for any present shortfall, but for the revenue hit it took from the oil price collapse five years ago.
The details of the province’s case – the program was amended in 1987 by the imposition of a $60-per-resident cap on the amount a province could expect it to pay out; remove the cap and, presto, Alberta is retroactively entitled, not just to the $250-million it received after the oil price collapse in 2014, but to $2.4-billion – need not detain us here. What, rather, is the principle on which it is based?
The implication is that Alberta has a revenue problem and not, as the government has rightly insisted until now, a spending problem. In fact, though Alberta taxes its citizens far less than other provinces – own-source revenues account for just 12 per cent of gross domestic product in Alberta, versus nearly 20 per cent elsewhere – it still collects more revenue per capita than most; even the oil-price collapse only brought it down to slightly below the national average, from one-third above it before.
But so far as it has a revenue problem, even a temporary, relative and retroactive one, how far is the federal government obliged to respond? We should distinguish between the things that have happened to Alberta, the things that have been done to it, and things it did to itself.
Mr. Kenney was at pains in his Canadian Club speech to point out that Alberta’s continuing economic difficulties are not the consequence of low world oil prices – they’re currently above their historic average – but of serial federal bungling of various pipeline projects and arbitrary, excessive regulation. Fair enough. Perhaps the province deserves compensation for these. If the feds can reimburse households across the country for the cost of the carbon tax, they can surely reimburse Albertans for regulating their primary industry into the ground.
But the revenue drop the province experienced post-2014 was the result of low oil prices. Or more precisely, it was the result of the province’s over-reliance on oil and gas royalties to fund its government.
It is a common criticism of the equalization program, one that Mr. Kenney has made often enough himself, that it discourages provinces from fully developing their economies, whether because they get the federal cash if they don’t or because it is taken away from them if they do. But to satisfy Alberta’s claim for fiscal stabilization would carry its own perverse incentive. It would reward the province for its reckless gamble on resource revenues.
The issue isn’t that Alberta, as a province, is too dependent on oil, or should forcibly diversify into other industries. For all its boom-and-bust tendencies, oil has also made Albertans among the wealthiest people on Earth. If they’re okay with the risk, they’re entitled to the reward.
But governments are under different pressures, and different temptations. The government of Alberta doesn’t need more revenue, but it needs a different mix of sources: one that would be less volatile and, as such, would not tempt governments into spending so much when prices are high, only to have to cut so sharply when prices are low. I’m thinking of a broad-based tax that applies to every sector of the economy, rather than just oil and gas, without hurting incentives to save and invest. We might call it a sales tax.
A provincial sales tax is a hard sell at the best of times in Alberta, but it hardly helps matters for the federal government to rescue the province from the consequences of its own fiscal folly. The notion, moreover, that taxpayers in the rest of Canada, who are much poorer than Albertans on average, should be forced to underwrite a government that is in most years much richer than theirs, per capita, in order that its citizens might continue to be spared paying the same taxes everyone else does — well, let’s just say it’s up there with forcing Albertans to underwrite a province that refuses to allow their oil to be shipped across it.
Andrew Coyne