Ontario and Quebec biting the energy hand that feeds them

January 25, 2010

By Dr. Roger Gibbins
President and CEO
Canada West Foundation

CALGARY, AB, Jan. 25, 2010/ — Canadians are quick to complain about – and even quicker to forget – one of the reasons that Canada is a great country: The federal government tries to ensure that, no matter where Canadians choose to live, they receive roughly the same level of public services thanks to wealth transfer among the provinces.

While most Canadians have little understanding of the arcane mechanisms that drive the equalization program, most of us get the basics.

That is:

1) people who live in provinces that are doing well pay into the program through their federal taxes but their provincial governments get nothing in return.

2) People who live in provinces that are less well off also pay into the program through their federal taxes, but their provincial governments receive equalization payments in return.

How Canada works

While we may habitually mutter about this wealth transfer, by and large we accept some reasonable measure of wealth redistribution among provinces just as we accept some reasonable measure of wealth redistribution across income groups. It’s how Canada works.

That is why, when Ontario, Canada’s largest province and traditionally its wealthiest, joined the ranks of the “have not” provinces, the public services Ontarians have always enjoyed, continue. Last year, Ontario received equalization payments of $31 per capita, a paltry amount compared to other recipient provinces to be sure, but it represents a huge change in Canada.

What’s changed? The centre of the Canadian economy is shifting West. In ways that are likely to endure, chronic economic weakness in Ontario is being offset by economic growth in the West. From now on, the western Canadian economy will carry even more of the fiscal load for the federation, That is why opinions held across Canada about the West matter a great deal. The capacity of the regional economy to generate wealth is overlooked in gratuitous attacks on the West’s economic champions.

During the recent United Nations’s climate conference in Copenhagen, politicians from Ontario and Quebec criticized the oil sands, to the outrage of  many Albertans. They were outraged both by the unprecedented attack on an international stage by fellow Canadians and by the fact that it ignored the contribution of the oil sands to Alberta’s economy, the same economy that helps ensure equality of public service across Canada.

Last week, Bloc Quebecois Leader Gilles Duceppe argued that the federal government was supporting the oil sands at the expense of Quebec’s economy, a remark that was not only misleading and malicious, but ignored what are in effect substantial fiscal flows from Alberta’s energy industry to social programming in Quebec.

Attacks on Alberta not helpful

Such criticism of the West’s energy-driven economy is fuelling pushback from Albertans about equalization payments, partly because Alberta is not doing as well, and generosity to others is harder to defend in the face of a significant deficit and the likelihood of program cuts; partly because of habit, lashing out at the federal government when things are tough at home. The result is that Alberta Premier Ed Stelmach has expressed concern about the magnitude of Alberta’s financial contribution to the rest of Canada, and Ted Morton, Alberta’s new Finance Minister, has been charged with addressing the perceived inequities of equalization.

Neither the attacks nor the response from Albertans and their Alberta government is helpful to sustaining the country that is the envy of the world. If the western Canadian economy is to carry more of the fiscal load for the federation, then opinions in this region about equalization matter a great deal. So too does the capacity of the regional economy to generate wealth, a capacity overlooked in gratuitous attacks on the energy industry.

This biting the energy hand that helps feed recipient provinces with equalization payments is not a sustainable strategy.

Another Viewpoint: It is time for Canada to re-think its equalization payments

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