Time to Increase Stabilization Payment to Alberta

Bill Bewick, Ph.D.
Executive Director, Fairness Alberta

There has been a “Fiscal Stabilization Program” in Canada since 1967 to help provinces maintain services in the face of significant revenue drops.  In 2016 Alberta’s revenues fell by $8 billion, or a staggering 18%; however, because of changes to the program over the years, Alberta only got a $248 million payment.  This compensated Alberta for about 3% of that $8 billion loss.

If “stabilization” of a province’s finances in a time of turmoil is the aim of this program – this small payment shows it is clearly broken.

Albertans are particularly justified in scratching their heads at the size of this payment when you consider the scale of their net contributions to the federal government.  At Fairness Alberta, we have shown that of all the tax dollars Albertans have sent to Ottawa in the last 20 years, $324 billion, or $318,000 per family of four, has been spent in other provinces. This equates to a net benefit to families outside Alberta of $42,000 over 20 years.

In 2016 alone, while the province faced a recession an $8-billion drop in provincial revenues, the federal net transfer out of the province was $16 billion.  Albertans are proud of their contributions to Canada, but that is 5 percent of their entire GDP transferred elsewhere in 2016 through federal spending decisions and programs like Equalization.

Calling for a larger stabilization payment is also justified by the fact that Alberta’s economic problems are in part the result of federal policies.  Low energy prices largely triggered the downturn, but investment levels and job-creation struggles have been made considerably worse by Federal policies and actions – particularly surrounding pipeline construction.

When a province has done so much to pay for federal programs and provincial government spending, more reciprocity than $248 million is in order.  Perhaps that explains why, last December, Alberta was able to get the Premiers of every province to support a request that Minister Morneau retroactively eliminate an obscure per-person cap on stabilization payments.  This change would entitle Alberta to a $2.4 billion payment.

Thus far the federal government has only said it is open to considering reforms. Given the program’s obvious failure, in this case, reforms are manifestly overdue.

While promptly delivering on the unanimous request by the Premiers would be welcome, in the analysis presented at fairnessalberta.ca we show that reverting to the original formula and increasing the payment to $7 billion for 2015-16 and 2016-17 is sensible and fair.

In 1967 the Fiscal Stabilization Program established a formula wherein provinces were compensated for revenue drops beyond 5 percent. There were a few adjustments to the formula through the 70s-90s, the most significant of which was in 1987 when a cap was set at $60 per capita.  Economist Trevor Tombe helpfully outlines this history in a February article and notes that there was little debate or explanation as to why it was frozen at this per capita level.

To put that $60 per capita cap in perspective, Albertans have been contributing $3,500-$6,500 per person — annually — to the federal government over the last decade.

Given these enormous net transfers (fully detailed at www.fairnessalberta.ca), Albertans have funded countless federal programs: this should include a robust fiscal stabilization program that can give Alberta real help in a time of need.

Fairness Alberta believes the federal government should do better than the $2.4-billion retroactive payment all premiers have agreed to.  A payment of $7 billion in accordance with the original formula would come much closer to achieving fairness for Alberta.