Even in a weakened state, Alberta still props up federal finances

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Appeared in the Edmonton Journal, May 21, 2019
Even in a weakened state, Alberta still props up federal finances

Albertans have endured more than their share of economic pain over the past several years. The province is still emerging from one of the worst recessions in its history and the recovery has been tepid and uneven, leaving many people behind.

And yet, despite Alberta’s economic challenges, one important thing hasn’t changed—Albertans still make a hugely disproportionate contribution to Canada’s financial health. Without that contribution, the federal government’s finances would be in even worse shape than they are today.

Just how much do Albertans contribute? In 2017, they paid more than $20 billion more to Ottawa in federal taxes than they received in federal services and transfers. That’s by far the largest contribution in Canada. For context, second-place Ontario paid around $10 billion than it received, despite having approximately three times as many residents as Alberta.

A quick thought experiment underscores the importance of Alberta’s contributions. In 2017/18, the federal government ran a deficit of roughly $19 billion. If you removed Alberta’s net contribution from the equation, the deficit would have eclipsed $39 billion. In other words, without help from Alberta, Ottawa’s deficit would have been twice as big. And this isn’t unusual. In recent years, Alberta’s net contribution has been as large or even larger—again, despite the economic pain Albertans have experienced.

So why does Alberta contribute so much to Canada’s economic wellbeing? Because it remains, generally speaking, a high-income province for workers who obviously pay federal income taxes. And the province does not receive equalization payments from Ottawa and has fewer seniors drawing Old Age Security and other benefits.

These facts should make it crystal clear that a prosperous Alberta is good for the whole country. All that tax revenue from Albertans help funds services all Canadians enjoy, and help prevent the federal deficit and federal debt (and subsequent debt interest payments, paid for by taxpayers) from being even bigger. Unfortunately, however, despite its outsized contributions, the golden goose isn’t laying as many golden eggs as in past years.

Yes, in 2017/18 Alberta contributed more than $20 billion (on net) to the federal government. But as recently as 2014/15, that number was more than $27 billion so there’s been a decline of approximately $7 billion in just a few years. This is primarily due to the economic struggles in Alberta that have hurt income tax receipts from that province.

This is a substantial decline in a short period of time, and if Alberta continues to struggle, Alberta’s large contributions to Canada could continue to dwindle. What could this mean over time? In a recent study we found that without Alberta’s net contribution (assuming all else equal) the federal government would have accrued an additional $92 billion in debt from 2014 to 2017. If Alberta’s economy continues to struggle, Canada may have to deal with similar big numbers in the future.

Simply put, Canada can’t reach its full economic potential without a strong Alberta. Despite this reality, some policymakers across the country seemingly remain determined to impede Alberta’s recovery obstructing the development of badly needed energy infrastructure, including pipelines, that can help the province thrive. As we’ve seen lately, when policymakers in Ottawa, British Columbia and elsewhere engage in such behaviour, they don’t just hurt Albertans, they hurt all Canadians.

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