Alberta could pull policy levers that would spread the pain

In response to the federal election results, Alberta Premier Jason Kenney announced his government will create a panel to look at ideas for reforming Alberta's role within Canada. He also put the federal government on notice that his government will give it two years to make progress on the Trans Mountain pipeline expansion and redraft bills such as C-69, which created more impediments and uncertainty for large infrastructure projects including pipelines.

While he didn’t state what the ramification of inaction would be, Premier Kenney was clearly expressing the frustration felt by many Albertans (and Saskatchewanians). After all, Alberta sends Ottawa more than $20 billion more in federal taxes than it receives in federal spending. Put simply, that’s $20 billion annually that Albertans provide to help keep taxes lower and fund public services in all provinces, including British Columbia and Quebec, who have blocked needed pipelines to transport Alberta’s resources to markets.

Too many well-meaning Canadians in Ontario and Quebec underestimate the level of frustration and growing anger in Western Canada generally and particularly in Alberta. Even more worrying, many act as if there’s little or nothing the province can do to assert itself against Ottawa. This is a misread of Albertans, and misunderstanding of the policy levers at their disposal.

For example, the status quo of the Canada Pension Plan (CPP) is completely dependent on Alberta’s continued participation. The province’s comparatively young workforce coupled with its higher-than-average earnings mean Alberta workers pay significantly more into the CPP than retirees in the province receive in benefits.

If Alberta withdrew, which is within its right (Quebec decided to run its own program when the CPP was created in 1966), the basic CPP rate (9.9 per cent) would have to increase to 10.6 per cent, resulting in up to $367 in additional contributions (in the form of payroll taxes) for workers outside Alberta. Meanwhile, Albertans would pay a reduced 5.85 per cent for a CPP-like program for the province. This is not to say such a change should be made but rather that decisionmakers in Ottawa should understand what Alberta can do and the consequences for the rest of the country.

Similarly, Alberta could push for reforms to equalization, including removing resource revenues from the program’s equation and eliminating a new rule the Harper government introduced in 2009—the fixed growth rate rule, which increases equalization payments to provinces such as Quebec even when “non-recipient” (i.e. paying) provinces such as Saskatchewan and Alberta are struggling. Such changes would reduce equalization payments to provinces such as Quebec and the Maritime provinces.

Alberta could also launch a constitutional challenge of federal spending power. As noted legal scholar Burton H. Kellock concluded in his essay Questioning the Legality of Equalization, the validity of federal spending power has never been fully debated or examined despite the fact that Ottawa raises revenues through federal taxes and uses it for areas of exclusive provincial responsibility (i.e. health care and education). Such a challenge, if successful, would impose major changes on federal/provincial fiscal relations.

Most importantly, however, Alberta should do everything in its power to make it the most attractive jurisdiction for entrepreneurship and investment in Canada and indeed North America. It must enact a more aggressive tax-cutting plan than is currently contemplated, including an integrated personal and business tax rate of six per cent coupled with eliminating the province’s capital gains tax.

These changes, coupled with regulatory reform, would re-establish the “Alberta Advantage” quickly and noticeably within North America, attracting entrepreneurs and investment again to the Wild Rose province.

Albertans are clearly frustrated and rightfully so. But let’s hope Prime Minister Trudeau truly means what he said to Albertans on election night, that “you are an essential part of our great country… Let us all work hard to bring our country together.” If not, the consequences for the rest of the country could be quite costly.