There was a lot more riding on the recent Alberta election than the fate of the province’s Progressive Conservative dynasty. While the outcome probably forestalled an early reckoning between the have and have-not provinces, it did highlight the worsening economic conflict between the increasingly powerful West and a weakening Eastern Canada that’s stagnating under a mountain of debt.
The primary source of friction is the West’s growing wealth from its rich natural resource base, at a time when the East is struggling to adjust to its shrinking manufacturing sector. Speaking recently in Quebec, Danielle Smith, leader of Alberta’s Wildrose party, spelled out the scale of the West’s contribution to the nation by noting the huge difference between what Ottawa takes out of Alberta in taxes and premiums and what it sends back as federal spending. She put the figure at $20 billion every year.
Smith then added up what the “under-appreciated” oil and gas sector contributes in taxes and royalties. In 2006 (the most recent census data she could access), the industry paid over $4 billion to the province for exploration and development, $15 billion in product royalties, $6 billion in federal and provincial corporate income tax and $1 billion in property tax. Layer on the tax generated from petroleum consumer products by way of federal and provincial excise tax and GST or HST, and the total government take is at least $50 billion a year, she concluded.
Little wonder, then, that there is some resentment in Western Canada about employment insurance and equalization programs that encourage unemployed workers to remain in the East even as the West suffers from a labour shortage. Many Albertans find it rich that Quebec—which provides families with subsidized daycare and offers university tuition at less than half the rate of other provinces—criticizes Ottawa for capping equalization payments in 2009 to the rate of the economy’s increase. Through equalization, those Quebec programs are being financed in no small part by Alberta taxpayers.
Those hoping for calm, political discourse on these issues should cheer the election of Alison Redford, who has been supportive of Alberta’s participation in the national economy. Redford’s style and approach will be more diplomatic than Smith’s, and she won’t start erecting firewalls around Alberta. That said, she is the premier and will have to defend the province’s interests. The PCs haven’t revealed their plans, but it’s possible we will see a contraction in the amount Alberta contributes to the federation, or an insistence that the province have a greater say in how entitlement funding is spent.
Meanwhile, Ontario and Quebec are not helping their relative positions by failing to address their debt and high taxes. April’s budget deal between Ontario Premier Dalton McGuinty and provincial NDP leader Andrea Horwath effectively pushes the tax rate on high income earners in Ontario to almost 50%. While McGuinty said this would be just a temporary measure until the deficit is beaten, Ontario taxpayers already have surtaxes on health care and debt dating from the last recession. The province’s residents have learned that once a new tax is layered on, it sticks.
Capital and labour have no loyalty to their province of residence, so investment—and income—will continue to leak westward if McGuinty and Quebec Premier Jean Charest don’t become more proactive. They have to realize that they’re in competition with a much more market-friendly West. In a federation that gives the provinces control over natural resources, Eastern Canada has to think strategically about how it addresses its growing wealth gap with its neighbours. Instead of being critical and coveting more equalization dollars, they need to constrain spending on entitlement programs that are no longer sustainable, and keep taxes low.
That will require some fundamental changes in thinking and approach. Albertans will welcome the change.