One of the key demands Alberta Premier Danielle Smith made of Ottawa in her much-publicized post-federal-election speech was an overhaul of the equalization program, which she has described as unfair.
Smith expressed frustration in the May 5 speech, contending that Alberta is forced to prop up the country’s largest provinces under the existing framework while receiving nothing in return. She said Alberta should receive the same per capita federal transfers under the equalization payment program as Canada’s other large provinces.
“We have no issue with Alberta continuing to subsidize smaller provinces with their needs, but there is no excuse for such large and powerful economies like Ontario, Quebec, B.C. or Alberta to be subsidizing one another,” Smith said. “That was never the intent of equalization, and it needs to end.”
Part of Smith’s push for change is her appointment of a special negotiating team to work with the federal government on a number of the province’s demands, including revisions to the equalization payment program.
What Is the Equalization Program?
Equalization is the federal government’s transfer program for addressing fiscal disparities among provinces.
The program was created in 1957 and was incorporated into the Constitution in 1982 to allocate unconditional payments from Ottawa to provinces with lower fiscal capacity. It is designed to ensure all provinces have the economic capability to offer similar programs and services to their citizens while also maintaining comparable taxation levels. The territories have a separate transfer program that is also administered by the federal government.
Provincial governments do not contribute financially to the equalization program and provinces are not involved in the transfer unless they qualify for a payment, the government says.
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Equalization payments in Canada are determined by assessing a province’s revenue-generating capacity relative to the national average. Central to the calculation is the evaluation of each province’s fiscal capacity, which is its potential revenue based on the national average tax rates.
Province’s with fiscal capacity below the national average are eligible for equalization payments. All provinces have received equalization payments at one point or another since the program’s implementation nearly 70 years ago.
Prince Edward Island, New Brunswick, Nova Scotia, Quebec, and Manitoba have received payments every year since 1957, while Ontario and Newfoundland and Labrador have received payments intermittently, according to government statistics. Quebec, historically, is the largest beneficiary of the payments.
Saskatchewan, Alberta, and British Columbia have received payments in the past, but none of the three provinces have been recipients of equalization payments during the past 15 years.
Overall equalization payments for 2024-2025 are set at $25.253 billion, equalling 4.7 percent of total federal expenditures. Manitoba, Ontario, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador will receive payments during this period.
Quebec will receive $13.3 billion, the largest share of the more than $25 billion fund, while P.E.I. is handed the most per capita. The island province will be given $3,718 per person compared to Quebec, which will receive $1,545.
New Brunswick will be given $3,629 per capita, followed by Nova Scotia at $3,252, and Manitoba at $3,109. Rounding out the bottom provinces are Newfoundland and Ontario, which will receive $412 and $38 per person respectively.
The payments come with no conditions, allowing the provinces to spend the money as they see fit.
Equalization Referendum
Equalization payments were a matter of concern for past Alberta administrations as well.
A referendum was held in the province in October of 2021 to determine two issues: if equalization payments should be eliminated from the Constitution and whether the province should observe daylight saving time year-round.
The referendum was an election promise of United Conservative Party Leader Jason Kenney leading up to the 2019 provincial vote when he was elected premier. The plan for a referendum emerged in response to the province’s long-standing grievance over the redistribution of wealth to other provinces under the equalization scheme, with contributions from energy-rich Alberta making up a sizeable portion of the payments to other provinces.
A 2021 referendum asked residents if “Section 36(2) of the Constitution Act, 1982 — Parliament and the Government of Canada’s commitment to the principle of making equalization payments — be removed from the Constitution.”
Just shy of 62 percent voted in favour of the question, which Kenney said gave Alberta’s government “a renewed mandate to pursue a fair deal for all Albertans.”
Kenney said that while the referendum vote did not give Alberta the power to unilaterally remove the principle from the Constitution, it did give his government more leverage to get other provinces on board to remove it—a bid that has been unsuccessful so far.
Smith’s Take on Equalization
Four years later, equalization continues to be a bone of contention between Alberta and Ottawa. In her May 5 speech, Smith said Alberta has “contributed hundreds of billions of dollars more to the federal treasury for use in other parts of the country than we’ll ever receive back in benefits.”
She added that she is hoping her negotiating team can make headway on the topic with the federal government.
Changing the program to benefit all of the provinces would be advantageous for the entire country, Smith said.
“If these points can be agreed to by the federal government, I am convinced it will not only make Alberta and Canada an infinitely stronger and more prosperous country, but will eliminate the doubts a growing number of Albertans feel about the future of Alberta in Canada,” she said.
The relationship between Alberta and the federal government has been frosty for the better part of a decade with the province and Ottawa disagreeing on economic and environmental policies from pipelines to carbon pricing.
To that end, Smith has announced plans for an “Alberta Next” panel composed of judicial, academic, and economic experts. The group will hold town hall meetings to gather ideas about the province’s future and how to “better protect Alberta from any current or future hostile policies of the federal government.”
She said some of the more popular ideas from the panel would be included in a provincial referendum next year.
