Alberta Premier Danielle Smith has called for a complete overhaul of the equalization and federal transfer scheme.
She said, in a post to X on Tuesday, that the current system is broken and holds Alberta back while encouraging “dysfunctional policies that stifle growth in other provinces.”
Smith attached a photo to her post from a Fraser Institute study released on Tuesday, showing that Alberta’s net contribution to federal finances was $244.6 billion between 2007 and 2022, more than five times that of the province in second place, British Columbia, at $46.9 billion.
The study highlighted various other measures where Alberta punched above its weight class. The data used were primarily from 2022, the most recently available.
Alberta’s real GDP grew by 5% in 2022, accounting for 17.9% of the country’s real GDP growth, despite only being home to 11.6% of the population. Without Alberta, the rest of the country saw its real GDP grow by 3.9%.
Alberta also saw the most net provincial migration in 2022, with 56,245 Canadians relocating to Alberta, more than six times more than the second province, Nova Scotia at 8,526 Canadians. The province with the most outward interprovincial migration was Ontario, which saw 41,929 residents leave for other provinces.
The first quarter of 2024 marked the 11th straight quarter where Alberta saw net gains through interprovincial migration, with 12,500 more people coming to the province from others than leaving. In 2024’s first three months, Alberta saw a net influx of 12,482 residents through interprovincial migration.
Alberta also led the country in private-sector employment growth at 7.8%. The rest of the country, sans Alberta, saw employment in the private sector grow 4.5%.
The study concluded that if Alberta were an “average contributor” rather than a large net contributor, the federal government would have had a fiscal shortfall of $16.9 billion in 2022. To compensate for the loss, the federal GST rate would have to increase from 5.0% to 7.2%.
Various premiers discussed equalization payments and whether the formula should be changed at the 2024 Council of the Federation in Halifax, a biannual meeting held in July.
Québec Premier François Legault highlighted that his province needed to continue receiving equalization payments to be able to offer equivalent services but said that his long-term goal was to create wealth so his province no longer needed to receive any payments.
“It is a complex formula to apply. There are 34 criteria that are used, but the underlying principle, the most important principle, is to have fiscal capacity that is equivalent once you take into account these equalization payments,” said Legault.
While Alberta had the largest net contribution to federal finances between 2007 and 2022 of $244.6 billion, Quebec had the least — seeing a negative contribution of $327.7 billion.
Alberta held a referendum in 2021, where 61.7% of voters opted to remove equalization from Canada’s constitution.
“Last year, I put forward a paper about how we might be able to modify it to better match what it was supposed to be roughly equivalent tax rates delivering roughly equivalent programs rather than overcompensating some provinces and under-reporting certain sources of revenue,” said Smith.
Smith’s paper suggested maintaining the current equalization system for the first four years, but redistributing excess GDP to all provinces on a per capita basis. By the fifth year, she suggested implementing a macro-based approach by using nominal GDP per capita to measure disparities. Between the sixth and tenth years, the new system would bring the capacity provinces are equalized from 100% to 95%.
British Columbia joined Newfoundland and Labrador’s legal challenge against the equalization formula in July.
“I don’t know necessarily that I want the Supreme Court deciding this solution,” Smith told Canada’s other premiers. “I think it’s up to us at this table to come together with a new formula that will work for all of us, and hopefully be able to have a partner in the federal government who will modify it.”
Smith added that she doesn’t think those initially designing the formula ever thought Newfoundland and Labrador would be net payers, with large provinces being net recipients.
Saskatchewan Premier Scott Moe told the other premiers that his province also plans to intervene in the court case.
