Eisen and Lafleur: What would Canada’s finances look like without Alberta?
During a speech on Canada Day, Prime Minister Trudeau accidentally caused a stir by forgetting to mention Alberta when listing all of Canada’s provinces and territories.
It was surely an oversight rather than an intentional slight, and the prime minister immediately apologized. Nevertheless, his slip provokes an interesting thought experiment: what would Canada’s economy and public finances look like without Alberta? The answer is not a pretty picture.
Up until the recent downturn in energy prices and subsequent recession in the province, Alberta contributed disproportionately to economic growth in Canada. Between 2004 and 2014, inflation-adjusted annual economic growth in Alberta averaged 3.4 per cent — more than twice the rate of growth in the rest of the country (1.6 per cent) during the same period. Without Alberta’s strong performance, Canada’s overall economic growth rate would have been much weaker than it was.
To look at another economic metric, consider that Alberta’s provincial economy created more jobs than any other jurisdiction in Canada between 2004 and 2014, despite the fact that Ontario and Quebec have vastly larger populations.
The job-creation machine in Alberta benefited people from all different parts of the country, many of whom moved to Alberta to seize economic opportunities and make a better life for themselves. In fact, approximately 270,000 more people moved to Alberta from the rest of the country than moved from Alberta to somewhere else in Canada over this 10-year period. Providing a destination where people could go and improve their families’ economic circumstances is another way Alberta’s strong economy benefited the rest of Canada in recent years.
As important as any of these factors, however, is Alberta’s outsized contribution to the health of Canada’s public finances. Thanks to high incomes, a youthful population, and the fact the province does not receive equalization payments, Albertans send much more money to the federal government in taxes and other forms of revenue than they receive back in transfer payments and services.
Even during the recent recession, this gap remained large. In 2015, Albertans sent, on average, approximately $5,000 more to Ottawa then they received back in federal transfers and services. Over the years, this large positive net contribution has added up to truly staggering sums. Between 2007 and 2015, Albertans sent $221.4 billion more to Ottawa than the province received back.
It’s therefore difficult to overstate how important Alberta’s contribution has been to federal finances in recent years. If Alberta’s net contribution per person were aligned with the Canadian average, the federal government would never have come close to balancing its budget at any point since the 2008-09 recession, and the deficit today would be more than $20 billion larger than it actually is.
Given the importance of a strong Alberta for a strong Canada, Canadians coast to coast should be concerned that the provincial government is undermining many of the policies that helped make Alberta an economic powerhouse. Debt-free public finances and strongly competitive taxes helped fuel economic growth in Alberta for many years. Unfortunately, provincial policy choices are quickly undermining those advantages.
Clearly, it’s in the best interest of all Canadians for Alberta to get back on its proverbial economic feet. Although energy prices certainly matter, Alberta can help its own cause by restoring a fiscally sound, pro-growth policy framework. Given the importance of a strong Alberta to the economic health of our country, that’s a goal all Canadians should support.