Hyndman Papers

Alberta’s Contribution to Confederation circa 1980

In August 1980, Alberta intergovernmental relations were heating up as the earlier Mellon memo attested to. The National Energy Program was about two months away from release, a release that would fuel the flames of western separatism. Concerns were festering in Alberta about the cost-benefits of remaining in Confederation.

In the Briefing Note below, authored by Treasury officials in the Fiscal Policy and Economic Analysis Division documented the inflows and outflows to and from the federal Treasury over a 16-year period. The Table below summarizes two tables from the paper- the cumulative totals for provinces and a combined B.C., Yukon, and North West Territories and the discounted cumulative totals. The information was derived from Statistics Canada and “experimental.”

Alberta’s Financial contribution to Confederation

This note provides an analysis of the fiscal operations of the federal government in each province since 1962. The data source is the Provincial Economic Accounts, 1962-1977, produced by Statistics Canada as experimental data. The data represents an allocation of federal revenue and expenditure to each province. In a 1977 budget paper, Ontario used essentially the same approach to illustrate its major financial contribution to Confederation. In many cases, the allocation is arbitrary. For example, should debt-servicing costs be allocated on an equal per capita basis or on the basis of where the deficits were incurred? Statistics Canada chose the former approach.

This method, however, does not take into account the activities of federal Crown corporations, federal expenditure abroad and in the armed forces, neither does it include the financial offsets and the implicit subsidies like the sale of Alberta crude oil below the world price level. It is, at best, a crude guide as to which provinces have been contributors and which have been beneficiaries.

Table1, attached, shows the per capita financial contribution by province between 1962 and 1977. Among the provinces, only Ontario contributed surpluses in each of the 16 years for which data are available. The Yukon, Northwest Territories and British Columbia combined were in surplus 13 out of the 16 years, while Alberta and Quebec each contributed surpluses 11 out of the 16 years. In the other provinces, the federal government spent more than it took in each of the 16 years.

Cumulatively, only three provinces contributed net financial flows to Confederation. Alberta ranks first with a net contribution of $3,995 followed by Ontario, $2,769, and the Yukon, Northwest Territories and B.C. combined, $833. The province that benefited the most was Prince Edward Island which received $16,256 per person over the 16-year period.

Table 2 illustrates the net financial contribution by province, discounted to reflect the relative time value of money. The rate of discount used was the average annual yield of long-term Canada bonds. This method takes into account the fact that a dollar received in 1962 is worth more in 1977 than a dollar received in 1977. 

Using the discount method reveals that Quebec would join the three other provinces as a net financial contributor to Confederation. The relative position of Alberta would not change. Its discounted per capita contribution of $4,588 ranks first followed by Ontario with $4,365 per capita.

The attached graph compares the per capita contribution of Ontario and Alberta over the 16-year period. Ontario’s contribution which has been positive in each of the 16 years reached its peak of $333 per capita in 1974 and as since declined. Ontario’s net contribution since 1977 has likely been in balance or perhaps slipped into the negative. This point can be deduced from the fact that Ontario currently qualifies for equalization payments; its exclusion is a result of the federal qualification criteria based solely on per capita personal income.

Prior to 1967, Alberta was in a deficit position. Its contribution has since then increased significantly such that by 1974, the per capita Alberta contribution was $1,087, the highest ever contributed by any province. The significant increase in the Alberta contribution stems largely with the federal export tax on oil. This is reflected in the 1974 figures.  Though the graph indicates a fall-off in Alberta’s contribution since 1975, one would expect that beyond 1977, the trend has been upwards. The increase in world oil prices since 1977, relative to the domestic oil price would indicate an increasing federal take from Alberta tempered, however, by the reduction in the volume of oil exported.