Alberta’s “Fair Deal” Report

Whether you like Premier Jason Kenney or not, one must agree he has been a busy Premier.  A Premier who sets out a playbook and is following this platform. Whether you like his policy platform or not, he is a man on a mission to transform Alberta seemingly from the ground up. Reading daily news releases from the Government of Alberta, this government likes to claim “Promise Kept!”

The Fair Deal page is a trove of information about the Government’s responses to the report (finalized before the Pandemic took hold) including recommendations underway, recommendations agreed to in principle, recommendations with support for further analysis, and recommendations that require modification. If anything, Premier Kenney is well organized and marching towards a hoped goal of economic growth unfettered by federal interference- in the words of a GOA website header- “fair deal in the Canadian federation and advance our vital economic interests”.

Background

In his speech to the Manning Centre’s What’s Next? Conference on 9 November,  Kenney announced a process to consult Albertans about their perceptions and judgments on, in effect, Justin Trudeau and the federal government.  This speech followed the re-election of a Trudeau fils minority government tilted to the left.  Not an outcome the Kenney government was looking forward to.

The questions contained in the mandate letter restricted the Panel’s flexibility in understanding the complex historical relationship between Alberta and members in the federation. Issues to be addressed:

1. Establishing a provincial revenue agency to collect provincial taxes directly by ending the Canada-Alberta Tax Collection Agreement, while joining Quebec in seeking an agreement to collect federal taxes within the province
2. Creating an Alberta Pension Plan by withdrawing from the Canada Pension Plan
3. Establishing a provincial police force by ending the Alberta Police Service Agreement with the Government of Canada
4. Emulating Quebec’s practice of playing a larger role in international relations, in part by seeking Alberta representation in treaty negotiations that effect Alberta’s interests
5. Emulating Quebec’s legal requirement that public bodies, including municipalities and school boards, obtain the approval of the provincial government before they can enter into agreements with the federal government
6. Using the existing provincial power to appoint the Chief Firearms Office for Alberta
7. Opting out of federal cost share programs with full compensation, such as the federal government’s proposed pharmacare program
8. Seeking an exchange of tax points for federal cash transfers under the Canada Health and Social Transfers
9. Establishing a formalized provincial constitution

While members of the panel endeavoured to get a perspective through town halls, organizations such as the Alberta Institute and Project Confederation urged citizens, receptive to ideas of greater autonomy, to get out to town halls and to give to their cause.  It would not be unfair to say participation of those sympathetic to Wexit clearly outnumbered federalist sympathies.

Unsurprisingly, the report gave the Premier and his government most of what he wanted. He has already committed to an equalization referendum, further study of an Alberta Pension Plan, more control over immigration “for the economic benefit of Alberta,” and opting out of new federal cost-shared programs, subject to Alberta receiving full compensation (e.g. federal pharmacare plans).

Below we explore nine themes in the report and conclude with additional comments.

1. Provincial revenue agency. At present, Alberta collects corporate income tax revenue directly.  This enterprise employs about 400 staff in Alberta Treasury Board and Finance, mainly auditors and administrative staff. The panel recommended against taking this step mainly on the basis of resistance from businesses. In addition, the panel argued that under a dual system, individuals would have to file two returns. Noting that administrative efficiencies could be achieved if all Alberta taxpayers (corporate and individual) paid taxes to one entity, the Panel suggested Alberta support Quebec’s efforts to collect both federal and provincial personal income taxes.  This idea has been around for a long time but has never really taken root. Practically and politically speaking, both business and individual taxpayers would soon find filing more forms to be onerous and would become unhappy voters.  In addition, increasing bureaucracy to collect taxes and all that means in terms of audit, enforcement, could backfire on the UCP in a province where tax is seen as a four-letter word.
2. Alberta Pension Plan (APP). The Panel boldly recommended withdrawal from the Canada Pension Plan The main argument, based on Fraser Institute analysis, promises a lower rate given Alberta’s lower average and higher incomes. While Alberta has arguably overpaid because premium rates are set nationally, the current “$3 billion annual subsidy” is not forever. A great deal can change over the life of pension plans which are a form of collective risk sharing. Is Alberta going to remain an about-average-income province for much longer?  What happens if de-population occurs as the fossil fuel industry  recedes? Indeed, on page 44 of the report, the authors lament the recruitment of Alberta’s “best and brightest.”  The report did not acknowledge the negative aspects of such a recommendation, including the fact that investment losses now are shared by all Canadians. An APP, managed by AIMCo, whose recent performance has come under withering criticism, would not be able to spread investment losses over 25 million participants.                                                            A 2000 study A Separate Pension Plan for Alberta, offers a more in-depth and nuanced view of this issue. The book came after major reforms to the CPP were implemented with new governance structures and higher premiums established. In the Afterword, Bev Dahlby summarizes key learnings: 1) a provincial plan can be integral to province building and provides flexibility for provincial income support programs; 2) CPP is not an inter-regional system of distribution but rather is an intergenerational transfer system; 3) disentanglement would create additional uncertainty and costs; 4) APP would provide more flexibility to respond to demographic and economic changes; and 5) an APP pay-as-you-go system would not substantially reduce contributions.  However, a final concern is the emulation of the Caisse de Depot et Placement model of Quebec. While the Caisse operates independently of the Quebec government, it takes into account the economic development of Quebec which means protecting local jobs. Given AIMCo’s mismanagement of the Alberta Growth Mandate file which has heavily invested in oil and gas ventures, this uncritical and unbalanced recommendation is worrisome.
3. Alberta Provincial Police force. The Panel recommended the measure based on a number of claims from the public: that the RCMP had “become too bureaucratic;” it would “send a message to Ottawa that Alberta is in charge of its destiny.” Another more bizarre reason for local police is it would “allow greater insights into where and how criminal elements operate in each community” which would “allow for more effective policing.”                              Certainly, the level of anxiety in smaller communities where criminals are known is palpable and is based on local knowledge.  But surely the existence of these individuals would be something that the local RCMP are capable of learning. The key drawback in this proposal is again the cost. It could be argued that, given the RCMP’s systemic problems in dealing with racism and gender discrimination, an Alberta Police Force would be no worse than the status quo. But whether the additional costs of beginning from scratch and then hiring many of the former RCMP staff back who want to live in the community, would be much better is debatable.  We do know the initial years will be more costly, especially to cash-strapped municipalities. Interestingly, the Report notes Alberta had its own force until 1932.
4. Playing a larger role in international relations. This is a long-standing issue going back to Peter Lougheed’s time. While the federal government has exclusive jurisdiction in signing international treaties, implementation is shared jurisdiction depending on where the matter falls under the Constitution Act. The Panel recommended that Alberta participate in both the negotiation and implementation of international agreements “affecting Alberta’s interests.”                   Of particular concern to the farming community was the carbon offset program and the “frustration that Canadian energy-producing provinces, including British Columbia, Alberta and Saskatchewan, are being hampered in their ability to negotiate carbon offsets.” There is little to object to this suggestion- if Quebec can make its own arrangements with the federal government then, surely, Alberta should be given a seat at the table. Alberta has already increased its presence in staffing its international offices. Whether the appointment choices are appropriate and are advertised is another quite different matter.

5. Oversight on federal agreements with provincial agencies and municipal governments. The panel recommended no change to the status quo. Already the Alberta Minister of Intergovernmental Relations must sign any intergovernmental agreement with Canada, another provincial/territorial government, or a foreign government. In other words, if the GOA does not want federal dollars, they have an ability to refuse to sign the agreement, leaving federal dollars on the table but leaving relations with the city or agency fraught. The Panel also observed: “with Alberta facing so many daunting challenges in addition to securing a fairer deal from Ottawa, “it is imperative that Alberta’s provincial and municipal governments “pull together” like they have never pulled together before.”
6. Chief Firearms Office for Alberta. The Panel also agreed with this suggestion noting “at the very least, having an Alberta CFO at the table would give Albertans a voice as decisions about firearms in Canada are made.” This matter, insignificant in urban Alberta, plays big time in rural Alberta. The panel also observed however that even with a provincial police force, the RCMP could still enforce federal law but this would be a costly way to provide federal law enforcement.”
7. Opting out of federal cost share programs with full compensation. This, in part, is incited by concerns about “expensive” federal programs in exclusive provincial jurisdiction- such as universal pharmacare. This issue, expressed at some townhalls, arose largely out of the recent federal campaign promises where politicians traded bribes in areas, such as pharmacare, (conveniently outside the jurisdiction of the federal government).                                                  In this recommendation, the following, unattributed quote is inserted:  “Be careful of national programs (in housing, early learning, childcare). The way they’re structured, you will always lose.”  The objection to Ottawa’s spending power seems a bit rich though as all provincial (and municipal) governments are now looking to the federal government for support in a myriad of areas, including bail-outs to the private sector and individuals and central bank purchases of provincial debt. This recommendation is also consistent with the notion of resisting federal intrusions into health and social programming.
8. Exchange of tax points for federal cash transfers under the Canada Health and Social Transfers. The simple formulation is the federal government gives up tax room by reducing tax rates charged to Albertans while the provincial government occupies the abandoned tax room of the federal government. There are many factors which go into determining whether this would be a good idea or not. While historical tax bases are known with certainty, future tax bases are not known. However, spending tends to increase with inflation and population growth and the timing of the tax switch, which might appear attractive at the present time, may not be a wise move over the long term. The Panel acknowledged “that a tax point transfer would make Alberta more reliant on the province’s own revenue sources, and we are currently experiencing extreme volatility in the price of Canadian hydrocarbons.                                              In the current situation, there is no guarantee that the projected growth in Alberta’s tax base would outperform the present and projected value of federal government cash transfers to Alberta for CHT and CST. Alberta’s demographic advantages may also change. Another consideration is that a tax point transfer would be factored into the equalization formula and that adjustment would further disadvantage Alberta and its taxpayers.” This is one of the more sounder comments on the province’s fiscal situation which needs to be recognized more widely. 
9. Provincial constitution. This notion was included in the recommendation to affirm “in law and government policy, Alberta’s cultural, economic and political uniqueness.”  The Panel relayed “feelings” expressed by Albertans about the “manner in which they are often perceived and treated by the federal government and other Canadians. These included feelings of being misinterpreted, misunderstood and alienated to the point that Albertans question their own identity and feel politically “homeless” in their own country.”                                                                  This final recommendation summarizes feelings of some Albertans. Whether these feelings of being misunderstood are good grounds for stable and sound public policies going forward is another matter. Much of the misunderstanding about equalization has been the constant misrepresentation of the equalization program to Albertans by their political leaders. Indeed, the Report contributes to this misunderstanding by claiming on page 17 that “Alberta has made the following contributions to Equalization.” Alberta does not make any payments to equalization. Rather, Alberta taxpayers, who earn higher annual taxable income pay higher taxes to the federal government because they earn more income than other Canadians.                                                        In Andrew Coyne’s 27 June essay, he describes the parallels between Quebec’s nationalism and Alberta’s current dalliance with separatism.  Coyne reports Quebec’s standard of living was similar to Alberta’s in the 1970s but the uncertainty induced by separatism produced a flight of capital and high paying jobs to English Canada. While, much of the disparity in income can be attributed to the quadrupling of oil and natural gas prices over the past several decades, separation into smaller political units, does little to generate enthusiasm for international capital and the creation of jobs.

What then shall we make of this exercise begun before the earth-shaking transformation of global economies via the pandemic and sword of climate heating which hangs over Alberta’s fragile oil and gas economy. 

The Premier plans to charge forward with an equalization referendum next fall.  What is the point though? Alberta, like other provinces, is not in a position to dictate anything to Ottawa right now given Alberta’s massive deficit, shrinking economy, and growing debt. It is not like a positive result on the equalization question will mean Alberta is “holding a knife” to the rest of Canada’s throat. Best it be left alone- Ottawa and other provinces will not have a “moral obligation” to negotiate.

Positives

What then are some of the more reasonable, positive policy suggestions from this report? First, it is ludicrous in this day and age that federal Court of Appeal and Supreme Court justices have to establish a residence within 40 kilometres of Ottawa-Gatineau.

The per capita fiscal stabilization cap of $60 per capita should removed. Why Ottawa hasn’t made this change by now is unfathomable.

Alberta and other provinces should have more seats in the federal Parliament. While these three measures will not satisfy the call of organizations like Project Confederation or the Alberta Institute, they are obvious and should not be contentious.

Arguments for more federal jobs in Alberta however ignore the vast presence of the National Energy Board in Calgary and Western Diversification in Edmonton. However, there is merit in moving Parks Canada into western Canada where most of the national parks are located. However, ideas about “market” mechanisms for environmental protection are old tropes that mean delay in addressing the climate crisis while armies of lawyers and economists design the “perfect system.”

The elimination of interprovincial barriers to trade is also a long-standing request of the business community, but the courts have vitiated that effort.  The curious decision in the Comeau beer case, which prevented transport of small quantities of private beer across the New Brunswick-Quebec border, is unfortunate.

There are certain aspects of Canadian federalism that don’t work for Alberta.  However, for the most part, the system works relatively well and is working during this current crisis. The origin of Alberta’s complaints is really about our system of free enterprise at public expense- railways, banks, grain dealers, oligopolistic telecommunications firms which treat certain underpopulated regions less fairly because there are fewer people to complain. Alberta’s decision to delegate its ownership of its resource wealth to the private sector while leaving the liabilities to taxpayers is really the problem.