Alberta wants equalization reforms as Ottawa aims to lock in formula until 2029

Alberta's United Conservative Party government released a position paper Friday calling for a series of reforms to the equalization formula, arguing that the program in its current form hurts wealthy provinces and disincentivizes growth in receiving ones.

Equalization is a federal program that transfers payments from wealthier provinces to lower-income provinces so as to ensure comparable services across the country. It is funded by federal taxes paid by all Canadians.

Earlier this week, the federal Liberal government indicated its plans to lock in the equalization formula for payments to provinces until 2029 in an omnibus budget motion.

Among the recommendations in the Alberta paper is a recommendation that Canada change the way it measures how provinces raise revenue. It's what Trevor Tombe, a professor of economics at the University of Calgary, referred to as the paper's "core recommendation."

It would involve a move from the current formula, based on a province's "fiscal capacity," to one based on the measure of a province's underlying economic strength.

"It's something that I think deserves merit in the conversation and could potentially improve the formula in several important ways," Tombe said, adding such an approach has a long history, tracing back to the 1950s.

However, the approach would also come with trade-offs, Tombe said. For example, British Columbia's ability to raise revenue is larger than its economy would suggest because it has a unusually strong property tax base, which is currently measured in the formula.

"So there are trade-offs. A macro one is simpler, but wouldn't as precisely measure a province's actual ability to raise revenues," he said. "So reasonable people can differ on on this proposal, but it's certainly an interesting one."

Tombe said beyond seeking to add a macro formula to equalization, the Alberta government is also seeking to dramatically reduce the scale of the program itself. He said that would be a non-starter for any federal government, regardless of party.

In announcing the government's position paper Friday, Alberta Premier Danielle Smith did not hold a press conference, instead releasing a video, calling equalization an unfair "gravy train."

"It's past time we end it," she said.

Ottawa's current plans to lock in the current formula until 2029 harkens back to a series of events in 2018, when it similarly passed a 584-page budget implementation bill to extend the formula until 2024.

It drew criticism from provincial officials in Alberta and Saskatchewan, who said they were caught off-guard.

At that point, Joe Ceci, Alberta's finance minister for the then-governing NDP, told reporters he had been communicating his concerns with the program to the federal government for months.