Equalization 101: Economist breaks down program ahead of Alberta's opinion barometer referendum

Albertans will be asked to weigh in on the future of Canada's equalization program when they go to the polls in municipal elections across the province next week, but the outcome is expected to lead to little change.

What is equalization and what is the purpose of posing a question on its removal if it's outside of provincial jurisdiction?

University of Calgary economist Trevor Tombe, in an interview with CTV Morning Live Calgary, says the federal equalization program was created to ensure all provincial governments are capable of providing similar levels of service, including health care and education, without having to raise taxation rates.

"In a nutshell, it basically means the federal government provides some additional support to governments of poorer provinces to ensure that comparable public services to all Canadians can be delivered from coast to coast," explained Tombe. "This is calculated by asking what a government's ability to raise revenue is. So we ask 'If you had normal tax rates, if you had average tax rates, how many dollars would that raise for the provincial government?' And any province who would raise a below average amount is topped up by the federal government to the national average levels so that everything is roughly comparable for those that have below average abilities to raise revenue."

Does Alberta get the short end of the stick?

"Well the short answer is no, in the sense that equalization is a program to help lower-income provinces raise revenue to deliver public services," said Tombe. "Alberta is, most of the time, really lucky to have a really strong ability to raise revenue. Our economy outperforms others, our average incomes are higher, and so the taxes here tend to raise a lot more than taxes elsewhere and so we don't qualify."

Tombe adds that, even in recessions and times of significant unemployment, Alberta fares much better than other provinces.

"The recession that we went through in 2015 and 2016, it's really hard to overstate how big that was," explained Tombe. "Our economy contracted by nearly 20 per cent in terms of the amount of income that's generated here, and the recovery afterward has been disappointingly slow even prior to COVID hitting. Now the reason why Alberta didn't qualify for payments during those challenging years is because, despite the recession, Alberta's economy still outperformed every other one in Canada.

"We fell from the top spot to the top spot but the gap between us and the rest was smaller. Now what matters for the formula is just if you are below average. And so despite the large recession that we went through, Alberta's economy did remain above the national average and so we never qualified even after the recession."

The referendum question, one of several that will appear on the ballots during the Oct. 18 elections, will ask 'Should section 36(2) of the Constitution Act, 1982 — Parliament and the government of Canada's commitment to the principle of making equalization payments — be removed from the Constitution?'

According to Tombe, the results of the vote "really won't have any material impact on the formula itself."

"A lot of legal scholars note that it won't have any impact on the Constitution either because no single province can amend the Constitution, this would be something that requires the feds and many other provinces (to) agree. So the referendum is largely a political tool for the provincial government. They hope it raises or elevate some of the concerns that they have, but what it means at the end of the day? That's really going to be tough to predict because it's entirely political it's not really legal or economic in its significance."

In addition to the equalization question, voters in Alberta will have their say on the province's senate nominee recommendations and a proposed move to permanent daylight saving time. Calgarians will also be asked on whether fluoride should be reintroduced into the city's water supply.