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Albertans want equalization payments removed from the constitution

October 29, 2021   by Canadian Energy Centre

In the recent equalization referendum in Alberta, nearly 62 percent of voters endorsed removing equalization from the constitution.

One constitutional scholar, Ted Morton, also a former Alberta finance minister, has argued that the province has the ability to force the issue, this via previous constitutional references. Others have argued that equalization has a weak constitutional status, which make reforms easier than often presumed.

Part of what drives unhappiness with equalization for some Albertans is the notion that a significant portion of federal tax revenues originate (in net terms) in traditional “have” provinces such as Alberta.

Alberta’s resource extraction is significant, and its revenues (as well as other economic activity and taxes) thus end up on a net basis in provinces such as Quebec via federal transfers. In Quebec though, resource extraction—at least oil and gas, is discouraged and will soon be banned. The fact that some Quebec politicians have called Alberta oil “dirty” also factors into the dissatisfaction.

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One of us has previously written a number of reports on equalization and transfer payments over the years, including suggested reforms, but here we will instead look at one overlooked “sliver” of contributions to federal finances: what the oil and natural gas extraction sector in Alberta has paid into federal coffers.

Using Statistics Canada data on revenues from Alberta and federal spending on the same, we found that between 2007 and 2019, Alberta’s total gross fiscal contributions to federal government finance totalled almost $561 billion. Subtract federal transfers to the Alberta government and to Albertans, as well as federal spending in Alberta, and the net transfer to the federal government from Alberta has been $272 billion.

The contribution of Alberta’s oil and gas sector to that $272 billion net figure was $53 billion over the same period, or about 19 percent of the net fiscal contribution “east” to the federal government.

We should note that this $53 billion figure does not include all oil and gas activity in Canada, only the oil and gas extraction sector in Alberta. It also includes only federal corporate tax revenues from Alberta’s oil and gas firms ($35.5 billion) and the federal personal income taxes of Albertans directly employed in the sector ($17.4 billion).

The figure thus excludes direct and indirect revenues from pipelines and other oil and gas economic activity. It also does not include federal taxes on production and taxes on products, such as GST, excise taxes, duties, import taxes, air transportation tax, gasoline and motive fuel taxes, and the like that the oil and gas extraction sector in Alberta paid over the period.

To reach the nearly $53 billion total, the contribution of the Alberta oil and gas extraction sector to federal finances has ranged from an annual high of $3.7 billion to a low $2.5 billion.

The figures also adds context for why many Albertans are often concerned about attacks on the oil and gas industry in Canada: because looking at just oil and gas extraction, 88 percent of all personal income tax paid to Ottawa between 2007 and 2019 came from Alberta; and 89 percent of all corporate income tax paid from oil and gas extraction came from Alberta.

Expressed another way, if Alberta’s oil and gas extraction sector is “phased out,” not only does a major contributing sector to federal government finances diminish significantly, so too does nearly 90 percent of resulting federal and corporate income tax revenues from all oil and gas extraction in Canada.

The $53 billion figure should be placed in the much larger context of our previous research paper where we detailed gross revenue contributions to all governments cross-country from the oil and gas sector, looking at data between 2000 and 2019.

In that study, we found that Canada’s wider oil and gas sector in all provinces paid almost $505 billion between 2000 and 2019 to federal, provincial and municipal governments. That was almost as much as what two other major industries, real estate and construction, paid into government coffers over the same period.

Mark Milke and Lennie Kaplan are with the Canadian Energy Centre, an Alberta government corporation funded in part by taxes paid by industry on carbon emissions.

They are authors of $53 billion to Ottawa: The Alberta oil and gas sector’s contribution to federal government finances, 2007 to 2019.

(CEC)


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