EDMONTON—While Alberta is the richest province in Canada and therefore does not get federal equalization payments, the situation hasn’t stopped political leaders demanding a better deal from the federal government.

So, StarMetro spoke to an economist to understand how the equalization formula works, why Alberta doesn’t get paid through it, and what makes the situation an attractive political talker.

On Monday, Opposition and United Conservative Leader Jason Kenney tweeted about his frustrations over the equalization deal that takes Albertans “for suckers.”

Referring to an article from the Globe and Mail, Kenney tweeted that Quebec Premier François Legault said “there is no social acceptability for oil in Quebec,” and then chastised the province for receiving “the money our oil creates.”

Kenney said it was an example of why he wants to hold a referendum on equalization payments, a promise he made last year.

Quebec is set to receive an additional $1.4 billion in equalization payments next year, for a total of more than $13 billion — the biggest benefactor of equalization in Canada with about two-thirds of the pot. Alberta receives nothing while being a large national economic driver.

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The provincial government says the federal transfers that assist provinces should be more sensitive to Alberta’s volatile resource-based economy.

Premier Rachel Notley also expressed her frustration with Legault on Tuesday saying, “there’s a high level of hypocrisy” with regards to his comments on Alberta oil.

“He needs to get off his high horse. He needs to look at what’s in the ground,” Notley said.

“He needs to understand that not only is our product not dirty, but that it actually funds the schools, the hospitals, the roads, and potentially even some of the hydroelectricity infrastructure in Quebec.”

For University of Calgary economics professor Trevor Tombe, it’s easy to see why Alberta politicians use equalization as a political talking point, even though for him, no one has made a coherent case for reviewing the current formula.

“Politicians aren’t in the business of informing voters, they’re in the business of winning elections,” he said.

And it’s easy for politicians to channel the frustration Albertans are expressing into an easily simplified issue like equalization payments, said Tombe: Alberta doesn’t get any and contributes a lot to Canada’s economy, while other provinces have full coffers. On the surface it doesn’t seem fair.

The current formula used by the federal government is basically the same as the one drawn up by the Stephen Harper government in 2009. Kenney was a federal minister in that Conservative government’s cabinet.

On Monday, federal Finance Minister Bill Morneau said that in 2019-20, the federal government would include about $20 billion of equalization money in federal transfers to provinces. Decided earlier this year, the formula for equalization is set for the next five years, after which it will be reviewed.

So, what are equalization payments?

They are federal funds.

Tombe said that in the most simplest sense, they are there to go to provinces that are poorer than others to bring them up to a national average of economic viability.

The provinces receiving them have “below-average” levels of economic activity, said Tombe. The “equal” part of the formula is there to ensure that provinces that can’t sustain economic activity up to the national average aren’t left in the dust.

The two categories of Canadian provinces in this formula are commonly referred to as “have” and “have-not” provinces. Alberta is the No. 1 “have” province, with a wealth of resource revenue.

But why is Quebec getting payments when it has a surplus of around $3 billion?

Meanwhile, Alberta has a deficit of around $8 billion and doesn’t get any equalization payments. Tombe said this comes down to the fiscal choices that both provinces have made separate from each other, and it isn’t the job of equalization to manage those choices.

“Quebec has a surplus despite their weaker economy because their taxes are roughly double Alberta taxes,” he said.

For context, Tombe said that if Alberta used the identical taxation system as Quebec, revenue would go up around $21 billion.

He said that “however you slice it,” Alberta is the richest province in the country, despite the recession it went through. Between 2014 and 2016, income generated in the province fell about 20 per cent, he said.

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But that still wasn’t enough to qualify for equalization under the current formula.

“We would have to go through another recession of roughly double the magnitude that we just went through in order to qualify for equalization, that’s how much above the rest of the country we are,” Tombe said.

So, what could be done to get Alberta some of that cash?

Kenney proposed holding a referendum on the equalization formula. In the past, he’s called the fact that it’s in place for the next five years a “slap in the face” to Albertans, even though he was in the federal cabinet that drew up the current formula that was renewed by the Liberals.

On Twitter on Monday, he posted an article laying out his idea for not including resource revenues in the equalization formula as a way to make it fairer for Alberta.

“Albertans are generous, but we shouldn’t be taken for suckers,” he wrote.

But Tombe said this would actually see Quebec get more equalization payments. The eastern province has the second-highest revenues from resources in Canada at about $3.5 billion for the last year, Tombe said.

The current formula says resource revenue is only worth 50 cents on the dollar, which means after you pay equalization, you could still be better off than a region that doesn’t receive any. So there’s a clawback clause, said Tombe.

Quebec had clawbacks of about $1.3 billion that it was entitled to last year because it has a large amount of resource revenue.

“If we were to remove resource revenues from the formula, then those clawbacks would no longer operate,” said Tombe.

Are there proposed alternatives?

None that make much sense, said Tombe. A new formula that sees Alberta getting more cash means it would be based on the premise that the richest province gets paid by other provinces not as well off.

“It would be hard to design what’s effectively a welfare program for governments to transfer to the highest-income province in the country,” he said.

Completely scrapping equalization hasn’t been proposed by any Alberta politicians, but Tombe said it could be a defensible position to take.

Saskatchewan Premier Scott Moe also once suggested cutting the equalization program in half and “distributing the savings on an equal, per person, basis,” said Tombe.

“That’s a perfectly coherent, defensible policy position to hold,” he said.

But to date, Tombe hasn’t seen any real alternative offered up by Alberta politicians other than saying the formula isn’t fair.

“What do they mean by fair? If they mean Alberta doesn’t receive payments, which is, I think, what’s implicitly being communicated, then what conceivable alternative formula do they have in mind that would transfer money to the richest province?”

With files from The Canadian Press.

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