Over the long weekend, one of the best things that I read was an exploration by economist Trevor Tombe about Alberta’s misplaced anger over the so-called “unfairness” of equalization, as the real issue is the fact that they have disproportionately higher salaries (and fiscal capacity) than everyone else in the country. Meanwhile, Tombe also has a good thread on the history of federal transfers to and from Alberta, and it’s interesting to get some of that perspective.
This is serious fiscal policy (whatever the magazine article equivalent of subtweeting is) from @trevortombe. https://t.co/rulO0shPps
— Andrew Leach (@andrew_leach) September 2, 2019
Happy Birthday Alberta!
Fun fact: 114 years ago, AB and SK becoming provinces inflamed regional tensions and disputes over federal transfers. It’s a neat episode in Canada’s fiscal history. A short thread. #cdnecon #ableg pic.twitter.com/wjvNZ4EQ8D
— Trevor Tombe (@trevortombe) September 1, 2019
Detail: when they joined, AB and SK received very large transfers. Adjusted for inflation, the $1.12 million it received in 1905 was equivalent to over $200 per capita (2017$) and ~75% of our budget. This was 10x more than Quebec, 6x more than BC, 3x more than PEI, etc. pic.twitter.com/ylkf4HN883
— Trevor Tombe (@trevortombe) September 1, 2019
There were a few big issues with AB/SK arrangements that other provinces didn’t like. First, population subsidy of 80c/person. Same rate as others, but was up to a pop of ceiling of 800k people. Other provinces had a 400k cap. The cap created “very considerable dissatisfaction”.
— Trevor Tombe (@trevortombe) September 1, 2019
Another source of tension was “debt allowances”. At Confederation, Feds took over prov debt. They specifically set an “allowable” per capita amount it would take on, such that low-debt provinces received bonus transfers and high-debt provinces had some transfers clawed back.
— Trevor Tombe (@trevortombe) September 1, 2019
The ‘debt allowance’ amount AB and SK received was (combined) nearly 7x more than the Maritimes. They weren’t happy. Eventually lead to a royal commission (Duncan Commission of 1926) that agreed with them, and recommended they get a transfer boost too. pic.twitter.com/FCyYwmAke4
— Trevor Tombe (@trevortombe) September 1, 2019
This beef was cited by a later royal commission (White Commission 1935) as a source of Maritime grievance. They estimated that, in addition to the subsidy given to AB/SK, the lands were managed at a net loss of $8.5m from 1905 to 1930 (when lands returned). pic.twitter.com/io4LU1vUjY
— Trevor Tombe (@trevortombe) September 1, 2019
So soon the whole system was reformed, and in 1907 we got a Constitutional amendment to rejig the subsidies https://t.co/ZTnuskTGpz The biggest change was removing the hard-cap on the population-based subsidy. If AB and SK were provided a larger cap, why not all? pic.twitter.com/FlrU4Xd2NL
— Trevor Tombe (@trevortombe) September 1, 2019
And today, 114 years after AB and SK became provinces, we continue the great tradition of fighting over transfers. Though the details change (who's 'have' vs 'not'), the sentiment and frustrations are a remarkably common theme throughout Canadian history. #FunTimes /fin
— Trevor Tombe (@trevortombe) September 1, 2019
Meanwhile in Alberta, the McKinnon Report on public expenses was released yesterday, detailing that there needs to be some $600 million in cuts if the budget is to be balanced between 2022-23, and while it notes that it the province needs more stable revenues (*cough*sales tax*cough*), though it didn’t get into their revenue problems, as it wasn’t their mandate. That means that there are going to need to be cuts to healthcare and education. Here are three surprising tidbits from the report (but also ones that I think need to be drilled down into – for example high public servant salaries are not because of cost of living, but competition with the private sector, and high college drop-out rates are likely to do with jobs in the oil patch). More in this thread from Lindsay Tedds.
In reaction, Jason Markusoff points to the fact that the report’s conclusions were predetermined, given that it was created specifically to find cuts as raising revenues was not an option they were allowed to present, and it bears reminding once again that Alberta is in deficit because it chooses to be so – they could raise their revenues and not rely solely on oil royalties anytime they wanted, but they don’t want to (so all of those pundits taking this report as proof that the province has a spending problem are being a bit too cute about it). On a broader perspective, Max Fawcett argues that if Alberta wants to send a message that if they really want to have their issues taken seriously, they need to stop voting Conservative – and then enumerates all of the ways in which the federal Conservatives have taken the province’s votes for granted as they did things that disadvantaged them.
