Equalization matters – just not in the way separatists argue
Summary
Equalization is a federal government program enshrined in Canada’s constitution and paid for by personal and corporate taxes paid by all Canadians.
Its purpose is straightforward: to ensure that Canadians across the country have access to reasonably comparable public services, and they should pay for those services with reasonably comparable tax levels.
It’s based on a fundamental principle of fairness and addresses the key question: Should Canadians have comparable levels of provincial health and education programs regardless of where they live? The answer is yes.
Albertans collectively (not the Alberta government) contribute more to the federal government’s Equalization program than people in other provinces. That’s because, on average, Albertans earn more and therefore pay more federal taxes than people in other provinces.
It’s also true that Alberta hasn’t received Equalization payments since way back in the 1960s. That’s because Alberta’s economy has continued to be strong.
There are flaws with the current Equalization formula that can and should be fixed. (The last time the formula was amended was under Stephen Harper in 2009.)
To suggest that just because Alberta’s government doesn’t receive cash through Equalization (even though it does through a host of other federal programs), Alberta is better off separating is a false premise and it ignores other benefits Alberta, and Albertans, receive from being part of Canada.
What’s the purpose of Canada’s Equalization program and how does it work?
Canada’s Equalization program has a long history, dating back to when Louis St. Laurent was Prime Minister in 1957. It was supported by his Conservative successor, John Diefenbaker, and every government since then.
Over the subsequent decades, that principle has endured. Premier Peter Lougheed described Equalization as “a crucial aspect of Canadian Confederation” and “a principle of Confederation that should be placed in the Constitution of Canada.”
Proclaimed in 1982, section 36(2) of the Constitution Act states that: Parliament and the government of Canada are committed to the principle of making equalization payments to ensure that the provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation.
As described in the May 2006 review of Canada’s Equalization program (chaired by Al O’Brien, former Alberta deputy treasurer), it was described as reflecting “a distinctly Canadian commitment to fairness”. (Achieving a National Purpose: Putting Equalization Back on Track, May 2006).
It’s important to note that while the principle of equalization is enshrined in the Constitution, the way the program operates is determined by a complex formula that has changed over the decades since the program was introduced. “Complex” may be an understatement. As the May 2006 report mentions, “the program may be simple in theory and principle, but that’s where the simplicity ends.” In fact, it is “understood by only a select few academics, experts, and finance officials across the country.”
Regardless of the fact the details are widely misunderstood, that hasn’t stopped critics and separatists from saying, “scrap the whole program” because Alberta doesn’t get cash and other provinces do.
Aside from the money, do Albertans still support the principle of fairness underlying equalization?
It’s hard to know because invariably the focus has been on a single argument: we give but we don’t get. That ignores the fact that equalization is fundamentally about fairness and the value of being part of a Canadian Confederation – the promise that regardless of where you live, you’re entitled to comparable public services at comparable levels of taxation. That means a child in PEI or Saskatchewan or Manitoba should have access to a relatively similar quality of education without their parents having to pay much higher taxes than what they would pay in other provinces.
How much does Alberta contribute to Canada’s equalization program?
For 2025-26, the total pool of funds for Equalization is $26.2 billion. Alberta taxpayers account for about $4.2 billion of that $26.2 billion pool.
Again, “Alberta” doesn’t contribute a penny to that pool. Individual Albertans contribute through their federal taxes. And it’s important to remember that federal tax rates are the same across the country. If Albertans are paying more, it’s because, on average, they earn more than other Canadians.
Accounting for all federal taxes paid versus what gets contributed back to the province directly to support programs in health, social services and other federal government services, Alberta is a net contributor, sending an estimated $20 billion more annually to the federal government than what the province and individual Albertans get back directly in return.
Separatists suggest that if Alberta separates, we’d keep the $20 billion (and all the money we pay in the Federal taxes) and provide all the services we need ourselves, plus we’d be able to eliminate provincial income taxes.
This ignores the fact that Alberta gets much more from the federal government than just direct transfers. Indirect benefits such as defence, parks, passports, currency, border control etc. amount to billions of dollars in services to Albertans. Alberta’s Premier suggested it could cost as much as $400 billion (and some estimates suggest even more than that) to deliver all the programs and benefits Albertans enjoy in Canada today. The savings from Equalization would be a drop in the bucket.
Has Alberta ever received Equalization payments?
Yes, back in the 1960s when Ernest Manning was the Premier. Even then, it could be argued that we didn’t really need it. Premier Manning gave nearly all of the equalization revenue as cash transfers to Albertans. Sound familiar?
Since then, Alberta’s economy has never been weak enough for long enough for us to warrant receiving Equalization payments.
Are Separatists really just mad at Quebec?
Much of the separatist rancor about Equalization is expressed as anger about sending money to Quebec. There doesn’t seem to be the same concerns about helping our Canadian neighbours in Manitoba or PEI, but Quebec gets singled out for cutting special deals with the federal government – deals that are not available to Alberta. These arguments are not about the principle of equalization; they’re about the details of the formula.
Alberta can, and should, make its case to fix the formula where that’s warranted. Important, though, to remember that even with changes in the formula, with Alberta’s strong economy and high incomes, it is highly unlikely that Alberta would benefit financially.
If Albertans pay more than they get back in return, why should we continue to support Equalization?
As Trevor Tombe puts it, “Raising concerns around the program’s design and operation is one thing. Rejecting the very principle that underpins it – and therefore rejecting the very existence of the program or anything like it – is quite another.” (Rejecting Equalization spurns a crucial feature of Confederation, Trevor Tombe, June 2021).
Do we care about being part of a Confederation that values supporting our neighbours so they and their children can receive a good education, good health care programs, and other social supports? None of the arguments put forth by the separatists address this – it’s only about the money.
Economists will point out there are other benefits of Equalization. A prime one is there are no strings attached. The federal government simply transfers money and provinces can use that funding at their discretion to deliver the public services their citizens need. Scrap Equalization and the federal government would have to step in with dedicated programs with specific objectives and accountability – something many Albertans would see as over-stepping their responsibilities.
Plus, Alberta has benefited significantly from people coming from other provinces to work and fuel Alberta’s economy. These people come with their education and skills – education we haven’t paid for but benefit from directly.
Finally, Equalization contributes to the tremendous reputation Canada holds on many measures of quality of life compared with other countries around the world.
Our View
Yes, Equalization matters, and Albertans are right to talk about it. If there are problems with the formula, let’s work to fix them. But a quarrel over the details of one federal program, is hardly a reason for Alberta to separate.
We are voting for the option to stay in Canada.