Tags: Business - Energy, Canada's Business, Politics - Alberta, Satya Das

4 suggestions for overcoming Alberta-envy in Canada

Canada actually benefits more than Alberta from oil sands tax revenue

May 3, 2012

EDMONTON, AB, May. 3, 2012/ Troy Media/ – When Ontario Premier Dalton McGuinty complained about the Alberta-driven ‘petro dollar’ putting Ontario at risk, he wasn’t just pandering to his home base.

The newly re-elected Liberal premier made a point that some influential Albertans worry about in private but don’t dare to discuss in public.

Do Alberta’s riches threaten Confederation?

When one economy in a federation is so very different from all the others, in its wealth and its reach, does it risk the stability of the country itself?

Consider the perspective of other premiers.

Albertans’ taxes too low

Alberta’s budget underlines the fact that if we had to pay for our provincial government programmes and services with taxes, we would need to collect at least $11 billion more from our citizens and our corporations – whether through a progressive income tax, or a flat tax.

Alberta spends way more per citizen than any other province. In fact, we spend morethan $110 million a day. And we do it while charging a 10 per cent flat tax, and proudly boasting we have no sales tax.

To meet the demands of their citizens, every other province has to charge a three-or four-tier progressive provincial income tax, aligned with the federal levels of taxation.

Other provinces have to charge a consumption tax, to meet citizen expectations and entitlements that are no different (and perhaps even more modest) than those of Albertans. Even so, most run deficits.

Other provinces have substantial amounts of accumulated debt. Alberta’s operating budget has been in surplus since 1995 (cash from operations, as reported in the audited financial statements of the province). And Alberta has net assets that are measured in the tens of billions of dollars.

Albertans seldom think about the imbalance. Instead, we are treated to occasional harangues about the ‘unfair’ equalization payments funded with federal taxes. Wildrose’s Danielle Smith even promised to ‘renegotiate’ the formula.

It’s bizarre, because it displays a profound misunderstanding. The federal government collects income taxes from all Canadians. It then redistributes a portion of this personal income tax revenue among provinces, so that all Canadians have equitable – not identical, but comparable – access to programmes and services regardless of where they choose to live in our country.

Albertans obviously pay more in federal income tax, because they earn so much more than other Canadians. The only way to ‘renegotiate’ is to earn less. Yet this doesn’t stop opportunists from crying that Alberta sends billions more in tax dollars to Ottawa than it receives in return – feeding the illogic that Albertans should be taxed at a lower federal rate than other Canadians.

Any serious consideration of whether we should pay our own way is quickly squelched by faked populism, like the Fraser Institute’s ‘tax freedom day,’ as though the economic rent for living in Canada should come at no cost, or that earnest young man who pops up on television in a suit he may well have borrowed from his dad, telling us the ‘taxpayers federation’ has had enough.

This atmosphere makes it all the more difficult to have a rational discussion around the fact that Albertans don’t pay for our health, education, infrastructure and other entitlements with tax revenue. They use their resource wealth.

About a year ago a friend who owns a successful software company – they are just expanding into the Ontario market from their Edmonton base – convened about 30 business owners for a discussion on the wisdom of using our non-renewable resources to pay for our basic services. We all nervously dismissed the idea of a consumption tax, saying it would never fly in Alberta. Then we took a vote on which of us tax-paying entrepreneurs is in favour of a sales tax. Every hand went up.

Since then, I’ve raised that ‘straw poll’ idea in small group discussions. Inevitably, nearly everyone agrees that it’s foolish and reckless to take a free ride on the backs of future generations. And more than a few worry about the effect of our free-spending, low-tax, largesse on the rest of the country.

The results of the provincial election campaign mark a point of transition in how we approach our fellow Canadians, and how we choose to belong. We may have arrived at the point where we can move from quiet small-group worries about the effects of our riches on our fellow Canadians, to a considered public discussion on how we ought to proceed.

I know full well this is a risky discussion. But it’s one we need to embrace. We are already resented by some of our fellow Canadians who genuinely believe Canada would be better off if the Alberta oil sands didn’t exist. Federal Opposition Leader Thomas Mulcair, for instance, derides the ‘tarsands’ with the haughty disdain of an archbishop who sees the town drunk tumble into the font during High Mass.

Alberta’s reputation among our compatriots might have been even more fraught, had we succumbed to the recent electoral choice of turning our backs on our fellow Canadians.

Albertans have significant gifts and advantages – including being debt free, and enjoying the fiscal health that leaves the provincial treasury with net assets forecast to reach $51 billion in 2014 – after all outstanding bonds, municipal loan guarantees and pension liabilities are covered off.

Alberta has a young, healthy, educated, diverse and skilled population. Our health care and education systems may be under pressure, but remain among the best in the world. We have a resilient economic engine powered by investment, innovation and entrepreneurship.

Now, we need to actively demonstrate that we are ready to contribute to the country, by sharing our good fortune.

This goes beyond the obvious points that Canada benefits more than Alberta from oil sands tax revenue, through the federal taxes paid by employees and firms developing our energy wealth. Or that the steel and metal needed to build our plants and factories comes from Premier McGuinty’s Ontario. Or that we have enabled a local boom in the Maritimes, thanks to the remittances and fidelity of the tens of thousands of Atlantic Canadians who make their living in Alberta and their homes by the North Atlantic seas.

My recommendations

So here are a few recommendations on how Alberta can actually share its wealth to the benefit of the Confederation:

1. Set up a Canada Infrastructure Fund. Provincial governments can borrow against this fund at favourable rates (for instance, inflation plus one per cent) to create tangible assets.

2. Set up a Canadian Debt Offset Fund. This would enable the federal and provincial governments to replace higher-interest, foreign-held debt with money borrowed from Alberta, at favourable rates. In essence, we would be helping Canada and other provinces to repatriate foreign debt.

3. Set up a Green Canada Fund. This fund, modeled on Alberta’s Climate Change and Emissions Management Corporation, could be supported with royalties, sharing the corporation’s mandate ‘to enhance the value of energy resources, conserve and use energy efficiently and support green energy production. ‘

4. Lead and implement a Canadian Energy Strategy generated within and sustained by the provinces and territories (Council of the Federation). This could pursue and realise Prime Minister Harper’s stated goal of making Canadian a sustainable energy superpower.

Satya Das is Founder and Principal of Cambridge Strategies Inc. His career in journalism spanned the last quarter of the 20th century, as reporter, administrator, editorialist, columnist and foreign correspondent.

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