Opinion: Canada faces tough fiscal choices without Alberta’s fiscal cushion

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Now factor in COVID and pandemic-related spending. The Parliamentary Budget Officer (PBO) projects a federal budget deficit of $383 billion for the 2020/21 fiscal year (compared to $25 billion in 2019/20) followed by deficits of $121 billion in 2021/22 and $51 billion the following year. Neither the PBO nor Ottawa’s latest economic update directly address the impact on federal revenues of the oil industry decline.

Yet, the impact on the industry, and thus government revenues, will be great due to pipeline roadblocks and low energy prices. The U.S. Energy Information Administration estimates oil prices in 2022 will be 14 per cent lower than in 2019, hardly a banner year. And of course, President Joe Biden recently scuttled the Keystone XL pipeline project.

Unfortunately, the scale of fiscal federalism is seldom understood. Fiscal federalism isn’t just equalization. Most net transfers come through imbalances in other programs such as employment insurance, social programs and various subsidies. For example, from 2007 to 2019, Ottawa raised $617 billion in Alberta and spent slightly more than half that amount ($337 billion) in the province. In other words, Ottawa raised $156,471 per Albertan but spent only $84,980, for a net outflow per person of $71,563, equaling 6.4 per cent of Alberta’s GDP.

Over the same period, Ottawa spent $178,466 per Atlantic Canadian with revenues of $95,513, for a net federal transfer of $82,953 per Atlantic Canadian. Although total net transfers to Atlantic Canada and Quebec over the period are roughly the same, per-person transfers to Quebec ($24,756) are much smaller due to its larger population.

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