By Aaron Mahoney (@Mahones93 on Twitter)

Equalization payments: SACPA discussion looks at which provinces receive them and why

Mar 28, 2019 | 2:54 PM

LETHBRIDGE, AB – Is Canada’s current equalization formula fair to all provinces?

It’s a question that has been discussed at length in the province of Alberta for the past few years, and it was the topic of discussion on Thursday, Mar. 28, at the Southern Alberta Council on Public Affairs.

The speaker on the subject was Dr. Trevor Tombe, an Associate Professor of Economics at the University of Calgary, and a Research Fellow at The School of Public Policy.

Tombe’s main focus currently is on economic integration in Canada, from estimating the size and consequences of interprovincial trade costs to exploring the implications of fiscal transfers between provinces such as through equalization.

With a provincial election campaign ongoing, the topic of equalization is animating a lot of discussions, and Tombe talked about the history behind federal transfers; why we have them at all, and how equalization works.

Nighttime construction on Hwy 3 in Lethbridge starts April 17

Apr 17, 2025

SASHA launches #BuyABed fundraiser to support vulnerable Lethbridge residents

Apr 04, 2025

$20K grants available: TELUS STORYHIVE Pan-Asian Edition opens applications April 1

Mar 18, 2025

“Why does it pay to some provinces and not others? Is it fair to Alberta and why don’t we receive any? The answer really comes down to the very high levels of income and strong economic activity that we have in the province.”

That’s because equalization is a federal program that transfers federal funds to provinces with below average capacities to raise revenues. It’s based on a measure of a provinces’ fiscal capacity -their ability to generate tax revenues.

Provinces with stronger economies, and with high-income households and businesses, raise more revenue for any given tax rate than provinces with lower incomes.

Equalization started in 1957 as a compromise between the federal and provincial governments, but the program we know today is much different than the original plan introduced.

That leads to equalization sometimes being misunderstood, but Tombe says that’s a phenomenon not just found in Alberta.

“You can find frustrations with the program in every single province of the country. It has been a focus of intense political focus and debate for Canada’s entire history. What we’re seeing in Alberta is not new because it certainly is a complex program. It’s completely understandable that there is a misunderstanding around it just because we tend not to dive into the details. We see that payments go elsewhere, and we wonder why we don’t receive any here, but there are good reasons for that to be the case,” Tombe said.

The current formula that we have today was brought in by the former federal government in 2007 and changed a bit in 2009 during the financial crisis.

Each year, in mid-December, the federal government releases its calculation for what each province is entitled to receive as equalization.

One of the big questions in Alberta, is why does a province like Quebec with its budget surplus get transfers, but a province like Alberta dealing with a tougher economic situation in recent years doesn’t?

“It really comes down to population,” Tombe explained.

“The way the formula pays out is by estimating the per person level of income that a province could raise through typical tax rates. Quebec is a large province relative to the other low-income provinces like P.E.I., Nova Scotia and New Brunswick, so Quebec does receive two-thirds of equalization dollars, but it has 70 percent of the people who live within equalization-receiving provinces.”

The topic of equalization has been broached during the current election campaign, as UCP leader Jason Kenney has promised if he’s elected, he would hold a referendum on equalization in 2021 if there is no pipeline progress.

Tombe says Kenney can have a referendum on any question that the Government of Alberta sees fit, and equalization depending on how he phrases the question is certainly something he could do.

“The problem though is the federal government oversees equalization, so Alberta is limited in what it can do unilaterally. Especially since the existence of federal transfers, and equalization, in particular, is embedded in Canada’s constitution.

“I think the issue around a referendum in Alberta is less about the program itself and the formula itself, and more about drawing attention to issues around pipeline constraints that are important for Alberta. Equalization is a way to highlight that Alberta does contribute to national finances that allows programs like equalization to be funded.”

For local news delivered daily to your email inbox, subscribe for free to the Lethbridge News Now newsletter here. You can also download the Lethbridge News Now mobile app in the Google Play and the Apple App Stores.