The True West, Strong and Free

Equalization has always been about supporting poorer provinces, but if Harper decides to tackle the fiscal imbalance he will be faced with a new phenomenon: Alberta’s wealth could turn the entire issue on its head, as the nation grapples with what to do with the richest province.

nside Alberta a pitched battle looms between “little Albertans,” who wish to retreat from the nation and husband their wealth, and “pan-Albertans,” who seek to supplant Ontario as the heartland of Canada and move the province into a leadership role in national affairs. “The real issue is whether Alberta is going to look inward or outward,” says Peter Lougheed.

The internal debate revolves around three radically different options: lower or eliminate taxes, be they personal, business, or property; increase spending on social services and infrastructure; or save and invest a significant portion of revenues for future use. The first option, embraced by a somewhat unholy alliance between big business and the poor, would make Alberta a virtual tax haven, or, as the Canada West Foundation’s Roger Gibbins puts it, “the Cayman Islands of Canada.” This approach has the intrinsic appeal of being simple, but a further lowering of taxes in the least-taxed region of the country will create a competitive advantage that could destroy the rest of Canada. As Gibbins has warned, “Alberta’s capacity to alter the competitive balance of the country is far greater than Canada’s ability to absorb it.”

According to province-wide polls, increasing program spending is the preferred option for most Albertans. But critics insist that when energy royalties slow down, high spending commitments will lead to deficits. They further argue that such generosity will lead to social services and infrastructure improvements that are so superior to those offered elsewhere that the popu­lation influx into the province will be impossible to withstand. And if other regions empty out, this approach could ruin Canada as well.

A small minority of Albertans, including prominent oilmen like Jim Gray, wants to ensure that their province remains strong in perpetuity and believes that it should do so within the context of a strong Canada. Alberta must save but it must also invest in both the province and the country. While this strategy has yet to be fully fleshed out, the likes of Lougheed, Gibbins, Dinning, and former Reform Party leader Preston Manning seem to agree on the broad strokes. A fixed portion of resource revenues would be deposited in the Heritage Fund (Alberta’s rainy-day treasure chest) and other trusts, with the money earmarked for particular purposes. Capital would accumulate in these accounts, and the interest would be used to make investments inside and outside of the province, either independently or through joint ventures. The save-and-invest camp supports setting up special trusts similar to Norway’s Petroleum Fund, which since 1995 has collected $223.8 billion (US) in resource revenues and has current assets of just under $200 billion.

Hearkening back to his own experi­ence with the Heritage Fund, which was created in 1976, five years into his mandate as premier, Lougheed recalls investments made in grain terminals in Prince Rupert, British Columbia, and medical-research facilities in Alberta. He believes something similar could be achieved through the Pacific Gateway Initiative, a proposed federal transportation infrastructure project intended to enhance trade with Asia, or even by locating part of Alberta’s medical-research foundation in, say, Montreal or Toronto. The Canada West Foundation suggests putting as much as 50 percent of annual resource revenues into the Heritage Fund. The investments could be targeted at health and higher education, thereby further insulating Alberta from areas of federal responsibility.

Other ideas are on the table. The right-wing Fraser Institute believes Alberta should eliminate all munici­pal property taxes. Indeed, with personal and corporate taxes accounting for only $8.5 billion of its $35.5 billion in annual revenues, Alberta could become a provincial-tax-free jurisdiction. Or it could simply eliminate corpor­ate taxes—an approach under active consideration. Oil executives might be happy enough with the status quo, but as royalty payouts increase, they will be demanding new tax holidays; such a strategy would also help small- and medium-sized businesses, the part of Alberta’s corporate world experiencing tougher times.

Jim Dinning’s vision for Alberta is to replace the segregated energy industry with “a fully integrated energy system, where maximum value is extracted at each link along the value chain.” He asks Albertans to “think of the investment opportunities in the network of pipelines, transmission wires, and infrastructure linked together to pump out not only our raw natural resources but to go one step further: to manufacture finished products, plastics, fibres, resins, rubbers, and specialized fuels, and ship them around the world.” Fiscal-federalism expert Tom Courchene of Queen’s University has proposed the formation of an energy accord between British Columbia, Alberta, and Saskatchewan with the goal of developing a full range of energy initiatives.

Similar to Courchene, Preston Manning sees a “tremendous symbiosis with Quebec and its hydro resources” and would like the two provinces to “create an energy alliance that could use its leverage to put pressure on Ottawa and Washington to invest in a secure energy supply” for all of North America. Manning, the author of Think Big, talks about such steps as “part of growing up” and Alberta’s “new leadership responsibility for the rest of the country.” Says Dinning: “We’ve got Alberta to the point where we can choose to do or become pretty much whatever we want” and that now is the time for “Alberta to take the lead in Canada.” Even the normally staid and conservative Canada West Foundation states, in Seizing Today and Tomorrow: An Investment Strategy for Alberta’s Future, “As Albertans explore the transformative power of natural resource endowment, hopefully they will also seize the opportunity for national leadership.”

nspirational language is one thing, but it will take something akin to a miracle for the Lougheed-Manning-Gibbins crowd to prevail in the tug of war over the province’s bankroll. Polling clearly reveals that the save-and-invest strategy is preferred only by certain elites. The vast majority of Albertans believe that the province’s wealth should be used to solve Alberta’s problems and that spending on health care and secondary education would be a “good” or “excellent” use of surplus revenues. The option that receives by far the least support—even less than temporarily lowering corporate taxes—is “sharing it with the rest of Canada.”