Is Alberta’s oil paying for Quebec’s public daycare?

Alberta’s Wild Rose party has placed Quebec at the centre of its media strategy regarding the Equalization program reform: “It is no small irony that the biggest single beneficiary of such transfers, Quebec, provides cheap university tuition and inexpensive provincial day care, while Albertans pay high prices for, and have severe shortages of both in their own province”. In a study published this past week, IRIS takes a closer look at her claim as it dives into whether or not it would be possible to develop resources, including oil, in Quebec sufficiently to move out of Equalization.

What is Equalization?

Equalization is a principled commitment on the part of the federal government implemented shortly after the Second World War and enshrined in the Constitution Act. Its aim is to ensure that quality levels in public services are comparable throughout provinces without one province needing to raise taxes within its jurisdiction. In other words, it’s meant to redistribute wealth whilst also preserving the political autonomy of provinces regarding their own programs, since the allocation of sums through this transfer program is unconditional.

Claim 1: The Equalization program favours and even spoils Quebec, which can thus fund better social programs.

Even if in total it receives a good chunk of Equalization money (7.8 billion dollars in 2013-2014), Quebec is next-to-last regarding the Equalization payment it receives per capita. In case you’re wondering, it actually makes a lot of sense to look at the payments in this way, since the program actually allocates them on a per-capita basis.

Table 1: Comparing Equalization amounts per capita (2013-2014)

Quebecers, like all Canadians, pay income taxes to the federal government, which then proceeds to redistribute the money directly to provinces —in part but not only through the Equalization program. The Canadian Health Transfer and the Canadian Social Transfer also serve the same function. All provinces receive federal transfers. In fact, redistribution throughout the Canadian territory is the federal government’s main role. Indeed, transfers represent close to half of its budgetary expenses (46%). Quebec does receive slightly more federal transfers —including Equalization— than its share of the Canadian population or GDP. However, as can be seen in Table 2, the difference is minimal.

Table 2: Difference between the federal transfers received by Quebec and those which it would receive should they be proportional to the size of its population or of its economy (2009)

Now let’s take a look at provincial spending in healthcare and social services.

Table 3: Comparing provinces by per-capita spending in healthcare and social services (2009)

As one can see in Table 3, Quebec spends a lot more on average on each of its inhabitants. Of that surplus, however, only between 3% and 6% can be attributed to Quebec’s slightly larger share of Equalization money. It’s therefore hard to claim that Quebec is funding its social programs through the slim surplus in Equalization transfers.

Claim 2: Quebec could follow on Alberta’s footsteps and produce oil to move out of Equalization.

In contrast to what is sometimes suggested, it’s impossible for Quebec to stop receiving Equalization transfers through resource revenue. The study explains how the Equalization system works and demonstrates the extent to which historically its evolution has been caused mainly by political change, not by economic changes.

Alberta and its oil production is often presented as a model. Quebec should take full advantage of its resources, the saying goes, because we would no longer depend on money from other provinces. Nonetheless, if Quebec wanted to move out of Equalization transfers only through resource revenue, it would have to generate five times more revenue than it currently does, i.e. 14 billion dollars. In comparison, Alberta’s tar sands provide the province with 12 billion $ in revenue.

This means Quebec would need to produce 5 billion more with its resources than Alberta does in order to stop receiving Equalization payments. Where are we supposed to find all those resources?

This article was written by Francis Fortier, a researcher with IRIS—a Montreal-based progressive think tank.