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Excluding non-renewable resources from equalisation is patently absurd

Alberta's Ralph Klein is again pushing for non-renewable resources to be kept out of Canada's equalisation formula. The notion that because a resource is non-renewable, it should not be included in equalisation, is ridiculous.

Let's examine the issue of equalisation right from its legal roots. Article 3 of the Canadian constitution reads, in whole:


Commitment to promote equal opportunities

36. (1) Without altering the legislative authority of Parliament or of the provincial legislatures, or the rights of any of them with respect to the exercise of their legislative authority, Parliament and the legislatures, together with the government of Canada and the provincial governments, are committed to

Commitment respecting public services

(2) Parliament and the government of Canada are committed to the principle of making equalization payments to ensure that provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation.

I see no room for exceptions in this clause of our constitution. Equalisation must be provided to put all provincial governments on an even keel. When one government has more revenue than another, and can offer better services than another, it is that province's duty to share with the others, and the federal government's duty to enforce this sharing.

Alberta, particularly, is currently in an oil-induced economic boom on a massive scale. The economy is so strong that even Tim Horton's is being forced to pay people real wages. But the economy is built on top of the tarsands, and the tarsands are only seriously viable because the price of oil is extraordinarily high, hovering around $70 per barrel.

Tarsands require two barrels of oil and produce around 240 kilograms of greenhouse gasses for every three barrels of synthetic crude produced. Even with upwards of 1.5 trillion barrels of synthetic crude theoretically available, it represents a net gain of only 500 billion barrels over the amount needed to extract it. The remaining trillion barrels only replaces the oil that was used to produce those 500 billion barrels. That is assuming the ratio does not further deteriorate as development continues, and that all 1.5 trillion barrels of synthetic crude can be extracted from the tarsands.

The bigger the boom, the bigger the bust.

If the price of oil were to fall back to pre-Bush levels of $20-$25 a barrel, or the ratio of oil used to oil extracted in the tar sands approaches 1-to-1, Alberta would likely return to the economic devastation that it experienced in the mid-1980s, after the prices fell from the last energy crisis. This is part of Klein's argument against contributing oil revenues to equalisation, which doesn't make much sense as an argument.

Were Alberta's economy to be in the hole, Alberta would be screaming for equalisation payments from the federal government and demanding other provinces which have their own natural resources contribute to the program. If Alberta continues to refuse to contribute while their economy is the best in the country, they should not expect much when their economy does eventually, inevitably, tank.

Contributing revenues from non-renewable resources to the equalisation program now can only help strengthen the economies of other provinces, and when Alberta's economy does collapse, the other provinces who have benefited from this wealth will be both more inclined and more able to contribute back to its government services, softening the blow.

When Alberta sends $400 to every citizen of the province as an oil revenue bonus, pays off its entire provincial debt, and still has more revenue than it knows what to do with, and then spits in the face of the rest of Canada, "western alienation", as they so happily flaunt, is increased. Except it is the west that is alienating, not the west that is being alienated.

Non-renewable natural resources that power an economy must be included in any formula that accurately counts provincial government revenues. The elevated salaries and costs of the resulting economy must also be counted in the formula. There is no logic in not doing so. Resources being non-renewable does not mean that they do not have an effect on the economy, as is the implication of refusing to contribute.

The reality is that the federal government decides who contributes how much to who for equalisation. Alberta can merely posture and argue its position, but at the end of the day, it is a decision made in Ottawa. When the premiers all get together to make an agreement on equalisation, even if they manage, it is merely a recommendation to the federal government. There is nothing the provincial governments can do, from a legal standpoint, to challenge the federal government's position on equalisation.

I therefore call upon the federal government to calculate equalisation every year, as it does our income tax, and include all revenues from all provinces, no matter what their revenue sources, as well as the costs of providing public services in all provinces. This would be in line with both our constitution, and logical reason.

Posted at 09:11 on July 29, 2006

This entry has been archived. Comments can no longer be posted.

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SteveV writes at Sat Jul 29 11:33:01 2006...

Turning Klein's argument around, if non-renewables were included and the oil patch went bust, Alberta would be comforted to know that Canadians would augment the downturn- a safety net, even though we all know a bust is highly, highly unlikely.

wilson writes at Sat Jul 29 14:57:53 2006...

A stauch Liberal over at http://community.canada.com/webx?14@540.4wG9ayvVaEr@.ee7d314

Premiers Conference thread, totally disagrees with you, and sites:

Constitution Act, 1867 Sect.109. All Lands, Mines, Minerals, and Royalties belonging to the several Provinces of Canada, Nova Scotia, and New Brunswick at the Union, and all Sums then due or payable for such Lands, Mines, Minerals, or Royalties, shall belong to the several Provinces of Ontario, Quebec, Nova Scotia, and New Brunswick in which the same are situate or arise, subject to any Trusts existing in respect thereof, and to any Interest other than that of the Province in the same.

cdlu writes at Sat Jul 29 23:07:09 2006...

SteveV, I disagree that a bust is highly unlikely. I believe it is not only likely, but completely inevitable. The only question is the timeframe.

wilson, this clause of the constitution act is subject to interpretation.

For one thing, this law can be construed to say that privatisation of natural resources is in itself illegal.

Aside from that, there is no limits in this law on clawbacks of other funds to make up the difference -- "Sure, you can keep your natural resource revenue, but you're going to lose all your other federal money." There's also nothing to say that money, once collected, can not be turned over to the federal government for redistribution to needier provinces. It also puts the constitution acts of 1867 and 1982 in potential conflict with eachother if a provincial government's reliance on resource revenue infringes on the federal government's constitutional obligation to provide equalisation, which I'm really not sure how to resolve, but the latter's assertion that any aspect of any law in conflict with it are invalid would provide the basis for calling the first constitution act unconstitutional under the second.

It's fundamentally against the spirit of federalism and equalisation for any province to greedily horde money because that province has natural resources that others do not.

I also see no reference to 'igneous' being a staunch liberal, though the point is irrelevant. One of the strengths of the liberal party, as compared to other parties, is that it accepts and encourages differences of opinion and debate within its ranks.

Canadian Publius writes at Sun Jul 30 14:14:51 2006...

I think you're bang on... I cannot figure out why natural resources should be excluded. Frinstance, why not exlcude manufacturing revenues in Ontario? Export related revenues in BC?

Its nuts.

Steve V writes at Sun Jul 30 19:45:06 2006...

With the embarrassing amount of money pouring into the tarsands, it effectively makes Alberta "bust" proof. Even if the price drops, need will trump and expansion is guaranteed.

cdlu writes at Mon Jul 31 09:12:30 2006...

Steve V, perhaps, but I can see a large number of scenarios that could cause an economic collapse in Alberta. From least to most likely, in my view:

1 - World dependence on oil is weakened as we finally wake up and smell alternative energy.

2 - Tar sand production is deemed too environmentally destructive, with its 80kg/barrel of greenhouse gasses and the huge water reserves and natural areas being destroyed by the production.

3 - Production reaching 1:1 barrels needed per barrels produced.

4 - The economy outgrowing itself. Right now, the worker shortage in Alberta is phenomenal. As the mass migration continues, a light slump in the economy for any of the other reasons (or any other reason) will be greatly magnified.

Remember, it's the one you don't see that gets you.

Sheila writes at Mon Jul 31 10:04:47 2006...

You bring up important points, but, as usual, there are a lot more factors involved. Equalisation is only the tip of the iceberg of pan-Canadian bones of contention. Lets look at another product of the tar sands: greenhouse gases. The amount produced by Alberta and the dirty industrial processes required to extract and refine the oil from the tar sands get equalised with the amount produced in other provinces, many working hard to reduce emissions. It is because of Alberta that Canadas emissions have risen so precipitously and Kyoto targets are unattainable. Can we not, in the spirit of keeping their resources to themselves, demand that Alberta keep their emissions to themselves, too?

Joseph writes at Mon Jul 31 21:54:46 2006...

Perhaps equalization should be examined in light of Kyoto carbon sharing. Alberta emissions skew our Kyoto protocol objectives making efforts to reduce total emissions very difficult. We all end up being painted with the same brush. Also, Canada's currency exchange is skewed by a dollar bolstered by oil revenues that make manufacturing prices less competitive on the export market.

Are we all in this together, or are we only Canadians when we need something and regionalists when we don't?

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