Economic reality

I put together a spreadsheet from actual Statistics Canada data. The results tell quite a story.

The provinces of BC, AB, ON and QC look like the big economic drivers of Canada based on their GDP. But the GDP per capita (per person) figure tells a different story. Although Quebec has the 2nd highest GDP in the country, its GDP per capita is one of the lowest because of its share of the population. In contrast, while Alberta is just behind Quebec in GDP, it's GDP per capita is much higher than any other province.

If we look at income, we see that Alberta's average personal income is the highest in Canada. But the real story is how much higher it is than the national average, almost 30% higher.

In case you're wondering my point, I've been hearing a lot of squawking about how Alberta never gets any equalization payments and how unfair that is. I can understand why Alberta politicians want the formula to be adjusted. But it's sad that Albertans take the current arrangement as an insult and use it to suggest that Canada doesn't appreciate its contribution. Politicians don't help matters when they suggest that Alberta never gets a fair shake. I've never heard of an Albertan asking someone from Quebec or PEI or New Brunswick if they appreciate the equalization payments Alberta makes possible.

Based on the current formula, Alberta's economy would have to shed almost 35% of its value in order to qualify for equalization, all other things being equal. That's unlikely to happen unless the resource industry were to shut down.

But what is getting lost in this discussion is how Alberta generates its own revenue. The province gets most of its money from personal income tax, corporate income tax and investment income tax (the lowest in Canada) and royalty revenue from natural resources like oil and gas. There is no sales tax revenue. Many studies have concluded that if Alberta were to implement a sales tax, they would have a huge surplus. The problem is that the royalty revenue is kept low to keep oil and gas companies in the province while spending it all on services and consequently going into massive deficit when revenue drops.

Part of the reason the existing revenue formula works against Alberta is how rich we are in general. Only 8% of Canadians in general make more than $1000,000 per year. In Alberta, that figure is 15%. But look closer. In the graph below, we can see that these 4 provinces have significant numbers of people in the $100,000 or greater income group. Québec’s is larger than 3 other income groups. BC’s is larger than 5 income groups. Ontario’s is larger than 6 income groups. Alberta’s is larger than all the other income groups in the province.

So we can complain that we never see any benefit from equalization, but the reality is that Alberta is a very rich province. Its biggest problem is that it doesn't know how to use that money to budget its day-to-day needs. This is made worse by being dependant on an extremely volatile source of income.

Here's my analogy. It's kind of like a contract worker, who sometimes makes a small fortune on one job, then is out of work for a while, then makes decent money on the next job. But at the end of the year, they've spent all their money as if they were always making a small fortune, never putting any of it aside to pay their taxes, or save for a rainy day. Then they complain that they're broke most of the time.