CDN NEWS | 
US NEWS 
Oil, Oil Everywhere Yet Not a Barrel to Sell
In my previous post I mentioned how I thought that an oil pipeline may well be Mark Carney’s biggest and most difficult test of the Liberals commitment to Bill C-5 and nation building projects. This morning, I was listening to the radio and someone was positing that indeed, building a pipeline through British Columbia will indeed be impossible and that perhaps it is time that Alberta woke up and started looking at a strategy for what’s next, as oil growth will not be in the cards.
This brings up, whether people wish to acknowledge it or not, two key discussion items. The equalization formula and public services in Canada. For those that are not aware, equalization is the “unconditional transfers of money from the Canadian federal government to provincial governments to ensure all provinces can provide comparable public services at similar levels of taxation.” In simple terms, it “calculates the difference between a province’s fiscal capacity (its ability to generate revenue) and the national average fiscal capacity” wherein fiscal capacity is determined based on the fiscal revenue a province could raise if it taxed at the national average rate. Herein lies the challenge for Alberta: a) it has a lower tax rate than other jurisdictions in Canada and yet b) it has a per capita contribution than any other province in Canada. For the last ten years this is what the equalization looks like for Canada.
I’m not here to debate the calculations of the formula and what is included / excluded, nor am I here to debate the merits of this system or its potential challenges. Rather, I just want to lay out the facts. Notable on this chart are two things. First, Alberta, Saskatchewan and British Columbia do not receive any equalization over this timeframe. Second, Ontario has re-entered the league of “have not” provinces over the past few years. If you would like to see more details on this, visit the Government of Canada website that discusses Major federal transfers by year.
In terms of fiscal capacity, when you lop together the various contributions that each province makes and then look at it on a per capita basis, this is what it look like for the current fiscal year (2025-2026). What is notable is the component “natural resource fiscal capacity” and this represents the potential revenue that can be generated from natural resources, and the inclusion rate has been a source of significant debate.
At the end of the day my key point is this. Alberta, as a result of the significant endowment of natural resources , in particular crude oil (3rd largest oil reserves in the world) and natural gas, results in the province having significant revenue potential that feeds into the local, provincial and the national economy. As a result of this, the rest of the country benefits as the wealth of Alberta helps to fund the equality of access to services across the nation. If we look at the current national debt, and the commitments that we continue to be making, whether that be assisting the Ukraine in its fight against Russia ($2 billion) or a pledge to increase our NATO spending to 5% of GDP by 2035, all of these bills need to be paid.
Were Alberta to “pivot” from oil and into something else, can you name one industry that can replace all of those high paying jobs and their ongoing contribution to the broader economy? In a post earlier this year titled Why Oil and Gas Matters to Canada (and the World) I outlined the material ongoing contribution of the Big 4 energy producers.
Why this matters is twofold. First, if you reduce the contribution that Alberta can make by locking in its resources, you reduce the ability of Alberta to contributed to the fiscal framework of equalization. This ultimately underlines the social framework upon which equalization is based, namely to “provide comparable public services at similar levels of taxation.” Second, at a time when debt is growing at unsustainable levels, and our GDP is actually contracting in part as a result of our ongoing dispute with the United States, undermining one of our key contributors to the economy is nonsensical. If we don’t learn to work well together and find a way to grow the economy for all, I genuinely fear for what the future may hold for us as a nation.
Thanks for reading William’s Substack! Subscribe for free to receive new posts and support my work.
William’s Substack is free today. But if you enjoyed this post, you can tell William’s Substack that their writing is valuable by pledging a future subscription. You won’t be charged unless they enable payments.
Share This:
COMMENTARY: Here’s the Major Problem With Canada’s New Electric Everything Strategy – Fraser Institute