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Dear Albertans:
As we approach the October 19 referendum date in Alberta, don’t let some of the more vocal individuals in the Alberta separatist camp try to convince you that cooperative fiscal federalism hasn’t worked or doesn’t work for Alberta. It has worked, it does work, and it will work together in the future as Albertans and Canadians make the needed reforms.
Exhibit A for the success of cooperative fiscal federalism is the unprecedented growth that has occurred in the oil sand sector in Alberta over the past three decades. How did this happen?
On June 3, 1996, in Fort McMurray, the federal government, the Province of Alberta, and a number of representatives from the oil sands industry signed the Declaration of Opportunity, an historic agreement in the annals of the evolution of cooperative fiscal federalism in Canada. The agreement acted on the landmark recommendations of the National Task Force on Oil Sands Strategies, established back in 1993, to accelerate the commercial development of Canada’s oil sands through both tax and royalty reforms.
The agreement came about due to the collaboration and dedication of such individuals as Alberta Premier, Ralph Klein; Alberta Provincial Treasurer, Jim Dinning; Alberta Energy Minister, Patricia Nelson; Prime Minister of Canada, Jean Chretien; Finance Minister, Paul Martin; Minister of Natural Resources, Anne McLellan; CEO of Syncrude, Eric Newell; Chairman of the National Task Force on Oil Sands Strategies, Dr. Erdal Yildirim; and Executive Director of the Alberta Chamber of Resources, Brad Anderson, among many too numerous to mention.
Based on the spirit of the Declaration of Opportunity, the federal government reclassified oil sands mining and in-situ facilities so they qualified for a 100% Accelerated Capital Cost Allowance (ACCA). Meanwhile, the Alberta government adopted a generic royalty regime dividing oil sands projects into a pre-payout phase (subject to a gross revenue royalty of 1% to 9%, based on the price of oil, until the operator recovered all allowable capital and operating costs, plus a return allowance), and a post-payout phase (with a maximum 25% net revenue royalty rate after costs).
These tax and royalty changes helped unleash three decades of unprecedented growth in the oil sands industry; a fact recently pointed out by Don Wright, a former Deputy Minister in the Saskatchewan and British Columbia governments.
As perceptively noted by Don Wright:
- Between 1996 to 2015 capital investment in the oil sands was more than $360 billion (measured in 2025 dollars).
- Oil sands production grew from 430,000 barrels per day (b/d) in 1995 to 2.38 million b/d in 2015 and 3.5 million b/d in 2025.
- Between 1995 and 2025, real GDP grew by 23% more in Alberta than it did in the rest of Canada, with primary driver being the significant increase in investment in the oil sands and the boost in production.
- Albertans’ growing contribution to the federal net fiscal balance, driven by the dramatic increase in investment and expanding oil sands production, reduced the federal government’s debt load, as of 2024, by an estimated $590 billion than it would have been without the presence of the oil sands industry.
Without cooperation between the federal government, the Alberta governments, and industry, back in 1996, the significant growth of the oil sands industry would not have occurred to anywhere near the same degree as it has over the past three decades.
In fact, I have very conservatively estimated that, between 2007 and 2019, Alberta’s oil and gas extraction sector (including the oil sands) contributed about $53 billion, or 19%, to the $272 billion of Albertans’ net fiscal contribution (NFC) to the federal government balance sheet in Alberta. Even if we assume that the oil sands contributed about half of that $53 billion, say $26.5 billion (likely underestimated); that is $26.5 billion that would have been absent from the federal balance sheet in Alberta. It should also be noted that in the past decade alone, the Government of Alberta has collected nearly $90 billion in royalties from the oil sands sector. And the provincial royalty take from the oil sands in 2026/27 is estimated to be over $18 billion, the highest on record.
Albertans have some legitimate grievances about current federal-provincial fiscal arrangements, and they deserve to be addressed by governments at the national and provincial levels. But Albertans’ response to these types of challenges has never been to “take our ball and go home” or retreat behind “walls of separation.”
Albertans have always turned challenges into opportunities, just as they did with the oil sands. We have a well-deserved reputation as a province for tearing down the walls of division and discord in favour of unity and cooperation within a united Canada. And we can do so again under the banner of renewed cooperative fiscal federalism.
I have talked a great deal over the past year about the need for greater fairness for Albertans in federal-provincial fiscal relations and made some recommendations for changes. As a first step, I believe first ministers, including the prime minister, should agree to conduct a comprehensive, independent federal-provincial commissioned review of federal-provincial fiscal relations, including the Equalization Program, and other major federal transfer programs, such as the Canada Health Transfer (CHT) and Canada Social Transfer (CST), offering recommendations that ensure fairness, reduce complexity, increase transparency, promote accountability, encourage economic growth and ensure continued relevance. This should be a similar exercise, but much broader in scope, to the 2005-06 Expert Panel on Equalization and Territorial Formula Financing (the “O’Brien Panel”), formed in 2005, the result of agreement among first ministers in October 2004.
A co-operative approach to fiscal federalism, as occurred with the oil sands back in 1996, will strengthen national unity and ensure all provinces are treated fairly. Let’s pursue a broad memorandum of understanding (MOU) between the federal government and the provinces on reforming fiscal federalism, with Alberta in a leadership role once again.
Sincerely yours,
Lennie Kaplan
Lennie Kaplan is a former senior manager in the Fiscal and Economic Policy Division of Alberta’s Ministry of Treasury Board and Finance (TB&F). During his tenure, he focused, among his other duties, on assisting in the development of meaningful options to reform federal-provincial fiscal arrangements.
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