Alberta-B.C. trade pact a tectonic shift
by Margret Kopala

Published in the Ottawa Citizen, July 29, 2006

Ralph Klein leaves the premiership of Alberta in December. Beyond the predictable ‘deficit slayer’, few assessments of his political legacy are yet available though on April 28, the verdict was in. That’s the date when a trade agreement signed by the British Columbia and Alberta governments laid the groundwork for what could become one of North America’s largest and most powerful economically integrated regions, one that in Canada rivals Quebec and challenges Ontario in population and GDP growth.

Ralph Klein was its instigator and lead author. If the agreement attracts other provincial premiers, they, along with B.C., would be co-authors of Canada’s long overdue economic union.

Few gave this tectonic shift named the Trade, Investment and Labour Mobility Agreement much attention, not even Ralph himself, signed as it was at the fourth annual meeting of the B.C. and Alberta cabinets in April. Equalization, the constitutionally mandated federal program that ensures provinces comparable levels of government services at comparable levels of taxation, is being revamped and is therefore a particular preoccupation of the premiers, including Klein. Fearing incursions on Alberta’s oil revenue, he’s gone out of his way to explain how Canadians, not just Albertans, benefit from the oil boom now producing so much wealth in Alberta.

In Ottawa last November, he told Ottawa’s Canadian Club how 20 per cent of some $885 billion projected activity in the oil sands will occur in provinces and territories outside Alberta. In fact, half the goods and services – heavy equipment and steel, for instance and 1.7 million per years of jobs - will come from other parts of the country over the next 20 years, he said. Similarly with income: “While Alberta will benefit to the tune of about $44 billion, the federal government’s income tax and GST coffers will grow by more than $50 billion…”

And like that other ‘have’ province Ontario, Alberta is sending more money to Ottawa than it receives in programs and services, much less equalization for which it is ineligible. Twice as much per taxpayer than Ontario, in fact, not that Alberta is complaining.

Ontario, on other hand, is complaining. The bane of Premier Dalton McGuinty’s existence, its flagging fiscal capacity results from a rising dollar that’s sent Ontario’s manufacturing industry into a job-loss tail-spin and is the ironic result of anti-inflationary measures undertaken by the Bank of Canada in the wake of rising commodity prices, such as oil. After productivity and corporate taxation issues, a dearth of commodities and an inexcusable energy situation, the fact Ontario appears through equalization to be subsidizing the profligate ways of other provinces has McGuinty quietly seething and scrounging for per capita transfer payments.

The squabble about this national income re-distribution scheme illustrates how the geopolitics of oil are affecting the Canadian federation. The onetime preserve of Alberta, oil now buoys the economies of Saskatchewan, Nova Scotia and Newfoundland while offshore resources could one day add to B.C.’s already buoyant economy. The current equalization formula precludes any calculation of non renewable natural resource revenues but recommendations from a federal government panel, if adopted, change that. Its ‘50% solution’, namely that half of all resource revenues including the hydro resources of provinces such as Quebec and Manitoba throws more fuel on an already unquenchable controversy. Little wonder this week’s premiers’ meeting in St. John’s produced no consensus.

Equalization analyses being legion, the skills of several Sheila Frasers would be needed to sort through it and the various levels of government to determine whether taxpayers are getting value for money. It is nonetheless an institution in the country’s fiscal landscape, one whose usefulness has not escaped federal Finance Minister Flaherty. If equalization is the carrot, the stick is Canada’s need for a true economic union among the provinces. And if Canada benefits from Alberta’s oil-boom spill-over, imagine what an economic union will achieve once the other oil- blessed provinces get rolling. Much more than equalization, you can be sure.

Fortunately, the agreement the Fraser Institute calls the most important since NAFTA provides not only the prototype for an economic union but is crafted to allow other provinces ease of entry.

Could that trade pact lead to the creation of a B.C.-Alberta super-province-cum-region state? Sure it could. It could also lead to a federation strengthened on sound principles of economic interaction.

As political legacies go, that’s not bad.

To comment, please send Margret an e-mail.