A decline in Alberta’s fortunes means a decline in Quebec’s – by Gwyn Morgan (Globe and Mail – July 6, 2015)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

TransCanada Corp.’s 4,600-kilometre Energy East pipeline would carry Alberta crude oil to refineries in Quebec and New Brunswick that are dependent on Middle East imports.

Last November, the Quebec government declared that, for the pipeline to cross the province, it must generate economic benefits. Then on June 23, Quebec Premier Philippe Couillard told reporters that he didn’t see much economic value for his province in being a “transit place” for the pipeline.

New Brunswick Premier Brian Gallant was quick to respond: “The province of Quebec is … estimated to receive … about 4,000 jobs … an increase of about $3-billion in the GDP and, on top of that, about $700-million in extra tax revenue.”

Given the size of those economic benefits and that they are roughly twice those that would accrue to Premier Gallant’s own province, Mr. Couillard’s statement is indeed baffling. Perhaps it’s simply a matter of the anti-oil bias he illustrated later in the interview: “I prefer a world without fossil fuel, only electric, you know.”

Alberta is of course, Canada’s biggest fossil fuel producer, and most dependent on the success of the Energy East project. But what Mr. Couillard fails to recognize is that a decline in Alberta’s economic fortunes also poses an indirect threat to his province’s own financial sustainability. Why? The answer lies in the structure of the federal Equalization Program.

A province’s equalization entitlement is based on the amount by which its “fiscal capacity” is above or below the average of all 10 provinces (known as the “10 Province Standard”). Those falling below that average are commonly referred to as “have-not” provinces.

Quebec has received an equalization grant every year since the program was established in 1957. And since Ontario became a have-not province in 2009, B.C., Alberta, Saskatchewan and Newfoundland/Labrador have been the only net contributors to federal equalization funding.

For the rest of this column, click here: http://www.theglobeandmail.com/report-on-business/rob-commentary/executive-insight/a-decline-in-albertas-fortunes-means-a-decline-in-quebecs/article25309327/?ts=150706095052&ord=1

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