441-00225 (Economy and finance)

The Government of Canada thanks the petitioners for expressing their views about federal transfers and pipelines.

The Government of Canada recognizes that Alberta is indispensable to the social and economic fabric of Canada and it is committed to supporting Alberta families, workers and businesses. The government provides significant financial support to all provinces and territories to support social programs. In 2022-23, Alberta will receive $7.1 billion through major transfers to help pay for health care, education and other social services.   

Through federal investments of $27.2 billion over five years in early learning and childcare, Alberta will receive almost $3.8 billion over the five year agreement. The government has also announced $625 million over four years for provinces and territories for an Early Learning and Child Care Infrastructure Fund. This additional funding will help support Alberta’s implementation of the Canada-wide early learning and childcare system.

In addition to the funding regularly provided to provinces and territories through major transfers, the Government of Canada has provided significant direct support for provinces and territories to fight the COVID-19 pandemic. Approximately eight out of every ten dollars invested to support Canadians and fight COVID-19 has come from the federal government[1]. The government provided more than $1.9 billion in direct payments to the Government of Alberta through the Safe Restart Agreement, the Safe Return to Class Fund and the Essential Workers Support Fund. Budget 2021 reiterated the government’s commitment to supporting provinces and territories through COVID-19. For instance, subsequent to the passage of Bill C-30, the government is providing an additional $4 billion to continue supporting Canada’s health care systems, including $465.3 million for Alberta, as well as $1 billion for our country’s immunization plan, including $116.3 million for Alberta. The government has also announced a $2 billion Canada Heath Transfer top up to clear backlogs and support hundreds of thousands of additional surgeries. This would provide $232 million to Alberta. Moreover, the unprecedented investment by the Government of Canada to help stabilize the economy with broad measures to support businesses and individuals supported Albertans and Alberta businesses, and also benefited provincial and territorial tax bases from the economic effects of the Canada Emergency Response Benefit, Canada Emergency Wage Subsidy, Canada Emergency Business Account and other programs.

The government recognized that energy-producing regions were facing the compounding challenges of COVID-19 and the impacts stemming from the 2020 shock to oil prices. The Government of Canada therefore announced significant funding to assist oil-producing provinces, including:

• $1 billion to Alberta;
• $400 million to Saskatchewan;
• $320 million to Newfoundland and Labrador;
• $120 million to British Columbia; and
• A fully-repayable loan of $200 million to the Alberta Orphan Well Association, to clean up orphan and inactive oil and gas wells. 

In addition, the Government of Canada is providing support to conventional and offshore oil and gas companies through the Emissions Reduction Fund.

Equalization is the Government of Canada’s transfer program used to reduce fiscal disparities among provinces. The principle of Equalization is set out in the Constitution, namely “to ensure that provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation.” Since its inception in 1957, the Equalization program has provided benefits at some point in time to every province in Canada.  Equalization is funded entirely by the Government of Canada from general revenues; provincial governments make no contributions to the Equalization program. 

The allocation of Equalization payments is based on a measure of fiscal capacity, which represents the revenues a province could raise if it were to tax at the national average tax rate. Equalization supports provinces that have a lower-than-average ability to raise revenues by filling the gap between a province’s fiscal capacity and the national average fiscal capacity. Alberta does not receive Equalization because it has a higher-than-average ability to raise revenues, despite its recent economic challenges. Equalization reduces, but does not eliminate fiscal disparities; the fiscal capacities of non-receiving provinces remain above the national average. 

Equalization payments are calculated according to a formula set out in the Federal-Provincial Fiscal Arrangements Actand in regulations made under the Act. They are calculated no later than three months before the beginning of a fiscal year. The details of the calculations are provided to provincial governments and are publicly available upon request.

The legislation governing the Equalization program is reviewed on a periodic basis to ensure the program is meeting its objectives and using the most up-to-date and accurate measures in the determination of provincial entitlements. The Government of Canada consults regularly with provincial governments as part of the review process. For example, regular working level meetings were held between federal and provincial officials to discuss the 2019 renewal of Equalization.  Provinces were also consulted on the renewal at the December 2017 Federal-Provincial-Territorial Finance Ministers’ Meeting. Equalization was renewed for a five-year period beginning April 1, 2019 through the Budget Implementation Act, 2018, No. 1, which received royal assent on June 21, 2018. Improvements to the accuracy and efficiency of the calculation of entitlements were made through amendments to the Federal-Provincial Fiscal Arrangements Regulations, 2007, which were published in the Canada Gazette Part II, Vol. 152, No. 14 on July 11, 2018. The Government of Canada will continue to work collaboratively with all provinces on Equalization in the lead-up to the next renewal of the program, which must take place before March 31, 2024.

Another program – the Fiscal Stabilization Program – provides financial assistance to provinces in the event of sudden, significant declines in revenues, even if the province does not qualify for Equalization. The program provides financial assistance to any province faced with a year-over-year decrease of more than 5 percent in its non-resource revenues or of more than 50 percent in its resource revenues, with adjustments for interactions between the revenue sources.  Payments were capped at $60 per person for a given fiscal year.

The Fiscal Stabilization program was last reviewed in 1995 and, following calls from provincial and territorial governments and academics for the program to be modernized, the Government of Canada proposed reforms in the Fall Economic Statement 2020 which were implemented by Bill C-30, An Act to implement certain provisions of the budget tabled in Parliament on April 19, 2021 and other measures. Specifically, the government indexed the maximum payment of $60 per capita, which was set in 1987, to Canadian economic growth per person since that time. As a result, the cap has nearly tripled to about $170 per person in 2020-21, and will grow in line with Canadian economic growth per person in the future, raising it to about $180 per person in 2021-22, for example. In years when the economy declines, the cap will remain at its preceding year’s level. For Alberta in particular, the maximum payment for 2020-21 has been raised from $265 million to about $748 million as a result of this change. The Minister of Finance retains the discretion to extend interest-free loans for eligible revenue declines above the cap, if requested by a province. In addition, the Government of Canada made technical changes to modernize and simplify the program.

[1] Based on Finance Canada calculations of federal pandemic support and provincial and territorial government announcements. Other publicly available analysis has been conducted at a disaggregated jurisdictional level, such as in Still Picking up the Tab, released in August 2021 by the Canadian Centre for Policy Alternatives.

Pipelines remain the safest, most efficient way to transport petroleum products to markets.

The Government of Canada consistently supported the Keystone XL project, and advocated for it at the highest levels of the U.S. government. The government is focused on creating conditions to attract investment, create jobs, and get Canada’s resources to export markets.

To that end, the Government of Canada remains committed to the TMX project, which has created over 13,500 jobs in B.C. and Alberta, and will provide access to offshore markets.

With regards to Line 5, it provides a reliable source of energy for Michigan, Ohio, Pennsylvania, Ontario and Quebec. A shutdown of this pipeline would have a profound impact on jobs and supply chains, raise the cost of supplies in the region, and take a financial toll on many Canadian and U.S. refineries and businesses.

Canada recognizes that Line 5 is a top priority issue affecting Canada’s national economy and energy supply. The Government of Canada has continuously advocated for the importance of Line 5 through engagements with the United States Administration. The Government of Canada is also collaborating with the provinces of Alberta, Saskatchewan, Ontario and Quebec, and industry and labour sectors.

Canada has made every effort in its engagements with the United States to resolve the Line 5 issue informally. However, these efforts were unsuccessful. As a result, in October 2021, Canada formally invoked the 1977 Transit Pipelines Treaty. The government is now in negotiations with the United States to ensure respect for its treaty obligations.

Canada also remains active in monitoring and intervening to protect the continued safe operation of Line 5 in the face of litigation in United States federal court, submitting amicus curiae in May 2021, and February 2022, and making additional submissions to the court.

Canada is supportive of all measures that would increase the pipeline’s environmental safety, which includes placing a portion of Line 5 in a tunnel under the Straits of Mackinac. The Great Lakes Tunnel Project would help make a safe pipeline even safer and continue to support the secure and efficient transportation of critical oil and gas products to the region and beyond.