In 2023, Quebec was responsible for approximately 19 per cent of Canada’s GDP, around $504.5 billion. Recent numbers available for Alberta show we were responsible for 16.9 per cent of the national GDP, or $344.1 billion in 2023.
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So why, according to Canada.ca’s release of Federal Transfer Dollars, is Quebec receiving $13.6 billion in equalization payments while Alberta gets nothing?
The simple answer is, GDP isn’t how equalization transfers are calculated. It’s all about fiscal capacity, meaning a province’s ability to generate revenue through taxation relative to a national standard.
This includes revenue sources like income tax, corporate tax, and royalties on natural resources. Alberta has oil and gas, while Quebec has hydro—lots and lots of hydro. Hydroelectricity is an export based on natural resources, so shouldn’t it be counted the same way as Alberta’s oil? Not exactly.
Quebec’s hydroelectric industry is largely managed by Hydro-Québec, a Crown corporation that generates revenue through electricity sales. Unlike oil and gas royalties, which are taxed directly, Crown corporation revenues are counted indirectly. Quebec profits from Hydro-Québec through dividends paid to the provincial government. These dividends are included in the equalization formula.
The equalization formula considers 50 per cent of a province’s natural resource revenues to avoid discouraging resource development. Hydro-Québec’s revenues do count, but since they come through a Crown corporation rather than direct royalties, they aren’t assessed like Alberta’s oil revenues.
One potential but controversial solution for Alberta would be to revamp its 1970s-era Alberta Energy Company and provincialize all oil and gas production, refining, and distribution.
This would effectively nationalize Alberta’s oil industry as Hydro-Québec controls hydroelectricity in Quebec.
However, this would face three significant challenges.
There would be private industry and political opposition. Alberta’s energy sector is heavily privatized, and oil companies would fiercely oppose government control. The startup costs would be in the billions, and it is bound to upset Ottawa and potential trade partners.
If done correctly, an Alberta oil crown corporation could function similarly to Hydro-Québec and potentially limit the federal government’s ability to collect as much from Alberta. However, given the financial and political hurdles, it’s unlikely to happen anytime soon.
For now, Albertans will remain net contributors to equalization, helping fund other provinces for the foreseeable future.
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