Hot Off the Press! Occasional Paper 46: Oil Rents and the Politics of Equalization in Canadian Federalism

Cover of Oil Rents and the Politics of Equalization in Canadian Federalism

Oil production and Equalization payments are two contentious and often overlapping subjects in Canadian politics. Albertaโ€™s Premier recently argued that his provinceโ€™s energy sector pays a disproportionate share of the Equalization payments that Quebec receives. This came after Quebecโ€™s Premier referred to Alberta oil sands as โ€œdirty energy.โ€ Canadian federalism has become the stage for the debate on oil rents and the politics of Equalization. The purpose of Canadaโ€™s Equalization program is to reduce the horizontal fiscal imbalance between provinces to ensure public services of comparable quality. Whereas Canada is the worldโ€™s fourth largest producer and exporter of oil, proven reserves are largely concentrated in the Prairiesโ€™ oil sands. Eastern Canadian provinces, including Quebec, have so far been the main recipients of federal Equalization payments. But to what extent do oil revenues sustain Canadaโ€™s Equalization program? This paper argues that oil rents in no way sustain the Equalization program, because these are revenues that belong exclusively to the provinces. However, provincial ownership of natural resources and their uneven geographic distribution actually contribute significantly to the regional wealth disparities that Equalization tries to mitigate. This study provides an overview of oil policy and federal transfer payments, paying close attention to the structure of Equalization. The objective is to demystify some of the claims surrounding the relationship between oil revenues and their redistribution and thus better inform policy debates on equalization in Canada.

La production pรฉtroliรจre et les transferts en pรฉrรฉquation sont deux sujets contentieux en politique canadienne qui souvent se chevauchent. Le premier ministre albertain a dรฉclarรฉ rรฉcemment que le secteur รฉnergรฉtique de sa province paie une part disproportionnรฉe des transferts en pรฉrรฉquation que reรงoit le Quรฉbec. Cette dรฉclaration est en rรฉponse ร  celle du premier ministre du Quรฉbec qui a qualifiรฉ les sables bitumineux albertains ยซ dโ€™รฉnergie sale ยป. Le fรฉdรฉralisme canadien sโ€™est ainsi retrouvรฉ au cล“ur dโ€™un dรฉbat sur les rentes pรฉtroliรจres et la politique de la pรฉrรฉquation.Le but du programme de pรฉrรฉquation au Canada est de rรฉduire le dรฉsรฉquilibre fiscal horizontal entre les provinces afin dโ€™assurer des services publics de qualitรฉ รฉquivalente. Alors que le Canada est le quatriรจme producteur et exportateur de pรฉtrole au monde, ses rรฉserves รฉtablies sont largement concentrรฉes dans les sables bitumineux des Prairies. Les provinces de lโ€™Est canadien, incluant le Quรฉbec, ont jusquโ€™ร  prรฉsent รฉtรฉ les principaux bรฉnรฉficiaires des transferts fรฉdรฉraux en pรฉrรฉquation. Mais dans quelle mesure les revenus pรฉtroliers financent-ils le programme de pรฉrรฉquation canadien? Le texte soutient que les rentes pรฉtroliรจres ne financent pas la pรฉrรฉquation, car ces revenus appartiennent exclusivement aux provinces. Toutefois, puisque les provinces possรจdent ces ressources naturelles et quโ€™elles sont rรฉpandues de maniรจre inรฉgale sur le territoire canadien, cela accentue de faรงon significative les disparitรฉs รฉconomiques rรฉgionales que la pรฉrรฉquation tente dโ€™attรฉnuer. Lโ€™รฉtude offre un survol des politiques qui encadrent la production pรฉtroliรจre et les principaux transferts fรฉdรฉraux, accordant une attention toute particuliรจre ร  la pรฉrรฉquation. Lโ€™objectif est de dรฉmystifier certaines affirmations ร  lโ€™รฉgade la relation entre les revenus pรฉtroliers et leur redistribution afin dโ€™รฉclairer les dรฉbats politiques sur la pรฉrรฉquation au Canada

Author: Nikola Brassard-Dion is a PhD candidate in Political Science at the University of Ottawa and member of the Centre on Governance. His main areas of research are comparative federalism, constitutional politics, and multiculturalism policy. For inquiries, write to Nikola.Brassard-Dion@uottawa.ca.