Why can’t all Canadians share in the riches?

Special to The Globe and Mail
Published Friday, Feb. 12, 2016

It’s been a long time since Canadians got into a good old-fashioned national bun fight. Perhaps because our economy did well after the 2008-09 global economic crisis, we were able to stop bickering and focus attention on other things. But now, Canadians are gearing up for a national squabble that could trigger another round of constitutional crises – and it’s all around natural resources.

One of today’s most pressing economic concerns is addressing insufficient market access for Canadian oil. Pipelines are resisted by various regions and interest groups in the country, which somehow believe that “consultation” means a veto on the project. Meantime, the land-locked oil producing provinces are desperately trying to figure out how they’ll be able to deliver their commodities to global markets.
The dilemma is rooted in two programs that have become part of our Constitution.

The first is the allocation of natural resources to the provinces. This dates back to the time of the British North America Act by our Fathers of Confederation in 1867, when commodities provided a paltry source of government revenue. Who could be bothered with the minuscule economic rents generated by coal, timber and other natural resources? Toss those to the provinces and let them worry about it. Nearly a century and a half later, resources are the primary engines of our economy – and the main reason for income disparity across provinces.

The second is the constitutionally enshrined principle of equalization payments. The program is deeply flawed and a long-standing flashpoint of anger in parts of the West – and lately that anger has been growing. It gives ammunition to those in the petroleum industry (and its supporters) to threaten mayors in Montreal that we will “cut off” payments if Quebec doesn’t like oil pipelines. Neither that sentiment nor those of the Montreal mayors are helpful in nation building.

The provincial responsibility for resources cannot be undone – there is no unscrambling the egg. And that’s a shame. Should not Prince Edward Islanders benefit directly from the value of petroleum resources in their own country? And shouldn’t Albertans share in the value of nickel deposits in their own country, too? Resources belong to the provinces only because the Constitution says they do. Selling the idea of a west-to-east pipeline would be easier if taxpayers in every province benefited equally from the sale of that oil.

Similarly, we aren’t going to axe the equalization program, which was enshrined in the Constitution back in 1982. Ironically, Quebec – the province that receives the greatest amount of equalization (although not in per capita terms) – never signed on to the repatriated Constitution Act of 1982. And while economists are far from unanimous as to whether the program has been a benefit or a detriment to the country, there’s no getting rid of it now. (As for those angry Westerners who think they can “cut off” regions that receive equalization payments, they should go back to school to learn how the system actually works.)

Had the Fathers of Confederation decided over their glasses of scotch that resources should have been a federal jurisdiction, much of today’s problems wouldn’t exist. The fiscal disparities between resource-rich regions and the “have-not” provinces would be smaller and the us-versus-them attitude toward natural resources would be replaced by a stronger sense that we’re all in this together.

So where does that leave us? We have a system whereby resource revenues flow to the provinces, offset partly by Ottawa redistributing some cash to those regions less financially endowed. A far from perfect situation, but one that is not going to change.

What can change, however, are Canadians’ attitudes. In 2016, do we want to remain 13 tiny fiefdoms arguing about our rights and what belongs to us, like toddlers in a daycare? Or do we actually want to act like a medium-sized nation, endowed beyond belief by the riches of this Earth, and work together to bake a bigger economic pie?
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Tempering our small-minded notions of what belongs to us (i.e., resource revenue) and what we are entitled to (i.e., equalization transfers) is the only way Canada will achieve its full potential.

​Todd Hirsch is the Calgary-based chief economist of ATB Financial and author of The Boiling Frog Dilemma: Saving Canada from Economic Decline.