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Post : Jack Mintz: Pipeline antagonism and lopsided equalization stir Catalonian feelings in Alberta
URL : http://business.financialpost.com/fp-comment/jack-mintz-pipeline-antagonism-and-lopsided-equalization-stir-catalonian-feelings-in-alberta
Posted : October 13, 2017 at 7:30 am
Author : Jack M. Mintz
Tags : Canada, Catalonia, Energy East Corporation, Recessions and Depressions, Spain, Western Europe
Categories : FP Comment

It was not at all helpful that the less-than-affable Montreal mayor, Denis Coderre, declared it a “victory for Canada” when TransCanada withdrew its licence application for Energy East, a pipeline project that actually would have provided market-diversification benefits to the national economy. It would be no different than if the mayor of, say, Winnipeg — home to a Boeing plant — declared it a Canadian victory after the U.S. Commerce Department slapped on two import duties on Quebec’s heavily subsidized Bombardier planes.

Coderre’s insensitive comment reminds many Western Canadians of their own past grievances. It was Prime Minister Justin Trudeau’s father who, with the 1980 National Energy Program, imposed a breathtakingly unfair wealth transfer from Western provinces to Central Canada. Pierre Trudeau had slapped export taxes on Alberta oil exports to the U.S. to subsidize energy imports for Eastern Canadians. Maritimers, Ontarians and Quebecers got cheaper gasoline and heat paid for by Westerners. Ottawa’s blatant prejudice stirred some Westerners to entertain the idea of separation, but after the Mulroney government was elected in 1984 and dismantled the NEP, the idea returned to Alberta’s political fringe.

Regional conflict is not new in Canada, or in other federations. These conflicts can arise over “taste” (i.e., cultural and historical issues) or “claim” (economic resources). Conflict of taste is due to differences among regions with respect to laws and the role of government. Conflict of claim arises from rich regions transferring resources to support other parts of the country. Conflict of claim is most difficult to manage when a small, rich region is expected to support a large, poor region, because it takes large per-capita transfers from the small region to make any meaningful impact on the incomes of those in a more populated region. The recent uproar in Spain over Catalonian independence illustrates both conflicts.

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Catalonia has a distinct language, as well as distinct laws and customs. While various Spanish kings tried to conform Catalonia (and the Basque Country) to Spanish ways, the strategy eventually failed. After Catalonia elected a separatist municipal government in 1931, it won its autonomy from Spain in 1932. The autocratic Franco regime stripped that away after the Spanish Civil War in 1938, reasserting centralized control. But democracy returned to Spain in 1975 and Catalonia regained its autonomous status in 1979 when Madrid divested spending and judicial powers to various regions.

Catalonia is also a rich, industrialized region accounting for a fifth of Spain’s GDP, with a per-capita GDP one-quarter larger than the Spanish average. After the debilitating 2008 recession, Catalonian resentment grew as Madrid collected much of the region’s wealth — estimated at eight per cent of Catalan GDP — to transfer to other Spanish regions. This month, Catalonians voted 92 per cent in favour of independence in a referendum that the Spanish government tried to block and declare illegal. 

The new Catalonian quest for separation illustrates the consequences of conflicts over taste and claim. While Canada has had its own experience with periods of regional conflict over taste and claim, they have been much different in nature. Tensions have lessened since the 1980 National Energy Program and the 1995 Quebec referendum that saw separatism lose by a razor-thin margin. But regional conflicts have a way of resurfacing, especially when economies take a turn for the worse. 

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Quebec is a good example of a conflict over taste. The province has a language and institutions distinct from the rest of Canada, including its history of French-based civil law, rather than British common law. Its population favours an activist government that preserves its unique culture and manages its economy.

Unlike Catalonia in Spain, however, Quebec is not a rich province. Its per-capita income is 20-per-cent below the Canadian average. Its provincial spending is heavily funded by equalization and other transfers arranged by the federal government.

Because other Canadians must be taxed for those transfers is what leads to a potential conflict of claim. From 1965–99, Canada’s three richest provinces, responsible for the majority of Canada’s GDP, shouldered the burden of supporting all the other provinces and territories, including Quebec, via equalization. But at the turn of this century, that changed. Under the equalization formula, B.C. became a have-not province from 2000–07.  By 2009, Ontario met the same fate. That Alberta — a province comprising less than half of Canadian GDP and less than 10 per cent of its population — was left holding the bag, created the worst type of scenario for conflict of claim.

Today, Alberta, B.C., Saskatchewan and Newfoundland are all “have” provinces, despite having suffered through depressed resource prices since 2014 (blame the time-lag and other little-understood peculiarities of the equalization formula). The federal government now redistributes taxes collected from those provinces by sprinkling $18 billion among the other provinces and territories. And Western alienation is beginning to rear its head again.

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It’s not solely because equalization isn’t serving the West well. Nor is it solely because of TransCanada’s decision to cancel Energy East in the face of regulatory overload. But it does arise from a sense that the federal government’s professed support for resource provinces is hollow.

Even though the Liberal government approved the Trans Mountain pipeline expansion and the replacement of Enbridge’s Line 3 pipeline, it has approached resource development half-heartedly. Other projects have been blocked or abandoned. Regulatory rules have changed to make approvals slower, more complicated and less certain, hurting the industry’s international competitiveness. The government has raised taxes on resource firms but its subsidies for Central Canada’s manufacturing and aerospace firms continue unabated. Where Ottawa provided emergency aid to Ontario’s manufacturers in the 2009 recession, it can barely lift a finger to help Alberta and Saskatchewan with their brutal recessions, refusing even reasonable requests, like funding a reclamation program for abandoned oil wells that would both put skilled workers back to work and help the environment. That Energy East collapsed under Ottawa’s regulatory overload, appeasing the desires of a Liberal mayor in Quebec and, likely, more than a few Quebec Liberal MPs, is just the latest in a series of aggravations that are making the conflict worse.

Today, Western Canada is nowhere close to the separation push of Catalonia. However, if Ottawa’s public policy keeps handing Canada’s Coderres their “victories” by hurting Western opportunities, this country’s regional conflicts of claim will bring consequences difficult to predict. 

Jack Mintz is the President’s Fellow at the University of Calgary School of Public Policy.

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