Author: Dennis Kalma, Co-Lead of the Alberta Transition Council
Lennie Kaplan has spent a career examining Alberta’s finances, and his scrutiny is welcome — we published Forward to Freedom and the Budget and Costing Report so people could test the numbers. But his latest analysis illustrates the problem we identified from the start: nobody knows what Alberta’s share of federal debt would be, because there is no agreed formula for it.
Start with the figure that made the headlines. Mr. Kaplan estimates that an independent Alberta could carry $364.1 billion of interest-bearing debt, or $68,871 per person.
That figure is two numbers added together: the $238 billion of federal debt he would allocate to Alberta, and the $126.1 billion Alberta already owes today — debt the province carries under Confederation, referendum or no referendum. So a third of the headline has nothing to do with independence, and the number reported to Albertans is half again as large as the federal allocation it is about.
Mr. Kaplan reduces even that himself. His $364.1 billion falls to $183.6 billion once financial assets are counted, and to roughly $81.2 billion once other federal assets are considered — a headline four and a half times his own final figure.
That is the most important thing in his analysis, and we agree with it. But “federal assets” does a lot of quiet work there, so it is worth saying what they are.
Ottawa holds money and claims on money — cash, the country’s foreign currency reserves, taxes owed but not yet collected, student and business loans, and its shareholdings in Crown corporations from Canada Post to the Bank of Canada. Then there is everything Ottawa owns that you can stand on or in: some thirty-eight thousand buildings, ports and airports, laboratories, ships and aircraft, and forty million hectares of land — all of it paid for in part by Albertans. In Alberta alone, the federal estate runs to more than eight hundred properties and four thousand buildings.
And some of it was never Ottawa’s land to begin with. The Alberta portion of the Cold Lake Air Weapons Range — over half a million hectares — is provincial land that Canada uses under agreement, with Alberta still owning the minerals beneath it. At Suffield, Canada owns the surface, and Alberta owns what lies underneath.
It is a century of entangled ownership that would have to be unpicked parcel by parcel.
Mr. Kaplan knows this: writing in the Western Standard on September 16, he listed “Crown corporations, military equipment, national parks, and other capital assets” among the things to be divided. He was right to.
Either way, it is not a federal bill arriving in Edmonton.
Different methods produce dramatically different answers. On September 3, in the Canada West Foundation’s volume, he put Alberta’s share at $174.2 billion on a population basis. Three weeks later, $238 billion. Paul Boothe, same volume, $258 to $333 billion. Mr. Kaplan’s own asset-adjusted figure, $81.2 billion. A spread of roughly a quarter of a trillion dollars.
There is a question inside his revision, too. The $238 billion, by his account, already credits Alberta roughly $130 billion for its historical net contribution. A credit should reduce Alberta’s share — yet it sits $64 billion above the uncredited $174.2 billion of three weeks earlier.
Something other than the credit is doing the work. Our own published position runs the other way. Forward to Freedom treats population share as the ceiling rather than the midpoint and says that if historical contribution were given any weight at all, it “would argue for a discount below population share, not a premium above it.”
Mr. Kaplan has himself set out the options. On September 16, he wrote that Alberta’s share could be based on “its proportion of Canada’s population, its contribution to nominal GDP, and its historical and projected future net fiscal contribution… both on a full and modified basis.”
That is four or five answers, not one. The formula will not be settled by analysts, but by negotiation.
That is why we put no speculative settlement in our operating budget. We carried Alberta’s share of federal debt and of federal assets at zero and disclosed the exposure separately. Recognizing one side without the other creates an artificial balance sheet. We would rather publish what we cannot price than price what we cannot yet know.
A debt owing is also not an annual operating expense. The budgetary question is the cost of servicing it, which Mr. Kaplan puts at $12.3 billion a year, including a borrowing-risk premium, while calling the exercise a best case.
So we tested it.
Our published bottom line is between $22.2 billion and $32.1 billion of annual financial room. Take the entire $12.3 billion out of that range — at his interest rate, on his allocation — and Alberta still finishes roughly $10 billion to $20 billion ahead.
The deeper disagreement is methodological. Some studies begin with what Ottawa spends and give Alberta a share of the federal establishment, answering one question: what would a portion of the existing Canadian system cost? We asked what an independent Alberta would need, costing twenty functions and testing the result against countries of Alberta’s scale.
The difference shows in his critique, which sets our roughly $13 billion a year of additional expenses from assuming federal functions against the University of Calgary’s $60.2 billion.
Those are not the same quantity. Our $13 billion is new government machinery. The $60.2 billion is the whole increase from absorbing everything Ottawa does, most of it cheques — pensions, benefits, employment insurance, transfers to the province. Money already paid to Albertans, and not a cost of government.
We keep those streams apart because, added together, any number becomes available. And it was Mr. Kaplan who asked for that discipline: his September 16 checklist called for reports separating the long-term fiscal shifts of independence from “the immediate, one-time transition costs.” We took the instruction. His comparison sets it aside.
An independent Alberta would not have to reproduce Ottawa department for department and dollar for dollar. It would be building its own government.
He also raises fair questions about trade and transition risk, adding at least $10 billion a year for trade friction and $10.9 billion for NATO-level defence. Do those sit inside his $16 billion consolidation, or on top of it? If inside, it carries far more than it appears. If on top, it is no longer a best case.
That $16 billion has moved, too. In the Western Standard on September 22, the consolidation was $12.9 billion, 7.3 per cent of program expenses, $39.5 billion cumulative. Three days later, in these pages, he was reported writing $16 billion, 10 per cent, nearly $75 billion cumulative — while every debt figure stayed where it was. Revising an analysis is legitimate.
But the revision is not published, and your readers cannot examine a calculation they cannot read.
Why there is room is straightforward. Albertans and Alberta businesses send substantially more to Ottawa than Ottawa spends here — University of Calgary research put the cumulative net contribution at roughly $631 billion between 1961 and 2018 (in 2018 dollars). Our room comes from taxes already collected in Alberta staying in Alberta, less the cost of the federal responsibilities. Not a pot of money, and not miraculous growth.
Mr. Kaplan writes that fiscal sustainability would have to be among an independent Alberta’s first priorities. We agree completely, and it is why the Council has published twenty-one working papers, a costing model and the assumptions behind them. Every figure can be traced.
The numbers should go on being challenged — but compared on the same basis. I would encourage Mr. Kaplan to publish the workings behind his latest estimates, so Albertans can weigh both and decide which model better reflects the choices an independent Alberta would face.
Dennis Kalma is Co-Lead of the Alberta Transition Council and principal author of Forward to Freedom and the Budget and Costing Report. Both are published in full, along with the Alberta Transition Plan, at albertatransitioncouncil.com.