MORGAN: The University of Calgary’s assessment of Alberta’s independence costs is the least flawed to date

Much has been made of a recent report commissioned by the government of Alberta and conducted by the University of Calgary on the prospective costs of Alberta’s independence. With authors coming from respected Alberta conservative circles, it was hoped that critics of the conclusions would be muted. While the report wasn’t as out to lunch as the one created for Gil McGowan’s union organization nor as negative as the Canada West Foundation’s report, it still maintained the federalist slant sought by its tax-funded benefactors.The report is strongest as a catalogue of negotiation variables and weakest as a proof that independence fails. The estimates of costs are wide, though legacy media tended to only report the worst-case scenario, with startup costs for independence being $170 billion over five years.In its long-term speculation, the report does conclude an independent Alberta could be viable and prosperous. It was determined that after transition, GDP could be 3.4% higher, wages about $1,850 higher, taxes about $1,150 lower, and the budget swings to a $7.8 billion surplus. Most media accounts of the report neglected to mention that part.Establishment media treated $170 billion as the price of opening a country, as if Ottawa mails a bill the morning after a yes vote. The report’s own tables do not work that way. The report works on two scenarios. One where transition is smooth, and one where it’s difficult. In the smooth case, the $208.8 billion debt increase is mostly $158.3 billion of assumed federal debt, plus $50.5 billion of transition and fiscal effects. In the difficult case, inherited debt is still $158.3 billion; the extra $168.6 billion is deficits and setup stacked on a bad negotiation. The famous $50–$170 billion band is a blend of one-time institution building, multi-year budget gaps, and accounting for obligations that already exist at the federal level..Characterizing existing expenses and debt as new ones in an independent Alberta has become a hallmark of federalist reports. It’s not as if Alberta isn’t on the hook for those costs and debt if it remains in the federation. It’s just a transfer of authority. Albertans already hold federal debt as Canadians. Calling a negotiated slice of that debt a “cost of leaving” is like calling your share of a joint mortgage the fee for ending the marriage.Since 1961, Alberta has sent on the order of $631 billion more to Ottawa than came back. The overview also puts the current annual net contribution to the rest of Canada around $15.5 billion (low side). If you count inherited federal debt as an independence cost, honesty requires counting the end of the net outflow as an independence gain. The report does the first much more loudly than the second.The report has two scenarios for an independent Alberta but assumes a stable single track for staying within the federation. There is no speculation that Canada may get worse over time. There could be another production cap, another clean electricity straitjacket, another decade of delayed projects, and the equalization formula could be revised to become even worse. What happens if Canada decides to put export tariffs on Alberta’s products? With decades of federal economic abuse directed toward Alberta, a balanced report should have built in speculation that more could be coming down the pipe. Perhaps Prime Minister Mark Carney is just waiting for the referendum to pass before making a move.The report differs from others in that it provides analysis of what would happen to the rest of Canada if Alberta were to depart. And the picture isn’t pretty. Investment per person falls from about $8,500 to $7,600, the federal treasury loses the $15.5 billion gap, and BC is physically cut off from the rest of the country. This is actually a demonstration of the cost of Alberta remaining in the federation but framed to show the impact on Canadians to keep the independence option looking negative..The expenditure paper asks what it would cost to replicate what the federal government now does in Alberta. It assumes, though, that an independent Alberta would want or need to replicate services in the same way Ottawa provides them today and offers the highest cost scenario. Alberta could potentially have a smaller, more efficient government and wouldn’t need to build a carbon copy of the one it just left. Also, much of the framework for the services already exists in the province and doesn’t need to be created from scratch. To be fair, Alberta could screw up and build a bad government model or could be fiscally irresponsible. But again, that is going down the rabbit hole of variables.The report determines that leaving federal environmental law could raise resource productivity and investment certainty, leading to a stronger domestic economy. It then warns that Canada could block pipeline access to outside markets. Canada already does that, and it’s hard to imagine leverage would be reduced with an independent Alberta. There would be a better-defined mutual self-interest with an independent Alberta negotiating West Coast access for increased oil and gas exports when Alberta controls the few rail lines leaving BC, for example.The spreadsheets aren’t fake, and the report gives a decent accounting of prospective costs for Alberta’s independence. The variables are massive, though, and some of the accounting for them was selective in order to make independence look less attractive. The range in estimates is strongly based on what Canada’s approach would be in negotiating Alberta’s exit. An assumption that Canada would be intransigent, punitive, and hostile only makes the case for independence stronger. Are those indications that the province is currently in a healthy relationship within the federation?The report is among the better ones going around as the referendum approaches in Alberta, but it still is inherently biased. It was modelled to make a vote to remain in the federation appear more attractive, and in being more moderate in its tone, it may be an effective political document for the federalist case. With tax dollars funding it, though, it would have been hoped we could see less bias.

MORGAN: The University of Calgary’s assessment of Alberta’s independence costs is the least flawed to date

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