How Alberta's proposed 'fair deal' plan could cut separatism off at the knees

A key to our future, found in our past.

In recent days, Alberta Premier Jason Kenney struck a committee that will study a number of provocative ideas in his self-avowed quest for a "fair deal" for Alberta.

These ideas will not only deliver thedeal Kenney seeks, but hold the potential to do much more. They could strengthen the very fabric of Canada in the face of both western and eastern alienation.

I think it's exactly the right way to go.

But then, I would it aligns with a vision for Alberta that I and like-minded conservatives such as Stephen Harper, Tom Flanagan, Rainer Knopff, Andy Crooks and Ted Morton championed years ago.

Alberta is angry. Justifiably so, as a consequence of real economic challenges, a sense this reality is ignored on the national political level, and a real sense that other provinces are privileged in both the national discourse and in practical economic support.

Anger always runs the risk of impotency; but frustration and rage are dead ends.

Talk of separation is a manifestation of rage, and while it serves as an articulation of anger, it is not a constructive or useful way to address Alberta's challenges. What Alberta needs instead are serious proposals backed by economic realities.

Kenney's dealis just that.

In order to see why, we need to go back in time.

Because Back to the Future is not just a good movie.

Alberta gets 'tough love'

In late 1998, global oil prices hit an historic low of $10.82 per barrel, or about $17.50 in today's money. Natural gas hit a low of $1.05, or about $1.70 in current dollars.

While both commodities slowly recovered over the next two years, these low prices sent a shock wave of angst through Alberta and formed an important backdrop to the 2000 federal election.

During the 2000 campaign, then prime minister Jean Chrtien made fun of his Alberta-based opponents.

"I like to do politics with people from the East," Chrtien said.

In contrast, his Albertan opponents were"a different type."

After claiming he was joking, Chrtien delivered a second punchlinesaying, "I'm serious."

Rather than find it funny, Albertans found it familiar the bad joke echoed TV ads Liberals were running against Alberta's health care system, as well as Chrtien's later comment that what the West needed was some "tough love."

In that election, Albertans expressed themselves by giving all but two seats to conservative parties (Canadian Alliance and Progressive Conservative). Mere months later, separatist sentiment was on the rise and an enterprising Alberta separatist party registered and started collecting signatures. Sound familiar?

Then, as now, a seeming contempt for Alberta's concerns sparked demands for political change.

The 'Firewall' letter

In January 2001, six of us (politicians, political scientistsand others of like mind) penned a letter to Alberta premier Ralph Klein, setting out an "Alberta Agenda" what became broadly known as the "Firewall" letter,as it called for Alberta to erect a "firewall" against unwelcome intrusions from Ottawa.

The Firewall was an Alberta project that we believed would both tap into, as well as diffuse, the angst felt in Alberta toward the rest of the country. Our intention was to turn a negative into a positive and ultimately avoid the crazy cul-de-sac of separatism.

Opening the Constitution was not part of the Alberta Agenda. Having suffered the battle scars of decades of constitutional wrangling, we strongly felt that it would just trigger another round of wrangling from which Alberta was unlikely to emerge stronger if it emerged at all.

Also, the policies had to be serious: ideas that could be done reasonably quickly at a reasonable (ideally lower!) cost and with a reasonable chance of success.

We proposed the province should create its own Alberta Pension Plan, collect its own taxes, have its own police force, take control of health care and its funding, and force senate reform onto the agenda. (Ideas that have now resurfaced in Premier Kenney's "fair deal" panel agenda.)

The reaction to our document 19 years ago was all out of proportion to our expectations, dominating headlines for weeks. It also caused a major problem.

We had released the letter in response to the federal election, but it came out mere months before premier Klein intended to call a provincial election.

• Klein to consider 'firewall' ideas

Klein was understandably a little miffed that we captured so much attention on issues around which he had not intended to campaign. His public and private response to us and our letter was understandably and decidedly cold.

We were a little miffed ourselves.

Ultimately, it didn't affect his electoral prospects. Ralph Klein won a massive majority including Edmonton! with 62 per cent of the popular vote.

He never did warm to the Firewall letter. Klein remained cool to us because he felt we had attempted to mow his lawn, and continued to be cool in part due to extenuating circumstances.

Within a year or two energy prices soared to breathless heights and Alberta was booming as never before awash in government revenues and prosperity. A couple of years after that, Canada installed a firewall in 24 Sussex Drive.

Stephen Harper was prime minister, Alberta was booming, the demands for structural changes diminished, and all was well.

Time passed, Alberta ignored the bumper sticker, and pissed away another boom.

Old ideas are new again

For a number of geo-political, social and technological reasons, oil prices are not quite at the same lows globally as in 1998, but the value Alberta gets for its oil is heavily discounted, and natural gas prices are near their historic lows.

As well, our largest customer has become our largest competitor, with the U.S. shifting from a massive global importer to a net global exporter of both commodities. Both Alberta and Canada were slow to respond to this global trend. In particular, replacing our American sales with global sales required something that seemed frustratingly out of reach: a pipeline to tidewater.

Hard times have returned.

• The anger is real, but is western separatism?

Here in Alberta, the sentiment, built on a series of hard realities, grew that Ottawa is to blame.

Pipelines seemed impossible to move forward or were cancelled. The hostility to pipelines seemed to extend to the industry itself. New regulatory requirements (C-69), bans on coastal tankers (C-48) and an aggressive climate agenda all felt like proof points for the prime minister's past musings about "phasing out" the oilsands.

Then came this year's election, where Justin Trudeau took a page from Chrtien's book.

In the French debate, Trudeau promised to fight Kenney and Ontario Premier Ford "et les petroliers qui les appuient" (and the oil types who support them).

On election day, Conservatives won all but one Alberta seat, and in the aftermath, pollsters reported western alienation at record heights. Now, as then, there are demands to renegotiate our provincial rights, responsibilities and controls within Confederation.

Against this backdrop, Alberta Premier Jason Kenney struck his "fair deal" panel.

For us Firewallers who've recently had much private correspondence urging us to craft Firewall II it's exciting news.

But, is it good for Alberta?

Evaluating the 'fair deal' plan

The immediate reaction from most of the "smart set" has been that there is no way Alberta could deliver programs cheaper or more efficiently than Ottawa. Their argument is that Alberta would lose so-called economies of scale.

That's not how I think. My view is that there are precious few things Ottawa does that Alberta could not do better.

When it comes to government and government administration, I reject the argument that bigger is better I am a conservative after all. But there is a substantive economic case behind the ideology.

• Alberta addresses separatist sentiment by studying measures that would give province more autonomy

Policies delivered by closer or smaller levels of government can be more attentive to the needs of a population than policies delivered by governments that are farther away and overweening.

I argue matters ought to be handled by the smallest, lowest or least-centralized competent authority. In both economics and law, the jurisdiction closest to the people is best able to meet local preferences most efficiently. There's evidence to back this.

And this is how we should assess the viability of the various aspects of Kenney's proposal.

Collecting our own income tax

Collecting our own income taxes is an expensive idea that may make a lot of sense.

Establishing a provincial revenue agency can be done unilaterally by pulling out of tax collection agreements. But it will cost about $500 million or more for Alberta to set up its own tax collection agency for personal income taxes.

The question is whether the additional flexibility would outweigh these costs.

Current tax collection agreements allow Alberta to set its own rates and tinker with some tax credits, but not define taxable income. Things like income splitting or making the family the basis of taxation are things Alberta could do with its own tax system that it cannot do today.

It's an expensive idea for the Alberta government, but it will create opportunities to improve economic and social benefits that are simply not available today. Still, the "fair deal" committee should explore what those benefits should be.

Alberta collects its own corporate income tax for similar reasons it allows Alberta to tailor its corporate tax regime to the very different industrial structure of our province.

I will also add that having Alberta collect federal income taxes (which Quebec is also demanding) is a non-starter.

Creating an Alberta pension plan

This is a no-brainer.

Not only will it be a net gain for Alberta, but it is the best tool we have to demonstrate the inherent unfairness of many federal policies for our province.

Alberta has both a younger and wealthier population than other provinces, and as a result Albertans subsidize CPP contributors in other provinces (though not in Quebec, it should be noted).

An Alberta Pension Plan, according to a Calgary Herald business column on an Alberta Investment ManagementCorporation (AIMCo) analysis leaked this week,could deliver exactly the same benefits for a much smaller premium to be precise, a premium over 25 per cent less (7.21 instead of 9.90 per cent of payroll).

Let's put this another way.

Over a quarter of the premiums collected in Alberta pay for pensions of residents in other provinces.

This works out to $2.0 billion (or $450 per Alberta resident per year) in premiums that Albertans are overpaying by not having their own identical pension plan.

Of course, AIMCo would be the ones potentially managing an Alberta pension, so it would be in their interest to suggest they could do it better. On the other hand, AIMCO is a serious investment agency and it would not be in their interest to fudge this important debate.

• What it would mean for pensioners if Kenney creates an Alberta pension plan

CPP legislation allows a province to pull out with three years' notice, if it sets up a "comprehensive" and "comparable" plan. Which is precisely what we should do, at least in the short- to medium-term.

But what about people who move in and out of Alberta? Will they lose their benefits?

Nope. People move between Quebec and Canada all the time without issues, and people move between private pension plans easily, too. No reason for this to be an issue.

But what about administering an Alberta Pension Plan?

Even if it cost Alberta twice as much to run its own Alberta Pension Plan (which is inconceivable), our premiums would still be 15 per cent lower than CPP premiums.- Ken Boessenkool

The operating costs of the Canada Pension Plan are 3.5 per cent of premiums raised.

Costs would only be higher in Alberta if the economies of scale were higher for running a 4.3-million person pension plan versus a 29.1-million person pension plan.

That seems unlikely.

But in case you doubt, consider this.

Even if it cost Alberta twice as much to run its own Alberta Pension Plan (which is inconceivable), our premiums would still be 15 per cent lower than CPP premiums.

Albertans would still be better off by roughly $430 per resident per year well worth it.

Kenney has said that pulling out of the CPP would also mean that Alberta would get $40 billion in investment funds from the CPP Investment Board moved to AIMCo.

If this happened, it, along with moving other Alberta public sector pension funds to AIMCo, would create a financial services powerhouse in its own right a decent diversification strategy. Butremoving CPP assets is not contemplated in the CPP legislation and will likely take some creativity and perhaps some time, even if there are private sector examples to go by.

In light of this, the "fair deal" committee could explore contracting out the investment management portion of the Alberta Pension Plan to the Canada Pension Plan Investment Board (CPPIB). In other words, just leave the money where it is and pay our share of the costs based on historic contribution shares.

Contracting to CPPIB would reduce one other risk namely that some future government would be tempted to dip into the fund for political purposes.

The downside to Alberta pulling out of the CPP is that Canadians outside Quebec and Alberta would have to raise premiums to maintain current CPP benefits up to 10.6 per cent from 9.9 per cent, according to AIMCo.

Whoops, I meant to write "upside."

It would be kind of nice to have a concrete demonstration of the size of the subsidy Alberta has been paying to the rest of the country a $2 billion annual subsidy from CPP alone.

I can't really think of any downsides. This really is a no-brainer.

A provincial police force

Since Ontario and Quebec already have their own police forces, the RCMP delivers provincial and municipal policing only outside the two largest provinces. This means Alberta covers 30 per cent of the RCMP contract.

Letting the RCMP contract expire and creating our own provincial force would allow provincewide policing to be better integrated with, for example, municipal police forces in Calgary and Edmonton and that function would be more efficiently done from within Alberta than from Ottawa.

The RCMP today does some municipal policing, some provincial policing and some national policing. Alberta would take over the two former functions, allowing the RCMP in Alberta to just do federal policing.

There would be some initial costs to make the switch and perhaps some ongoing administrative costs though Alberta is the second-largest jurisdiction in the current contract, so it's hard to imagine why costs would be higher.

Treaties, legal approval, firearms and constitution

Let's deal with four more proposals in rapid-fire fashion:

Seeking Alberta representation in international negotiations would require acquiescence from Ottawa, which makes it a non-starter though Quebec did gain access to some of these negotiations in the past.

Then, there's emulating Quebec's legal requirement that public bodies, including municipalities and school boards, obtain the approval of the provincial government before they can enter into agreements with the federal government.

I'm kind of stunned by this one.

Does the province not already know when bodies they fund enter into agreements with Ottawa? They really should.

If anything, emulating Quebec would improve co-ordination between governments and make the MUSH sector Municipalities, Universities, Schools and Hospitals more accountable to the government that pays their bills.

Next, there's the proposal for a Chief Firearms Office for Alberta. Again, a no-brainer, that is contemplated in existing legislation.

Finally, there's the idea of a provincial constitution.

Seems fine, as far as it goes, if we understand this continues the decades-long march to Americanize/presidentialize our parliamentary system things like the charter, over-powerful courts, fixed election dates and (worst of all) an independent senate.

As a conservative, I am wary of these radical changes to our fundamental institutions.

That leaves two more proposals and we've covered Kenney's full "fair deal" package.

Opting out of cost share programs and seeking tax points

Let's lump two "fair deal" ideas together and talk about health care. Even though both of them are broader than that, health care and the impending debate on pharmacare is where the rubber will hit the road.

Kenney has proposed that Alberta opt out of shared cost programs (programs funded by both the federal and provincial governments) with full compensation for Alberta to run its own programs.

He has also proposed that instead of Ottawa collecting taxes and then sending cheques to the provinces, Ottawa should let provinces collect this revenue themselves (the technical term for this is "transferring tax points to the provinces") for programs they run.

As a concrete example, I have for years called on the federal government to eliminate cash transfers to provinces by giving the provinces full access to GST/HST revenues.

So let's do a deeper dive on these ideas by focusing on health care.

Canadian health care is administered by the provinces but partially funded by the federal government. In addition, the federal government holds what some believe is the hammer withholding cash transfers if provinces do not abide by the principles of the Canada Health Act.

It is a basic principle of accountability that the level of government that runs a program should be the level of government that funds that program. Canadians are correctly confused about this connection when it comes to health care.

On the one hand, they have a provincial health care card, but constantly hear their provincial governments complain that Ottawa should pay more for health care. This jurisdictional blame game gives the provinces an out when it comes to improving health care.

On the other hand, Canadians are used to high-minded soliloquies from Ottawa about how amazing our health care system is. They hear prime ministers wax eloquently about the "biggest investment in health care in history," but they see no connection between paying taxes to Ottawa and the stitches their kids just got at the doctor's office.

Opting out and transferring tax points are two items in Kenney's "fair deal" package that are ways to solve this problem to get the federal government out of the health care game, and make our provinces more responsible for funding the programs they deliver.

And the messy debate around pharmacare will be a great opportunity to press this cause.

So these ideas are both cool and important.

But here's the catch: Alberta cannot do either of these things on its own only Ottawa can so even though they are great ideas, they won't happen so long as Liberals are in control in Ottawa.

Conclusion

The vast majority of the ideas in Kenney's "fair deal" plan align with creating a positive project for Alberta to address Alberta's angst, which would have the side benefit of quelling the rising support for the silly and dangerous idea of separatism.

And indeed, to the extent there are costs to some of these items, they may well be worth paying to put Alberta and Canada on a track to diffusing these regional tensions.

Wait. Canada?

Yes. Canada.

I view Kenney's proposals as a bottom-up version of Stephen Harper's incredibly successful "open federalism" basically reversing the Liberal approach of an overweening and sanctimonious Ottawa and instead accommodating provincial jurisdiction and provincial autonomy.Full disclosure here: I worked as an advisor to Harper.

Open federalism,not surprisingly given Harper's roots, saw the decimation of separatist sentiment in Alberta.

But what may surprise some (it certainly didn't surprise Harper) was that it was an effective way to tamp down Quebec separatism as well, even though that version springs from culture and languagerather than economic self-interest. Separatist sentiment was at an all-time low at the end of Harper's 10 years in office.

• Harper promises Quebec he'll tackle fiscal imbalance

Open federalism is, I believe, a way to accommodate different regional interests and priorities and to decentralize decision-making. In this way, it cuts separatism off at the knees both the eastern and western varieties.

But there's a hitch.

True bottom-up open federalism will require some fine tuning of Kenney's rhetoric to recognize that the threat to national unity today comes from an overreaching and sanctimonious Ottawa, not from Quebec.

And that means Alberta should do more to reach out to the latter to fight the former rather than risk standing alone against both. This will take some considerable political skill, for which Kenney is well equipped.

Indeed, with the rise of the Bloc in Quebec in the last election, perhaps the best outcome from Kenney's "fair deal" plan is that bottom-up open federalism might do what sanctimonious Liberal centralization could never do, namely reduce separatist sentiment in the West and Quebec.

And for that, Canadians would owe Kenney's "fair deal" plan a debt of gratitude.

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