This article originally appeared in The Hub.
By Jared Wesley, Ken Boessenkool, Trevor Tombe, and Peggy Garritty, July 7, 2026
Equalization is a punching bag for separatists and frustrated federalists alike. Distaste for the program runs deep into Alberta’s provincial political culture, along with many myths about how it works and misconceptions about its value to Albertans.
Equalization is far from perfect—it creates perverse incentives, its treatment of natural resources has always been uneven and inconsistent, and the cap on the program means it doesn’t truly account for fiscal disparities. There are ways to address those issues.
But scrapping Equalization is like throwing the baby out with the bathwater. It misconstrues what Equalization is, what it does, and why Alberta has a vested interest in keeping it. It also neglects other core principles of our economic and social union, namely the importance of providing fiscal stabilization for all members of Confederation. Let’s start there, with two big misconceptions about Equalization.
The misconceptions
The first centres on the deep story many Albertans have told themselves about their role in Canada: Albertans work hard, generate wealth, pay more into Ottawa than they get back, while many other provinces receive more than they pay. The moral of this tale seems obvious: Alberta is getting a raw deal and should either get a fair share of Equalization dollars—or the whole program should be eliminated.
This line of thinking involves “small-e” equalization. It is a measure of fiscal flows. The vast majority (73 percent, to be precise) of this difference is simply the result of Alberta being richer, younger, and having a stronger economy than the rest of the country. We make more, so we pay more in taxes. To close that gap entirely would require making Albertans poorer. Lead not Leave will address that small-e equalization in due course.
Our focus here is on big-E Equalization—the federal program that sends funds to have-less provinces so they can provide a comparable level of public services to their residents as have-more provinces do. Ottawa calculates the average revenue-generating capacity among provinces, then tops up those who fall below the mean. Those provinces that sit above the average do not receive Equalization.
The second confusion involves considering Equalization as a transfer from richer to poorer provinces. It is not. The Alberta premier doesn’t write a cheque to Quebec, and she cannot stop payment to Manitoba.
Equalization is a federal program funded by tax dollars paid by all Canadians, including those in provinces which receive Equalization payments. Think of it this way: Equalization is a program that takes money from richer Canadians and provides the money to poorer provinces. A lawyer making $250,000/year in Charlottetown pays exactly the same for Equalization that a $250,000/year rig worker in Fort McMurray does.
The difference is that there are more $250,000/year rig workers in Alberta than $250,000/year lawyers in all of Atlantic Canada. Alberta has higher incomes and more people making those higher incomes. And as a result, the health and education programs that those Charlottetown lawyers appreciate are paid for in part by their and the rig worker’s tax dollars via Equalization.
Room for improvement
Equalization has, as we’ve said, its flaws.
There are ways to improve the formula, as the Government of Alberta has argued in the past. Folks can even tinker with their own proposed reforms with this handy simulator. Since its inception in the 1950s, the formula has been adjusted periodically to account for shifting political and economic dynamics. The last major revision to the program took place nearly 20 years ago (in 2009), meaning a re-examination is overdue.
At a macro level, the big flaw is that any program designed to compensate provinces for weaker tax bases—as Equalization is—also risks encouraging provinces to weaken their tax bases, knowing Ottawa will help offset the losses.
There are two potential ways to deal with this perverse incentive. The first is to base Equalization not on specific tax bases, but on bigger macro-economic measures, like nominal GDP or GDP per capita. A province is much less likely (and able) to suppress its overall economic growth than to manipulate its fiscal capacity as we currently measure it.
A second way would be to bring provinces only partway to the national average—say, 75 percent—rather than all the way as the current program does for each tax base. Provinces would then receive only partial benefits from a weaker tax base, while gaining more from building a stronger one.
This incentive problem is particularly evident when it comes to natural resources. These are among the most volatile of all revenue sources; they rise fast, and they fall fast. So provinces may be reluctant to develop their natural resources, or, in Quebec’s case, to price electricity closer to a normal value, because any gains will quickly be wiped out by a drop in Equalization payments.
For these reasons, many commentators have argued that natural resource revenues should be excluded from the Equalization formula altogether, as was the case when the program was first established. The obvious rejoinder is that Alberta has, in practice, consistently converted much of its resource wealth into lower taxes and higher spending. Still, the broader argument remains strong: because resource revenues are volatile, unevenly distributed, and subject to manipulation, there is a credible case for leaving them out of the formula or at least reducing their weight.
A final major concern involves the overall scope of Equalization. The program operates within a fixed federal envelope that is only loosely tied to the actual disparities among provinces; letting the formula itself set the size of the program, subject to an overall ceiling, would make payments more responsive to genuine differences in capacity. Some also argue that the formula does little to reflect real differences in need across provinces, whether from regional price levels or from the ageing populations that will increasingly strain provincial health budgets. Reforms might consider ways of balancing both capacity and need within the formula.
Equalization is only one among many components of fiscal federalism in Canada. Revising its formula will necessarily involve difficult trade-offs with other federal transfers, including those for health and social services. Often forgotten in this conversation, however, is Equalization’s closest relative: Fiscal Stabilization. If the former helps even out revenue-generating disparities across the country, the latter helps cushion provinces from sudden economic shocks beyond their control.
When oil prices collapse and resource revenues evaporate, provinces like Alberta can suffer dramatic fiscal losses almost overnight. Contingency funds and budget buffers help, but as a member of the Confederation family, Alberta should also be able to draw on the shared risk pool it pays into in good times—weathering downturns without dismantling public services, hiking taxes, or running massive deficits.
One of us has suggested a number of worthwhile reforms to the Fiscal Stabilization Fund. These include removing the arbitrary per-person cap on payments, creating a more predictable formula, and issuing retroactive payments, while at the same time protecting against provinces using the federal backstop as a means of resisting economic diversification.
In other words, Equalization should remain the tool that addresses structural disparities among provinces, while Stabilization should be enhanced to address economic volatility.
This appears to be the thinking behind Jason Kenney’s attempt to bolster the Fiscal Stabilization Fund using his Equalization referendum. All provincial-territorial finance ministers joined Alberta in that call, and that consensus may still remain in place. While Ottawa has modestly boosted stabilization payments since, Alberta should advance the proposal for more meaningful changes again at the next meetings of the Council of the Federation and first ministers.
If the federal government wishes to reopen these discussions, it could choose few better processes than the one implemented by the Harper government two decades ago. Chaired by a former Alberta deputy minister of finance, the O’Brien Commission consulted widely with governments and Canadians across the country before tabling a set of reasonable recommendations, most of which were heeded.
Canadians should also temper their expectations with the knowledge that changes to one federal-provincial transfer, like Equalization, will be met with demands to reform others, like the Canada Health Transfer (CHT) and Canada Social Transfer (CST). The O’Brien Commission demonstrated the complex nature of these trade-offs, particularly when the federal government seeks to ensure no province is worse off by virtue of the reforms.
We suggest that keeping the negotiations to Equalization and Stabilization would be an effective way to balance and contain the scope of the reforms.
Equalization has its upsides, including for Alberta
All told, Alberta has led several successful efforts to reform fiscal federalism in the past. This work was premised on the fact that Equalization delivers tangible benefits to Alberta and to Canada. It is a program worth strengthening, not abandoning.
First, Alberta benefits from strong public services in other provinces, richer and poorer. Albertans often ask why they should help fund schools, universities, and hospitals in other provinces. The answer doesn’t depend on altruism: future Albertans benefit from the social union paid for by Equalization.
For decades, Alberta’s economy has relied on workers educated elsewhere. Teachers trained in Manitoba, nurses educated in Nova Scotia, engineers graduating from Quebec universities, and skilled tradespeople from across Canada have all contributed to Alberta’s prosperity. Albertans pay pennies on the dollar to train those folks in their home provinces.
When New Brunswick educates a future computer programmer who later moves to Calgary, Alberta benefits from a workforce it didn’t have to educate from kindergarten onward. When Atlantic provinces maintain functioning health and education systems, they continue producing the workers Alberta regularly recruits. Equalization helps maintain that pipeline of talent.
Second, Equalization is insurance against regional collapse and the downstream effects it would have on have-more provinces.
Imagine a Canada where poorer provinces lacked the fiscal capacity to provide reasonably comparable public services without sky-high taxes. Hospitals would deteriorate, and public health systems would be too overwhelmed to prevent the spread of communicable diseases within and across borders. Schools would decline. Infrastructure would crumble. Economic opportunities would evaporate as investment would dry up.
The result would be massive out-migration toward wealthier provinces, particularly Alberta. Some migration is healthy. But the sort of large-scale economic displacement that would follow from the weakening of Equalization would make the last decade’s worth of in-migration to Alberta look like a trickle. According to the provincial government itself, Alberta already struggles to keep pace with housing demand, infrastructure needs, and public services during growth periods. A Canada with permanently weakened provinces would create migration pressures far beyond what any province could comfortably absorb.
In short, strong provinces make for a strong federation. Weak provinces create instability for everyone.
These two points have a corollary in professional sports leagues who understand something many Alberta politicians do not. The strongest teams still benefit from helping weaker teams remain competitive.
As much as fans of the richer teams complain, revenue-sharing systems in leagues like the NFL aren’t acts of charity. They are investments in the overall health of the league. A competition where only a handful of teams can survive eventually becomes less attractive for everyone.
Canada works similarly. A federation where some provinces flourish while others struggle to provide basic services ultimately becomes less stable, less productive, less attractive to outsiders, and less prosperous. Equalization strengthens the competitiveness of the entire country. Alberta succeeds because Canada succeeds, and vice versa.
Third, Equalization promotes Alberta autonomy. Many Albertans want their provincial government, not Ottawa, to make decisions about health care, education, and social services. Equalization is the Canadian political bargain that helps make that possible. Without it, Ottawa would face enormous pressure to sustain provincial social programs in poorer provinces in other ways, none of which would be good for Alberta’s autonomy.
Without a strong Equalization program, provinces would be subjected to even more targeted federal programs and conditional transfers simply to keep basic services operating in poorer provinces. Through these more intrusive means, Ottawa would inevitably gain greater leverage over provincial policy choices, not just in have-less provinces, but across the country.
Worse, the Government of Canada would face enormous pressure to run health, education, and social programs from Ottawa. Canada would slowly transition from a federation to a unitary state. This would shrink provincial governments and grow Ottawa.
The United States illustrates this problem. In the absence of an Equalization program, Washington has developed a patchwork of targeted transfers that it uses to direct state-level policy. The result is a system that interferes with state jurisdiction, treats states unevenly, and distorts local decision-making. As a recent Fraser Institute paper stated, “the Canadian approach is superior and certainly more transparent than the US approach to transfers between the federal and subnational levels of government.”
We agree.
Alberta politicians understand this. Peter Lougheed agreed to entrench the Equalization principle in the Canadian constitution, Ralph Klein supported the Equalization program, and Harper bolstered it instead of shrinking it. Not only does Equalization provide the sort of stability and investments that drive the Alberta economy. It also helps prevent the federal government from slipping needs-based formulas and stringent conditions into other federal transfers like health, social services, and infrastructure. Or worse, running those programs itself.
Instead, we enjoy looser strings and a per capita distribution that treats Canadians equally, no matter where they live. As Klein put it, “I like Equalization, but equalization only once.” Something Harper made serious progress on while prime minister.
In effect, Equalization allows autonomous provinces to remain autonomous. It provides the fiscal capacity necessary for each province to deliver services according to local priorities.
Prosperous federations don’t thrive because every region receives exactly the same dollar amount back from the federal government. That’s a fool’s errand.
They thrive because all regions have a stake in each other’s success and share in their losses. While worthy of achievable reforms, Equalization and Stabilization remain essential parts of the Canadian bargain that ensure all provinces have a stake in our common prosperity.
Jared Wesley, Ken Boessenkool, Trevor Tombe, and Peggy Garritty are a part of the Lead Not Leave initiative. Learn more at: LeadNotLeave.ca.
Trevor Tombe is also a Senior Fellow at the Macdonald-Laurier Institute.
