Jack Mintz: Will Alberta become a ‘have-not’ province if it loses oil and gas?
The implications would be catastrophic for Albertans
With the prime minister’s declaration in Glasgow last week that the screws will be tightened on oil and gas emissions to achieve net zero by 2050, it is not far-fetched to suppose that Alberta could eventually become a “have-not” province. Even with good news, such as Amazon’s $4-billion investment in a Calgary hub, a declining oil and gas sector will erode Alberta’s growth.
Alberta was a have-not province back in 1957, when equalization was introduced. With its oil and gas sector then at an early stage of development, the province received $12 million in equalization payments (about eight per cent of the total paid out by Ottawa). It last received them in 1964-65 and it hasn’t been close to have-not status since. In 2019, even after five lean years following the collapse in oil and natural gas prices in 2014, Alberta’s GDP per capita was $76,000 (in $2012 dollars), almost 50 per cent more than in the rest of Canada.
Albertans continue to enjoy the highest standard of living in the country but they have also contributed almost two-thirds of a trillion dollars to the rest of Canada since 1960 by paying more in federal taxes than they have received in federal spending. Moreover, the province’s growth has enabled it to buy $70 billion a year in imports from the rest of Canada, equivalent to over a fifth of Alberta’s GDP.
As the table shows, without oil and gas, Alberta would become much poorer. I’ve assumed that every job in oil and gas extraction, related service industries and oil and gas engineering and refining, which on average generates $350 in real GDP per working hour, is replaced by goods-producing jobs that generate only a quarter as much ($83 per working hour). Under this assumption, Alberta’s GDP would fall by almost a third, including estimated multiplier effects.
This net loss would result in Alberta’s per capita GDP falling to $52,000 — a shade less than the 2019 national average of $52,380. Alberta would indeed lose its “have” status.
The implications of a roughly one-third drop in income would be catastrophic for Albertans. They would not be able to afford private consumption goods they once enjoyed. Many would fall below the poverty line. People would leave the province and housing prices would plummet. Alberta’s government would have to cut back spending on hospitals and schools and reduce social assistance payments.