Alberta’s separation from Canada could cost up to $170 billion over a five-year period and be highly unpredictable in the long term, a new report from the University of Calgary School of Public Policy released Wednesday says.
The report was commissioned by Alberta’s government in June.
It lays out two possible scenarios — a “smooth” option, in which negotiations to exit from Canada would be quick and favourable to Alberta, and a “difficult” option, in which those negotiations would be protracted and unfavourable to the province.
“There is certainly a scenario where Alberta’s economy and finances could be better after separation, once a transition period is over,” the report reads.
“However, there is also a scenario where Alberta’s economy could be weaker and its finances much worse, not just immediately but for many years to come.”
In both scenarios, Alberta’s debt would balloon as it takes on a portion of Canada’s federal debt, rising to between $324 billion and $442.3 billion — requiring the province to spend billions more than it currently does on paying that debt’s interest.
The report estimates that would lift the debt-to-GDP ratio as high as 88.5 per cent, more than 10 times higher than the province’s forecast 7.7 per cent at the end of this fiscal year.
Earlier this year, Premier Danielle Smith estimated it would cost almost $400 billion in transitional costs, plus somewhere in the neighbourhood of $25 billion to $50 billion in annual costs for Alberta should it separate from Canada.
In the short term, the U of C report states that separation would cause significant economic disruption for Albertans, with the cost of establishing a new country ranging between $50 billion and $170 billion over a five-year period.
The lead economist on the report was Tim Sargent, the school’s director of economic growth and prosperity. Economists Kent Fellows, Trevor Tombe and Jennifer Winter, among others, also contributed.
“Our job was to be as impartial as possible,” Martha Hall Findlay, director of the School of Public Policy, told CBC News. “Ultimately, if there’s a separation, and it’s relatively smooth, what then would be the economic and fiscal implications given all those other contexts?
“Then we also looked at, what if it’s not so smooth? What if it’s chaotic? Then what would happen?”
On Oct. 19, Albertans will vote on whether they want to stay in Canada or hold a second, binding vote to leave. Polls have consistently shown a majority of Albertans support staying in Canada.
More oil dependence on U.S.
The report states that separation would give Alberta the freedom to set its own environmental laws, which could potentially boost the energy sector.
“With only one decision-maker, there could be more certainty for investors about approvals for projects, which could translate into more investment,” the report reads.
However, independence could also make the province more dependent on shipping its oil through the United States. The U.S. might be co-operative, the report states, or it might try to “take advantage of Alberta’s lack of other options.”
In addition, the report states that an independent Alberta would be vulnerable to swings in oil prices, no matter what eventual situation is worked out in relation to its ability to get oil to markets and its production capacity.
The federal government could also decide it “does not see any more advantage for Canada” in new pipelines, including the proposed West Coast pipeline.
“The U.S. could easily ask for a significant share of pipeline revenues and reduce access even on existing pipelines as a negotiating tactic,” the report states.
“A more climate change-oriented government in Washington could seek to prevent any new pipelines from Alberta to the U.S., as the Biden and Obama administrations did.”
Economic impacts and competing projections
In the smooth scenario laid out in the report, GDP would be about 2.2 per cent lower than it would have been otherwise over the short term. Over the long term, the economy would be stronger, with GDP about 3.4 per cent higher than it would have been.
“We think that workers could see a dip in their annual wage earnings in the short term, of more than $1,200 for someone on average earnings, with people working fewer hours in a weaker economy,” the report states.
Separating from Canada could cost Alberta $50 billion in a best-case scenario and up to $170 billion in a worst-case scenario, says a new government-commissioned report that also warns the breakup could slash the province’s GDP by 10 per cent.
“However, over the long term, with higher investment in the energy sector boosting productivity, take-home wages could rise by more than $1,800 relative to what they would otherwise have been.”
But the difficult option would see considerable job losses over the short term, the report states, with employment falling by 10 per cent at the recession’s peak.
“If all the people who lost their jobs stayed in Alberta and looked for work, the unemployment rate would rise by 10 percentage points, although many might leave the new country,” the report states. “With fewer hours worked, a typical worker would earn almost $5,500 less than if Alberta had not separated.”
In the long term, unemployment could come down, but many people would exit the labour force, leaving employment 4.7 per cent lower than otherwise.
“Although there could be some wage growth, annual wages for a typical worker could be almost $12,000 below what they would have earned if Alberta had not separated,” the report states.
In a statement, Alberta Finance Minister Jason Nixon wrote that the panel’s assessment shows that both scenarios they envision would be costly in the short term and pose substantial uncertainty in the long term.
“Alberta’s government has always been clear: we support a strong and sovereign Alberta within a united Canada, and that is what we will continue fighting for each day.”
Over the past months, various groups ranging from the pro-independence group the Alberta Prosperity Project to the Calgary-based public policy think-tank Canada West Foundation have released reports, trying to sketch out what, exactly, it might look like in practice should Alberta decide to separate.
The APP has estimated a transition cost of approximately $6 billion. For the Canada West Foundation, former Treasury Board senior manager Lennie Kaplan estimated that setting up an independent Alberta would cost more than $200 billion, with ongoing costs of more than $50 billion annually.
Mitch Sylvestre, president of the APP, said while his group has a different view of the numbers, it would be worth paying the price to be free of Ottawa’s grasp.
“You never know what kind of deal we could come up with,” he said. “I really believe that without government overreach and regulation from Ottawa, I think Alberta’s economy will thrive. I really do believe that.”
The report also states that under the “difficult” scenario, other provinces, particularly Quebec, might seek to “follow Alberta’s lead.”
“The federal government might therefore seek to avoid making too many concessions to discourage other provinces from leaving,” the report states.
“Similar motives informed the European Union after the U.K. voted to leave. This means that reaching an agreement could take a long time and be highly costly.”
Expert advisory panel response
After it picked the University of Calgary to study the potential costs if Alberta were to leave Canada, the provincial government also formed an “expert advisory panel” to review the report and provide its own assessment.
The panel was led by economist Jack Mintz and also included business leaders and former politicians Janice MacKinnon, a former NDP finance minister in Saskatchewan, and Ted Morton, a former Progressive Conservative finance minister in Alberta.
Morton was one of the authors of the well-known “Alberta firewall” letter, which advocated for Alberta to exit the Canada Pension Plan and establish a provincial police force, among other ideas.
The review panel’s assessment was also released Wednesday.
In it, the panel wrote that it agreed with the School of Public Policy’s view that many of the factors related to the outcomes of separation are not easily predictable.
But the panel wrote that it supported the report’s conclusion that significant costs are incurred in the short term and that, in the long run, net economic and fiscal benefits and costs are “highly uncertain.”
“We wish to remind Albertans that separation has important economic and fiscal impacts, not only on Alberta but also the rest of Canada,” the assessment reads.
“As the overview report points out, the separation of Alberta would harm Canada as well. This would especially be problematical at a time when trade uncertainty and geopolitics are challenging enough to Canada and other economies.”
Without Alberta, Canada would be less of a “middle power” with 15 per cent lower GDP, making it about the same size as Australia and Mexico, the assessment states.
While Alberta might be impacted most if it separated, the assessment states that other provinces would also face a reduction in GDP, including as much as 0.9 per cent in Ontario.
“It is important for the rest of Canada to understand that they will clearly be better off if Alberta remains. Hopefully this realization will result in more effective and accommodating responses to reforms that Alberta has requested over the past four decades,” the assessment states.
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