Firewall fantasies

Mark Milke, December 1, 2019 (updated December 8)

Last weekend in Calgary, delegates to the United Conservative Party convention voted in informal straw polls to endorse some of the ideas first suggested back in 2001 by six prominent Alberta conservatives, the so-called “firewall” proposals. They ranged from proposals to collect provincial income tax to replacing the RCMP with a provincial police force. The weekend UCP nod follows on the heels of Alberta premier Jason Kenney’s appointment of a task force to review just such ideas for possible implementation.

Some background: In 2001, the proposals were offered up in an open letter to Alberta premier Ralph Klein, ideas they characterized as an Alberta Agenda but which others labelled the “firewall” letter. The six, including then out-of-politics Stephen Harper,* argued their suggested actions would help shield Alberta from ever-more federal intrusion and perhaps even tilt the provincial-federal balance of power back to the province. The “firewall” letter as if became known, offered up five actions that the authors claimed would allow “Albertans to take greater charge of our own future.”

I know all six men and respect their contributions to public life and their desire to strengthen the West within Confederation. I once gave a speech lauding three of the gentlemen in particular. However, I disagreed with them in 2004 in an essay in the Western Standard (reproduced at the end of this essay). I will update my objections, modified somewhat, now. It is also important to know that many of the ideas (with the exception of a related pension study by one author, Ken Boessenkool) were never researched. They were aspirational in nature but without analysis of cost or even if they would actually increase Alberta’s clout vis-a-vis Ottawa. It was just assumed.

Contrary to that assumption, most of the proposed actions will do nothing to increase Alberta’s (or the West’s) clout within Confederation and in fact omit the obvious precursor for more Western power: Greater parliamentary representation for Alberta (and British Columbia) with even the existing population base, never mind the benefits of a much bigger population over time. Listed from the strongest to the weakest proposal (or the ones potentially most useful to the least useful), the original five firewall ideas were to:

Withdraw from the Canada Pension Plan to create an Alberta Pension Plan offering the same benefits at lower cost.

Create an Alberta Provincial Police Force and thus end presence of the Royal Canadian Mounted Police in Alberta.
Resume provincial responsibility for health-care policy.
Use section 88 of the Supreme Court’s decision in the Quebec Secession Reference to force Senate reform back onto the national agenda.
Collect provincial personal income tax instead of letting the federal government do it.

Let’s consider each idea on its own merits and then in the bigger picture.

Pension policy

This firewall idea—exit the Canada Pension Plan and start an Alberta version—has appeal given the possibility of lower premiums for the same pension payouts. Given this would also send premiums higher in the rest of the country, it is also the only firewall idea that provides Alberta with true leverage vis-à-vis the other provinces and Ottawa.

Health care and police policy

In 2004, I endorsed the notion of abandoning federal money for health care but retaining the RCMP. I did so because Alberta was running multi-billion surpluses in 2004 and could afford to forego federal transfers in pursuit of health care reform.

However, I would now flip these two. Alberta Premier Jason Kenney has already promised to drive ahead health care reform and is serious about this. (I was at the platform table as the lead “architect” of the UCP platform; I know his personal commitment to this plank.) In addition, the Alberta government could and should challenge ongoing federal interference in court, though the challenge to the Canada Health Act underway by Dr. Brian Day may take care of all that.

Thus, given Kenney’s position and court actions already underway which may finally crack open health care reform, there is no reason to self-injure Albertans by refusing $4.7 billion annually in federal health care transfers. That would make the provincial-federal cash flow imbalance even worse.

On policing, it may make sense for Alberta to have her own police force given rural discontent with the RCMP. However, the price tag for that will be a minimum of $112 million in annual, foregone federal cost-sharing. (That includes Ottawa’s 30 per cent contribution to RCMP policing costs in Alberta according to the provincial government; it does not include some special federal financing for the RCMP in municipalities, nor does it include federal support for Alberta Law Enforcement Response Teams.)

As firewall ideas go, this is one of the few that may be worth the cost for some Albertans. Still, that’s a 10-year, $1.1 billion cost for Alberta’s taxpayers, this when one significant complaint is quite properly that Ottawa reaps much revenue from the province while Alberta suffers from that imbalance. Thus, the Kenney government should be reluctant to take over another federal bill, i.e., $112 million annually, unless it really thinks a provincial police force would dramatically improve outcomes for rural Albertans.

Senate reform

Senate reform was always a good idea in theory but even in 2001 it was not clear in practice how it would be of any help to the West unless all three elements of proposed Senate reform (equal, elected, and effective) succeeded. Unless the six non-Western provinces actually agreed to equal representation, say 10 senators per province—a tall ask because it would require those provinces with an existing advantage to give up much Senate power—it was never clear what, say, electing existing senators would do other than entrench existing advantages to central and eastern Canada. That would include permanent elected senators in the smallest of provinces such as the Atlantic ones, which possess far more Senate representation than does Alberta.

Income tax: 6,000 new Alberta bureaucrats and half-a-billion dollars annually

On provincial income tax collection, this is the weakest idea among the five proposals. Yet two of the Alberta Agenda authors, Tom Flanagan and Ted Morton, continue to recommend it. Morton did so in a recent speech before the Justice Centre for Constitutional Freedom dinner in November; Flanagan wrote recently that the real problem is not that Ottawa collects provincial personal income tax but that “overly graduated federal rates and the morass of credits and deductions often stymie investment in Alberta.”

Except Alberta collecting its own tax cannot change federal tax policy. Yet Flanagan recommends Alberta do so, arguing “at the very least, collecting our own income tax would mean a few more well-paying jobs in Alberta.”

This is not a helpful argument. Alberta collects its own corporate income tax and none of those civil servants would be the staff to manage, collect, and process Alberta personal income tax. Alberta’s government would have to hire more than a few well-paid bureaucrats. Here are the numbers from the province: There are 178 people in Alberta’s Tax and Revenue Administration Division and they run 21 tax and benefit programs including Alberta’s corporate income tax.

In Quebec, 12,000 bureaucrats are employed to process taxes, the bulk majority of those to deal with provincial income tax. Given Alberta’s population, proportionate to Quebec’s, let’s assume Alberta would need to hire another 6,000 tax-processing civil servants.

As for cost, economist Trevor Tombe has estimated that for Alberta to collect its provincial income tax would cost $500 million annually. That’s $5 billion over ten years—this to force Albertans to fill out two income tax forms; deal with two tax bureaucracies, and if challenged on their filings, appeal to two tax Leviathans.

To put this in perspective, the province informs me that it paid just $1.4 million to the federal government in 2017 to administer Alberta’s provincial income taxes. A rhetorical question: How does it make sense to swap a $1.4 million federal “invoice” for a half-billion-dollar provincial cost every year? Frankly, I doubt a $500 million bill for 6,000 new civil servants employed in Edmonton, enrolled in the Alberta Union of Provincial Employees, will be appealing to most Albertans or to its cost-conscious conservative government.

Lastly, unlike the claim from some that Alberta could withhold federal income taxes collected in Alberta if the province collected all income taxes (i.e., provincial and federal), for Alberta to collect her own income tax would give Alberta zero control over federal income tax collection and thus the $20 billion plus sent to Ottawa every year over and above what is sent back/spent in Alberta.

That is because no federal government would ever agree to allow Alberta to collect federal income tax unless it foreswore the possibility of any attempt to withhold federal government revenues. Should Alberta agree to that, and then renege one day, Ottawa would challenge it in court and win. That’s because the constitution in section 91 assigns “exclusive Legislative Authority of the Parliament of Canada” to “The raising of Money by any Mode or System of Taxation”. Anyone who thinks Alberta could ever withhold a federal tax cent from Ottawa has not thought this through.

The end result is that Alberta would set up an expensive system of duplication in income tax collection that employs six thousand more unionized government employees in Edmonton—a political self-interest note for the UCP—who are also unlikely to vote for small-c conservative parties who wish to minimize the size of government and its cost to taxpayers.

The big picture (1): Population and wealth equals clout

As I wrote in my initial analysis of the firewall ideas in 2004, the real problem for Albertans and British Columbians is that neither province has enough clout in Parliament. That is due both to “floors” for less populous provinces but even if that were corrected, to a lack of population vis-à-vis central Canada. My 2004 reason is below:

To see how a region’s clout is linked to its increased numbers of voters, consider the example from down south of Ronald Reagan. He didn’t end the rein of lazy liberalism (at least in foreign and economic policy) because he had to cater to the northeastern states. He won some of those states in both 1980 and 1984 but he won and won big precisely because the west and south were growing in population. George Bush’s win in 2000 was also due to those two regions. And they counted because of their population and wealth, not because Texas or Florida possessed their own pension plans or flirted with useless symbols of imagined but not real power.

Thus, the one idea on no one’s radar and which should be is proper representation in Parliament. As of 2019, the average population per Alberta riding is 128,568; in British Columbia and Ontario, the average is 120,747 and 120,385 respectively. The national average is 111,835 persons per riding but 108,782 in Quebec.

Problem: Parliament’s Representation Formula requires that no province have fewer seats in parliament than it does in the Senate, skewing averages lower in provinces such as Prince Edward Island for example. Also, provinces cannot see their seats reduced below what they were in 1985 according to the same formula.

However, if the goal by Albertans and other Westerners is to force a new deal for the West, that new deal is helped if British Columbia and yes, Ontario, also demand a parliament based on population.

In any event, the big picture is still that the West needs more people—millions more to offset Quebec’s influence in particular. It is why in 2004 I advocated a dramatic chop in business taxation in Alberta, something that was in the UCP platform and is now taking place under the new Alberta government.

That will pay long-term economic dividends and also restore greater population flows into Alberta as the economy diversifies and recovers but that is indeed a long-term project, as is raising the West’s population in general vis-à-vis the rest of Canada.

The big picture (2): Leverage, the intended and the undesirable

In the meantime, the reality is that to move the federal government, Western provinces always need at least one major ally, Ontario or Quebec.

Would Alberta have any luck in pushing various reforms such as greater parliamentary representation, more friendly resource policy, and reformed equalization, or an Alberta pension plan? It will depend on the specific issue.

Alberta could move on its Alberta-only pension plan though whether it should, is another question. (I’d await the provincial panel’s analysis here.) Assume some allies on other specific issues: Ontario, Saskatchewan, Manitoba and New Brunswick are consistently supportive of Alberta’s complaint that federal resource policy is, at present, destructive and in specific instances runs contrary to constitutional parameters (e.g., the federal carbon tax).

Assume as additional leverage via an Alberta pension plan and the threatened equalization referendum. The latter is constitutionally sound as another way to provoke possible change, as Ted Morton has pointed out. Assume as well British Columbia and Ontario are on board with some equalization reform, given both are also net payers into Confederation in most years in much of the last half-century. (It is complicated but see my work here on the matter.)

Of course, the threat of higher CPP premiums and forced equalization reform via an Alberta referendum may not be enough.

The separatist threat

Thus, the other reason that other provinces beyond those above, and the federal government, should listen and agree to reform be it on federal environment and resource policy and also on federal transfers: If Albertans and five or six other provinces are unsuccessful in updating and reforming federal government financial flows, then the unhelpful firewall ideas may gain popular traction for implementation and for a reason and a cause I do not support: Alberta separation.

Much of the firewall agenda never made sense apart from separation—and I am not a separatist, nor are most UCP members. However, in the absence of credible reform, Alberta’s separatists will no doubt push firewall ideas and much else no matter what the rest of Canada and the rest of us—premiers, the firewall six, UCP members, this author—think.

On separatism, it would be a mistake for thoughtful people in the rest of the country to downplay that existential threat to Confederation. But for those of us who are committed Canadians including wanting Western Canada’s interests recognized in Ottawa, many of the firewall ideas (income tax collection as the prime example), make no sense and will do nothing to strengthen Alberta or the rest of the West. The province should only pick ideas and action that serve Alberta’s interests and also actually strengthen it and the West, not ones that are costly and merely symbolic.

Mark Milke was the principal policy advisor to then opposition leader Jason Kenney to the end of the Alberta election in April 2019, and lead “architect” of the UCP election platform. He is the author of two recent books, Ralph vs. Rachel: A tale of two premiers, and The Victim Cult: How the Culture of Blame Hurts everyone and wrecks civilizations. Image credit: Pixabay, Geralt.

*Those six Albertans were Stephen Harper, three professors from the University of Calgary (Tom Flanagan, Ted Morton, Rainer Knopff), Calgary lawyer Andy Crooks, and policy expert Ken Boessenkool.

Note to readers: My original 2004 analysis of the firewall letter is below.

Ditch the firewall; instead, force Canada to be like Alberta

Mark Milke for the Western Standard

August 6, 2004

Back in 2001, six prominent Albertans, all of whom I know and respect, penned the famous “Firewall” letter to Premier Ralph Klein. That letter was born out of frustration with the 2000 election, where Jean Chrétien’s Liberals returned to power despite 18 ongoing criminal investigations.

Now, given similar results from the recent federal election, the Alberta Agenda (as the firewall ideas are known) is once again up for debate. But ideas born out of frustration are not the same as a proper game plan to reach desirable ends. To be blunt: some firewall demands are mere posturing, others would only add to Alberta’s costs, and only one would actually challenge Ottawa. None of the other proposals will give Alberta (or the West) an increase in actual power relative to central and eastern Canada--power that would allow for sensible fiscal, foreign, and social policy that respects and protects our historic, hard-won freedoms and traditions.

Thus, if westerners want a “power punch” we must obtain it the old-fashioned way: with more people which translates into more federal seats. To reach that end, the West must become so compelling to new business and so desirable that the rest of the country will be forced to either imitate us or risk losing many of their brightest people, their most entrepreneurial businesses, their best jobs, and much of their potential new wealth to us.

But before that can happen, Albertans in particular must ditch many firewall proposals. For example, the suggestion that Alberta should collect its own provincial personal income tax is a potentially expensive distraction.

First, Alberta could never, as some erroneously believe, also collect federal tax in addition to its own provincial levies and send back to Ottawa what it chose.

Second, Alberta pays Ottawa just $20,000 annually to process millions of our provincial income tax forms. I rather doubt the province can collect, process, audit, and hassle several million Albertans for just $20,000.
Third, the only thing Alberta can’t do now is change the definition of taxable income, i.e., introduce deductions into the personal income tax code. But it can, as it already does, offer any assortment of tax credits it desires in order to cut down the tax burden, or lower taxes as it has several times over the past decade.

Here's the point: the existing federal-provincial arrangement is very flexible. So, we’re going to hire new provincial tax bureaucrats and have more tax forms so we can symbolically snub the federal government? Ironically, all that would do is cost Alberta more and let Ottawa off the hook for the few bills it does pay, i.e., on income tax collection.

There are other Agenda proposals that should be discarded, at least for now. There is no reason to re-start a fight over the Senate. We simply won’t get an equal, elected and effective Senate. And without equality, an elected Senate would be effective all right--but for the regions that hold the majority of Senate seats which doesn’t include the West. On the idea of dumping the RCMP in favour of a provincial police force, I was under the illusion that conservatives are supposed to respect tradition. Thus, abolishing a symbol that dates back to late 19th century is not conservative; it’s more like vandalism to our traditions and to our history.

As it concerns an Alberta pension plan, a Canada Pension Plan changed into mandatory private accounts and fairer to younger contributors (which matters to a province like Alberta with a higher proportion of younger people) is preferable. But if Ottawa and the other provinces don’t bend there, Alberta’s politicians might want to re-visit this proposal, providing they actually construct something unique. On equalization, sure, its abolition is desirable, or at the very least, modifications made to make it less costly, but it's unlikely Alberta will succeed here given entrenched interests and the constitutional impediments, though it’s worth a try.

Anyway, let’s imagine that Alberta did enact many firewall proposals. Suppose Alberta did have its own pension plan, cops, and that we collected our own income tax? How precisely would this make Ottawa quake in her nanny-state boots? Frankly, I doubt the ministers and mandarins in our distant colonial capital would even notice, or care.

That said, there is one proposal worth pressing and an additional idea I’d toss into the mix. The demand that Alberta resume full responsibility for health care ought to be implemented. However, even if provincial Conservatives don’t go that far immediately, they should remember that the current Canada Health Act cannot prevent Alberta from becoming the center of private health care in this country. Every single health service, medically necessary or not, could be performed in a private or non-profit facility and more effectively, efficiently, and with more flexibility for patients and staff. The CHA is about health care insurance, not about who delivers the service.

Also, if Alberta’s politicians ever care to be innovative, this province could be a destination point for people around the world looking for excellent private health care. We might well attract international patients and private investment, research, world-class facilities and multiple new jobs. And the spillover effect would benefit Albertans because of increased choice, more medical professionals, and better facilities and equipment. And insofar as health care reform in the rest of Canada, it will happen if Alberta shows that private delivery is not harmful but is in fact helpful to a universal health care system.

Beyond health, and to address the larger question of influence, here’s one other proposal the Alberta government should consider: This year, business tax revenues in Alberta will total $2 billion while the surplus might hit $4 billion. Why not slash business taxes in half and perhaps eliminate them later? I’d wager that Canada’s businesses would beat a path to our provincial door more than they already do, including head office relocations.

The political ramifications of that would be substantially more voters and ridings over time, voters who would likely be more entrepreneurial and thus likely to favour conservative policies. People tend to vote for what works and Alberta does. Moreover, politicians tend to copy what’s more desirable; it’s why over the last 25 years China increasingly embraced the free market model practiced in Hong Kong. Similarly, our private sector success (including on health care) and our “magnet-status” will make it impossible for the rest of the country to ignore Alberta. Other provinces will be forced to imitate us on various policies or see us prosper while they decline in relative terms. Either way, Alberta wins.

I’m not suggesting that bold health care reforms and slashed business taxes are the only elements that would help Alberta and the West succeed politically, but they should be included in any updated Alberta Agenda. Increased Alberta influence and western power vis-à-vis other regions will happen when more money, people, and seats are centered right here.

Mark MilkeDecember 1, 2019