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There are major financial implications of seceding from Canada
Paul Boothe is a former economics professor and provincial and federal deputy minister. Philosopher George Santayana famously declared that “those who cannot remember the past are condemned to repeat it.
” Recalling the Quebec debates around separation three decades ago can help Albertans develop a clear understanding of the likely costs and risks they would face in the event of separation. There are three questions that parallel the Quebec analysis: How would government liabilities and assets be divided? What would happen to the portability of social programs? What choices would Alberta face regarding currency and monetary policy?
Starting with debt, two simple alternatives emerged in the Quebec debates: division by share of population or by share of GDP. Using gross liabilities as a first approximation of the debt to be divided, federal gross liabilities stood at $2.2-trillion in 2024. Alberta’s share of Canada’s population in 2024 was 11.8 per cent, and its share of GDP was 15.2 per cent.
Thus, depending on which approach negotiators used, Alberta would assume between $258-billion and $333-billion of additional debt. To put this in perspective, Alberta’s gross liabilities in 2024 stood at $132-billion. Albertans’ debt per person would rise from about $27,000 per person in 2024 to between $80,000 and $95,000 per person after separation.
Bond rating agencies would see the transfer of substantial debt from Canada, which has a Standard & Poor rating of AAA, to Alberta, with a rating of AA-, as a compelling reason to further downgrade Alberta’s credit rating and thus increase its borrowing costs. A sovereign Alberta would pay substantially more interest than it does now. How such a large volume of debt would even be transferred from Canada to Alberta remains an open question.
It seems obvious that existing bond holders would be unwilling to exchange their Canada bonds for new Alberta bonds without being offered a substantial premium. On the asset side, some assume that the assets of the Canada Pension Plan should also be divided, giving Alberta a large pool of capital to invest. Such an assumption is misguided.
First, the legal basis for such a division is unclear. While the CPP legislation makes provision for a province to withdraw from the plan, it is silent on whether CPP assets and liabilities can be transferred to a foreign country. Any move to divide CPP assets and liabilities would be subject to protracted legal challenge. Further, the CPP is a globally diversified fund with a track record of paying benefits to pensioners.
Would it be in the interests of current and past contributors who continue to live in Alberta to transfer their contributions to a new entity? A simpler option would be for current contributors to begin contributing to a new Alberta fund at the date of separation.
The benefits they earned from their CPP contributions would be calculated according to the existing rules and paid on schedule by the CPP in the same way that CPP benefits are currently paid to Canadians living abroad. What about social programs? Currently, Albertans can access health services in other provinces relatively seamlessly whether visiting or making a permanent move.
In the same way, students from Alberta can attend postsecondary institutions in most other provinces and pay the same tuition fees as local students. After separation, Albertans would be treated as foreigners when accessing health services in Canada and as international students when applying for postsecondary education. The value of these portability benefits is easy to illustrate. For health care, it is the cost of out-of-country medical insurance.
For postsecondary education, it is the difference between domestic and international tuition fees. For example, University of British Columbia tuition ranges between roughly $6,000 and $10,000 for domestic students and between $48,000 and a bit more than $66,000 for international students.
Finally, Quebec separatists have argued that they would use the Canadian dollar for a transition of up to 10 years. They feared that trading partners and even Quebeckers would not accept a new Quebec currency as legal tender. Albertans could choose to use the Canadian or U.S. dollar as their currency. While it is possible to use another country’s currency as legal tender, the cost would be to lose all influence over how interest and exchange rates are set.
The Quebec referendum debates taught us that separation is a costly and risky option. Hopefully, Albertans will remember these historical lessons when they vote in their own referendum.
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