The seven shocks, and how much the ledger absorbs
The seven material fiscal risks tested against the Day 1 ledger are gathered here, in one place. The three groups behave very differently — in what triggers them, in whether Alberta has any say in them, and above all in how long they last. Appendix K sets out the evidence behind each one at length.
| Shock | Cost a year | What it assumes | How long it lasts | Evidence |
|---|---|---|---|---|
| Group 1 — the terms of separation: negotiated, and known on the day they are settled | ||||
| The Full Debt Share | 6.2 | A share of federal debt service calculated on population, with no credit for decades of net contribution and no offset for federal assets in Alberta. | Permanent, but fixed at settlement and reducible by paying it down. | K.3 |
| The Larger Settlement | 2.8 | Indigenous programme funding settled well above simple continuation of current federal funding, at the top of the range tested. | Permanent, and a deliberate choice rather than an imposition. | K.3 |
| Group 2 — the market’s reaction to a new country: behavioural, and it fades as the record accumulates | ||||
| The Head Office Exodus | 3.2 | The corporate tax base contracts fifteen per cent — worse than anything measured in Quebec after 1976, the only real comparator that exists. | Front-loaded. Quebec’s relocations ran 1979 to 1982 and no second exodus followed. | K.4 |
| The New Country Premium | 1.3 | A newly sovereign Alberta pays more to borrow than a province does, at the top of the range tested rather than the middle. | Decays. It is the price of an absent credit record, and it falls as the record is built. | K.6 |
| Group 3 — the commodity cycle: it happens to Alberta whether or not Alberta is independent | ||||
| The Household Squeeze | 7.5 | The personal income tax base contracts fifteen per cent, matching the worst real fall in primary household income in Alberta’s recorded history, 2015 to 2020. | Three to five years on Alberta’s own record, then it reverses. | K.1 |
| The Oil Price Slump | 6.5 | Energy revenue falls to the Government of Alberta’s own published downside case rather than its budget case. | Cyclical. Alberta has seen four of these in fifty years and recovered from every one. | K.2 |
| The Wider Downturn | 1.9 | Consumption taxes and fees fall eight per cent, matching the deepest peak-to-trough contraction in Alberta real output on record. | Moves with the same cycle and on the same timetable. | K.5 |
The seven are not all the same kind of thing. Group 3 are economic outcomes set at the worst actually observed, except the energy case, which is the Government of Alberta’s own published downside. Group 1 are negotiation assumptions carried at the least favourable end of the range tested. Group 2 are behavioural responses, taken at the top of their ranges. Appendix E gives the arithmetic.
The overlap, stated rather than hidden
One thing follows from the grouping and is worth saying. The three shocks in Group 3 are three transmission channels of one event— three different revenue lines genuinely do fall together — but they should be understood as one downturn hitting three lines.
Alberta’s 2015 to 2020 collapse in household income, which anchors the Household Squeeze, was itself caused by a collapse in the oil price. Consumption taxes fell in the same episode for the same reason.
The paper takes the unfavourable side of it. Because they share a cause, they genuinely do arrive together, so Group 3 is treated as a single block of C$15.9 billion. What does not follow is that Group 3 must arrive at the same moment as Groups 1 and 2. Nothing connects the oil price to the terms of a negotiated settlement.
| Scenario | Annual cost | Annual balance, conservative | Annual balance, upper |
|---|---|---|---|
| The ledger as it stands | — | C$22.2B | C$32.1B |
| Group 1 alone — the terms of separation | 9.0 | C$13.2B | C$23.1B |
| Groups 1 and 2 — everything independence itself causes | 13.5 | C$8.7B | C$18.6B |
| Group 3 alone — the worst commodity downturn on record | 15.9 | C$6.3B | C$16.2B |
| All three at once — the outer bound | 29.4 | −C$7.2B | C$2.7B |
Each row is a complete scenario rather than a step in a sequence. They are alternatives and must not be added to one another, and none of them may be added to the totals in Table 2 or Table 3. The bottom row already contains every other row, and there is no combination of anything in this paper that produces a worse figure than it.
What the table says
The figure that matters most is the third row. Everything independence itself causes — the debt share, the Indigenous settlement, the head offices that leave and the premium a new borrower pays — comes to C$13.5 billion a year, taken at the least favourable end of every range and Alberta still runs a surplus of C$8.7 to C$18.6 billion a year.
No single shock is close to decisive. The largest of the seven on its own, the Household Squeeze, still leaves C$14.7 billion a year. The most that any one of these events takes is about a third of the surplus.
In the extremely unlikely event that all of them occur together, the upper revenue case still leaves the position positive. On the conservative case it is C$7.2 billion short, which is 1.5 per cent of Alberta’s annual output of C$473.9 billion.
Even taking the most extreme case, of all three scenarios striking at precisely the wrong time and running for four years — the length of the 1981-83 recovery — the cumulative borrowing required is about C$29 billion, or 6.1 per cent of one year’s output.
How long any of this lasts
We have not attempted to predict how long each scenario might last in the worst case.
Alberta’s historical downturns have eventually reversed. If Alberta takes a transition-related hit, that effect should diminish as the country establishes a fiscal and credit record, and any temporary additional costs are paid down out of the surplus that returns.
By way of example:
- Quebec’s relocations ran from 1979 to 1982 and no second exodus followed.
- Alberta has been through four downturns of this class in fifty years, and every one of them reversed. Employment fell 6.3 per cent in the 1981-83 collapse and took fifty-three months to recover. Resource revenue fell 61.6 per cent in a single year in 1986, and 68.8 per cent again in 2015-16, down to C$2.8 billion. Nominal output fell 17.0 per cent in 2009. In 2020, one job in six disappeared in nine months.
Alberta has been through severe financial shocks before, roughly once a decade.
Through all of it — and through a decade in the 1990s when oil averaged the equivalent of US$42 a barrel — Alberta's population has not fallen year over year since 1971. Not once.
The province rebuilt every time, and every time the people came back: Alberta has led all of Canada in net interprovincial migration for fifteen consecutive quarters.
The federal transfers that matter most, health and social, are formula-driven and per-capita: more money does not flow to Alberta because Alberta is having a bad year. Fiscal Stabilization did pay out, and it is worth being exact about the scale: Alberta received about C$251 million for 2015-16, the most the programme allowed at the time, against a C$6.2 billion fall in resource revenue in the same twelve months [FIN-FSP][GoA-HFS].
What moved every year, in good times and bad, was the money going the other way — roughly C$68 to C$77 billion collected from Albertans against about C$52 billion spent in Alberta. The University of Calgary’s independent estimate of about C$71 billion sits inside that range [SPP-26].
In the model, retaining the federal revenue currently attributable to Alberta materially increases the fiscal buffer available in a downturn — and Alberta rebuilt from every one of these episodes while that revenue was leaving the province.
