Since 2007/08, the fiscal capacity gap between richer and poorer Canadian provinces has shrunk dramatically, with the trend accelerating significantly after 2014–15. Fiscal capacity refers to a province’s ability to raise own-source revenues at tax rates set to the national average, plus any additional revenues from natural resource royalties. We here refer to this trend of a shrinking fiscal capacity gap as “the great convergence.”
In 2007/08, using 2020 dollars, the fiscal capacity gap between the richest province (Alberta) and the poorest (PEI) was $10,999. By 2018/19, that number had fallen to $6,138. With the 2020 COVID shock and sudden fall in natural resource prices, we estimate the gap will fall further to $3,758 in 2020. In the 2020/21 fiscal year, we estimate that British Columbia will overtake Alberta as the province with the highest fiscal capacity, and New Brunswick will replace PEI as the province with the lowest. A similar directional trend prevails if we consider fiscal capacity convergence between other oil-rich provinces (Newfoundland and Labrador and Saskatchewan) with other provinces.
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