ATLANTIC CANADA'S DEPENDENCY ON FISCAL TRANSFERS

 Fiscal federalism, the massive and unbalanced flow of federal money to and from the provinces, will create a huge fiscal challenge going forward for at least three reasons: economic difficulties emerging after the COVID-19 pandemic, the overhang of provincial and federal deficits prior to COVID-19, and, most importantly, the decline of the energy industry, which arguably funded fiscal federalism in past years. For more than a decade, Alberta’s taxpayers have funded the lion’s share of federal fiscal transfers flowing predominantly to Atlantic Canada and Quebec. The decline of the energy industry will dramatically reduce this source of funding. To return to a federal balance, Ottawa will have to cut spending significantly, or reform fiscal federalism, or increase tax revenues.