How Danielle Smith wants to fix the equalization program

Premier Danielle Smith was joined by Prime Minister Mark Carney was in Red Deer, north of Calgary on Wednesday, July 29, 2026. Photo by Brent Calver /Postmedia

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OTTAWA — Alberta Premier Danielle Smith caught some onlookers off guard on Wednesday when she said that she wanted to fix equalization, not kill it.

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Smith said her immediate focus is reversing the escalator the Harper government added to the equalization program in 2009, ensuring the funding pot grows with the economy.

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“(The escalator) is kind of counter-intuitive, because if the economy is growing and everybody’s doing better, they should be less they should be less reliant on the equalization,” Smith told reporters in Red Deer, Alta., where she was joined by Prime Minister Mark Carney for an unrelated housing announcement.

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Smith said that her “pitch” to the prime minister was to get rid of the escalator, equalize “to the point of need” and give whatever’s left to the provinces on an “equal per capita basis.”

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She also said that Ontario, Canada’s largest provincial economy, should stop collecting equalization.

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“You don’t just cut a cheque to Ontario, who clearly doesn’t need it. They’re a powerful economy, they shouldn’t be getting equalization from smaller provinces,” said Smith.

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She added that she would eventually like to see equalization payments tied to per capita spending. The current rules use a complex formula that calculates fiscal capacity, or each province’s theoretical ability to raise revenues.

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Smith said in a televised address to Albertans last year that large provincial economies like Ontario and Quebec shouldn’t be eligible for equalization.

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Here’s what you need to know about the Alberta premier’s plan to fix the contentious equalization program.

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What is equalization?

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The principle of equalization stems from the longstanding view that each province should be able to provide reasonably comparable public services at similar levels of taxation.

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A formal equalization system was rolled out in 1957, initially tying payments to the per-capita revenues of Canada’s two wealthiest provinces: Ontario and B.C. This was later lowered to the national average among provinces.

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The principle of equalization became part of Canada’s Constitution in 1982.

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What is the ‘escalator’ and why is it controversial?

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With the global financial crisis creating massive uncertainty, the Harper government brought in a new rule in 2009 that linked equalization payments to overall national economic growth. While meant at the time to make equalization costs more predictable and manageable, the so-called “escalator” had some unintended effects once the crisis ended and growth returned to normal.

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Trevor Tombe, an economist at the University of Calgary and expert on equalization, says the escalator has disconnected equalization payments from interprovincial inequalities.

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“Right now, (equalization) is paying out more than what it’s own formula wants to, because inequality is less than the total dollars available,” says Tombe.