Brexit was ‘cakewalk’ compared with what Alberta separation would entail, economist warns

The years-long trade wrangling and uncertainty that faced Britain in the wake of the Brexit vote was a “cakewalk” compared with what Alberta’s separation from Canada would involve, according to the author of a new report about the economic implications of secession.

Trevor Tombe, a University of Calgary economist, penned the report for the Calgary Chamber of Commerce. Released Tuesday in the midst of a heated campaign over provincial separation, the analysis concluded that investment in Alberta could fall between 12 and 18 per cent if the province pursues secession, and coffers risk swinging from a $19-billion annual surplus to a $9-billion deficit.

Voters are preparing to decide on Oct. 19 whether to remain in Canada or lay the legal groundwork for a second, binding referendum on separation.

At the heart of Prof. Tombe’s report is a warning about just how trade-exposed Alberta’s economy is, and the extent to which jobs and investment in the province rely on good relationships with Canada and other countries.

The sharp rise in political and economic uncertainty that faced Britain after it voted to leave the European Union – labelled Brexit – is often cited as an example of the challenges that could face Alberta should it leave Canada.

Investment in Britain is between 12 to 18 per cent lower now than it would have otherwise been as a result of Brexit, “primarily because it’s prudent to pause costly decisions that are difficult to reverse,” Prof. Tombe told media in Calgary on Tuesday.

But “Brexit would be a cakewalk compared to what Alberta separation would involve,” he said, because it would be “very different than just unwinding a deep free trade agreement, which was essentially what Brexit was.”

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Alberta is one of Canada’s most trade-dependent economies. Nearly one in three workers – roughly 900,000 people – are in a sector with significant exposure to trade with other provinces or countries, according to the report.

Those trade-exposed jobs reach far beyond oil and gas; positions that support exports comprise more than 346,000 positions across manufacturing, finance, real estate, professional services, tourism and agriculture. Excluding oil and gas, international exports account for approximately 15 per cent of Alberta’s total income.

Interprovincial trade generates about $78-billion in income for Alberta workers and businesses, or roughly 16 cents of every dollar earned in the province. Exports account for about 39 per cent of total provincial income, or nearly $180-billion.

Those who support separation often point to equalization payments, citing the roughly $20-billion a year in taxes from businesses and individuals in Alberta that flows into federal coffers then on to other provinces.

“They look at that and see it as a fiscal windfall that would be available if Alberta were to separate,” Prof. Tombe said.

But separation would also reduce the size of the economy, according to his analysis, which means lower revenues from income taxes and higher costs “just to execute the core functions of a now-separate country.”

Closing the resulting fiscal gap “would mean real trade-offs for Albertans: significantly higher taxes, deep cuts to the services families and businesses rely on, or some combination of both,” said Deborah Yedlin, chief executive officer of the Calgary Chamber of Commerce.

“That Alberta advantage that we’ve been so proud of all these years would evaporate in an instant,” she said.

Multinational companies have a swath of choices as to where they can invest their long-cycle cash, Ms. Yedlin said, and Alberta needs to make the case that it’s a safe bet for the next 30, 40 years.

“That investment thesis has to stand up, and that’s where businesses are going to be very focused in terms of what comes next.”

Tuesday’s report comes alongside an open letter, signed by 11 high-profile executives in the province, urging Albertans to choose to remain in Canada.

Among the signatories are AltaGas CEO Vern Yu, Nancy Southern, CEO at ATCO Ltd., AltaLink president Paul Lee and Dean Setoguchi, the CEO of Keyera.

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Tuesday’s report joins a slew of other separation analyses that drew similar results about substantial economic risks to Alberta.

The University of Calgary’s School of Public Policy earlier this month published a sweeping report on the various costs of Alberta abandoning Confederation and becoming a sovereign country. (Prof. Tombe also helped author that report.)

The study, commissioned by Premier Danielle Smith’s government, found that separation would likely cost the province billions and carry grim economic consequences: lower wages, declining GDP and billions in new government debt.

The C.D. Howe Institute, a policy research organization, has published a series of reports focused on problems an independent Alberta would face. The Canada West Foundation, a Calgary-based think tank, published a 137-page report in September that concluded the “uncertainty is too great and the risks too significant for Alberta to pursue independence from Canada.”

Separatist groups have published their own estimates, concluding that Alberta would be in a far better position if it left Canada.

The Alberta Transition Council, a group led by independence leader and lawyer Keith Wilson, paints a rosier picture of separation in a report it released last week.

The report was authored by Mr. Wilson and Dennis Kalma, a retired executive. The two have kept secret the identities of those involved in writing it “to respect professional, employment and personal considerations,” the ATC’s website says.

With a report from Matthew Scace in Calgary