Cheap oil’s the disaster it is for Alberta because our province is so badly run

Posted on January 12, 2015, 12:35 am
9 mins

PHOTOS: Sunset for Alberta’s oil industry? Probably not. But will Albertans learn anything and stop scolding other Canadians? Probably not. Below: The future of Alberta if oil prices don’t bounce back? Who’s freezing in the dark now?

The decline in oil prices to the sub-$50-per-barrel level may not be a pleasant experience for those of us here in Alberta, especially the Progressive Conservative rulers of our province, but it does offer the potential for what might be called a useful teaching and learning moment for other Canadians.

Specifically, it sends a message to people outside this province, who have been subjected for years to a stream of propaganda about how they must adopt the economic policies that prevail in Alberta or else, just how badly, in reality, this province is run.

SodHouseAlbertan leaders, not to mention the operators of far-right think tanks and the under-aged denizens of the Prime Minister’s Office, have been scolding Ontario and Quebec in particular, plus Ottawa and the honourary easterners in British Columbia too, about the need to have far lower taxes, fewer taxes and “flatter” taxes, just like we have here in Alberta.

As for the Atlantic Provinces, we looked down our noses at them for their “culture of dependency,” or, as Calgary MP and Canadian Prime Minister Stephen Harper famously put it, their “defeatist attitude.”

Here in Alberta this has given rise to the supremely annoying meme that, because we all have to pay federal taxes and because other provinces less persuaded by our prevailing market fundamentalist ideology insist on maintaining a more reasonable level of public services, we Albertans are paying for their social programs. The corollary to this fatuous notion is that they should stop at once.

Now, all of a sudden thanks to the precipitous decline in oil prices, your self-appointed Albertan emperors are revealed as being, if not completely naked, at least rather less warmly clad than one ought to be in a climate that can suddenly become very cold. Indeed, who is freezing in the dark now?

Instead of the emperors of market fundamentalist prosperity, to whom you-all had better pay attention and right snappily, we are revealed as prodigal whining winners of the petro-lottery, who have gone and pissed away yet another oil boom, this time the one we prayed to God on our sanctified bumper stickers to send us, and which He obligingly did.

And what mechanisms do we have in place to see us through this crisis? Not a fair taxation system or, God forbid, a sales tax. No indeed, in fact, that’s exactly what we’ve been lecturing you about.

Not a savings fund like they have in Norway – that would have meant charging oil companies more than they wanted to pay for the stuff, and we all know how the energy industry reacts to that!

Not diversification in our economy – we haven’t really done anything like that since Peter Lougheed was premier, although Don Getty tried a bit and it didn’t work out very well. Remember how the role of government shouldn’t be “picking winners and losers”?

Well, there’s always agriculture – leastways, if we haven’t used all the water for hydraulic fracking. And more pipelines, please! Though how that’s supposed to employ and support a projected population of five million is not entirely clear, especially if the economics of the pipelines stop making sense to the companies that want to build them.

Suddenly, in a matter of weeks, we residents of the land where all budgets must be balanced are told we have gone from the sunny promise of a blossoming surplus to the depressing news that we face four or five years of burgeoning deficits. All because the price of oil fell farther than “anyone” expected.

What an astonishing development! Petroleum prices go up and down, sometimes driven by very small changes in supply and demand. In fact, they’re extremely volatile. Who knew? Well, apparently not the brainiacs in the government of Alberta.

And what is our plan to deal with it? Well, cutting public services, of course, just like you should, and getting down on our knees and humbly praying for $100-plus-per-barrel oil prices to return as soon as possible. But certainly there will be no new taxes!

In the mean time, we will just have to grit our teeth and watch those high-tax, high-spending jurisdictions like Ontario, Quebec and even B.C. – the ones who benefit from relief in their Dutch Disease symptoms when our mighty petroleum industry stops pushing the Loony to nosebleed altitudes – see their economies revive as ours suffers from fainting spells.

Heaven help us if they start to lecture us on the need spend more on social services so we won’t export our unemployment problem back to the Maritimes and Quebec every time the price of oil jogs downward, which is what we mostly did the last time a boom here went bust. We might just stroke out from apoplexy!

In fact, our circumstances are not unique. Pretty much the same thing has been happening to the relative economic positions of low-tax, conservative Texas and high-tax, relatively liberal California, and for pretty much the same reasons.

As the New Yorker Magazine explained in a useful piece comparing California and similarly self-righteous Texas, “these days … no one is talking about the lessons California should learn from Texas.”

Not only is California’s economy improving, but its budget is balanced thanks to a taxpayer-approved tax increase and a progressive income tax system, while Texas “is grappling with the collapse in oil prices.”

If this sounds familiar, it’s not as serious in Texas as in Alberta because the vastly more numerous Texans have in fact a much more diversified economy, the New Yorker explained, not to mention higher oil and gas royalties. Also, “Texas is also more reliant on the sales tax nowadays, which could be helpful if lower gas costs lead people to spend more money elsewhere.”

Of course, as the New Yorker’s reporter explained, “Texas’s outperformance of California had a lot to do with factors beyond the control of politicians …” Just as in Canada, as a matter of fact.

Our favoured position here in Alberta has had far more to do with winning the petro-lottery than our crazy tax policies, the lowest royalties on the planet or our tendency to do whatever the Fraser Institute instructs us to do, no matter how ridiculous.

Unlike other provinces that didn’t share our perverse good fortune, Alberta’s situation is made far worse by our government’s poor planning, or complete lack of it in many areas.

We need to fix that, and I’m only saying that so we won’t hear it from someone from Ontario. Either that, or oil prices need to go back up again, which by the sound of it is Premier Jim Prentice’s only plan.

This post also appears on Rabble.ca.

19 Comments to: Cheap oil’s the disaster it is for Alberta because our province is so badly run

  1. Sam Gunsch

    January 12th, 2015

    re Climenhaga’s observation: ‘Not a savings fund like they have in Norway – that would have meant charging oil companies more than they wanted to pay for the stuff, and we all know how the energy industry reacts to that!’
    =============
    Warrack describes the reaction to Lougheed royalty increases below, but makes the key point that AB can’t fund programs without taxing it’s dominant industry:

    “We essentially doubled it from 17% — when you achieve economic justice for the owners, they you have the capacity to do other things that cry out like the medical and mental health fields,” said Warrack.’

    =========

    Of PC premier’s since, only Stelmach tried to push back on petro-elite ownership of AB politics and move toward recovering the citizens(owner’s) fair share of black gold revenue.

    And… Even the Sun chain has from time to time noticed how AB citizens are ripped off by petro-industry capture of PC’s and recently the WRP.

    Lougheed’s minister Warrack likens the PC’s management to ‘banana republic’. Klein was number one banana, of course.

    Will Prentice continue as a bended-knee banana manager? probably.
    ===============

    Link and excerpts below:
    ==============

    excerpt: ‘…Warrack and other architects of the Heritage Trust Fund say his [Lougheed’s] memory has been besmirched by the province’s shrinking take of energy revenues and the anaemic size of the fund that stands at about $15 billion after 36 years.

    http://www.torontosun.com/2012/09/13/alberta-lucky-to-have-lougheed
    Norway, by comparison, has collected near half a trillion dollars in far less time.

    “We’re a banana republic,” says Warrack of the province’s take of energy dollars that’s plummeted since Lougheed’s reign.

    “It cries out for justice.” ‘
    ==========

    Alberta ‘lucky’ to have Lougheed
    http://www.torontosun.com/2012/09/13/alberta-lucky-to-have-lougheed
    By Bill Kaufmann, Calgary Sun

    ============
    excerpt: ‘A year after taking office, Lougheed set his sights on the taxpayers’ share of Alberta’s energy revenues, picking a fight with the industry many insiders now consider unthinkable today.

    Public hearings were held, where industry officials railed at the notion of granting owners of the resource — Albertans — higher energy royalties.

    “I think of all the flak and abuse from all of the corporate suits — they were as totally wrong as they could possibly be,” says Warrack, adding Albertans soon received far more of the corporate profits than they’d been accustomed.

    “We essentially doubled it from 17% — when you achieve economic justice for the owners, they you have the capacity to do other things that cry out like the medical and mental health fields,” said Warrack.’

    =======================================
    First posted: Thursday, September 13, 2012 11:43 PM EDT | Updated: Friday, September 14, 2012 02:17 AM EDT

    Reply
  2. Tom in Ontario

    January 12th, 2015

    Very well expressed, David. Can I now feel less guilty for paying provincial sales tax, a health premium and graduated income tax? What do you think it will take for Albertans to accept at least one of these sensible options?

    Reply
  3. Jim Clarke

    January 12th, 2015

    “The honorary easterners in B.C.” … lovely! I hadn’t heard or, especially, thought of that before.

    — Amused and Enlightened in Ontario

    Reply
  4. Baffled by the obvious

    January 12th, 2015

    When I was a kid I used to shovel snow for money. The money was great! I bought lots of records and concert tickets.
    Then, inexplicably, it would stop snowing. No money at all. Then, phew, the snow would return. Happy days.
    If only I’d been able to predict this crazy situation.
    But I was just a dumb kid.
    Why should Alberta be any smarter?

    Reply
  5. January 12th, 2015

    Oh, the delightful power of the pen! Music to the ears…

    Reply
  6. Ken Larsen

    January 12th, 2015

    Politics can make strange bed fellows indeed. Are my glasses dirty or do I understand you and Ted Morton have both floated the idea of a sales tax?

    Don’t sales taxes hurt lower income people more than the wealthy people because people with lower incomes have to spend a greater portion of their incomes on sales-taxed necessities like clothing, transportation, heating, and even recreation?

    Reply
    • David Climenhaga

      January 13th, 2015

      Mr. Larsen is quite right that a sales tax is a more regressive, and hence inferior, solution than a progressive income tax, but it remains part of the solution to the wild swings in funding available to governments for essential public services in oil-dependent Alberta. Its unpopularity notwithstanding, it’s also more do-able, and we’re reaching a point where something has to be done. That said, I’m sure Dr. Morton won’t mind agreeing with me about this one point. It’s unlikely ever to happen again.

      Reply
  7. Alvin Finkel

    January 12th, 2015

    The right wing in Alberta has always labeled Norway’s approach to oil as “socialist” because the industry is mainly under the control of the state which places the profits in a giant pension fund meant to guarantee profits for all Norwegians from the resource for all time. That “socialist” fund now has over a trillion dollars Canadian. In practice, it’s mostly invested outside Norway in capitalist corporations in a diversity of industries: a gigantic capitalist investment fund for the Norwegian people. But the left wing in Alberta often misrepresents Norway’s approach as much as the right wing, suggesting that the fund is used to pay for Norway’s enviable health, education, and social programs. It isn’t used that way at all. Norwegians are heavily taxed for their programs, so that the oil revenues can remain in the investment fund and provide long-term benefits for Norwegians, with a particular regard for generations after the oil is gone or no longer wanted in the marketplace because of oil’s contribution to the death of the planet. The rich pay proportionately more than the poor, but everyone is taxed heavily (fortunately the distribution of wealth in Norway, with its overwhelmingly unionized working class and redistributive government programs, is far less uneven than in Canada, putting most people in the position of being able to afford to pay their fair share of the costs of insuring that everyone is looked after).The tragedy in Alberta is that collectively we have not been willing either to spare a thought for the less fortunate among us or to give two hoots about generations to come. But if we decide to buck our corporate masters and to think about both redistribution and the future, we won’t have to reinvent the wheel. The Norwegian model allows us to take an off-the-shelf solution.

    Reply
    • Expat Albertan

      January 13th, 2015

      I would add that when you try to point this out to right wingers, conservatives, oil apologists, and their fellow travellers, you get the erroneous reply that Norway doesn’t have to pay equalization payments to other jurisdictions like Alberta does. Leaving aside the fact that (ever diminishing) money for the (ever diminishing) Heritage Fund always came from (ever diminishing) oil and gas royalties paid to the provincial government (not a cent of which is paid over to the feds or other money-grubbing easterners), these folks completely misunderstand the system of federal-provincial equalization payments, all of which come from general income tax revenue (making Ontario, Alberta, and, yes, Quebec, the biggest contributors to that program, with Ontario being the biggest). Not to mention the fact that we ALL get transfer payments (for health, education, and social services), including Alberta.

      Reply
  8. Alex C Polkovsky

    January 13th, 2015

    In what must be only a third of the time it took Alberta Tories, governor Sam Brownback has managed to bankrupt his state of Kansas with the magic argument that pain spells gain.

    Kansas Is Totally Screwed

    In 2012, when Kansas Gov. Sam Brownback first pitched his plan to drastically slash the state’s income taxes, he promised “a shot of adrenaline into the heart of the Kansas economy.” Brownback brought in Arthur Laffer, Ronald Reagan’s trickle-down economics guru, to help sell the idea that the cuts—which zeroed out taxes for 200,000 businesses and slashed rates for top earners—were guaranteed to boost the state’s fortunes, prop up the economy, and bring in countless new jobs as businesses and individuals flocked to Kansas to escape the tyrannies of higher-tax states.

    All that’s left to add is

    Reply
  9. Alex C Polkovsky

    January 13th, 2015

    Oh, for heavens sake! Back to Mother Jones:

    Governor-Elect Laments the Californication of Texas

    Welcome to life in urban Texas, where Democratic-controlled city councils are enacting powerful consumer and environmental protections—much to the chagrin of the state’s leading conservatives. “Texas is being California-ized, and you might not even be noticing it,” Gov.-elect Greg Abbott complained last week at a meeting of the conservative Texas Public Policy Foundation. “We’re forming a patchwork quilt of bans and rules and regulations that is eroding the Texas model.”

    Reply
  10. Shane Baker

    January 14th, 2015

    Yes. Substitute “Western Australia” for Alberta and “iron ore” for oil, and this article will look very familiar in Australia.

    Reply
  11. Keith

    January 14th, 2015

    I wonder if they will cut these “public services”:

    http://calgaryherald.com/news/politics/power-transmission-costs-in-alberta-expected-to-nearly-double-over-next-decade

    “The Alberta Electric System Operator (AESO) is forecasting transmission costs for average residential customers will jump from $19 to $33 per month within 10 years, but the brunt of the hike could come in the next two years.

    Consumers are on the hook for the $13-billion cost of new electrical infrastructure, including nearly $3.5 billion for a pair of north-south 500 kilovolt direct current lines and about $3 billion for a pair of 500 kilovolt lines from Edmonton and Genesee to Fort McMurray.

    AESO spokesman Mike Deising said the new transmission infrastructure is required to keep up in the fastest growing jurisdiction for electricity demand in North America.

    “We have to have a robust transmission system to meet that demand,” he said. “You’re seeing investment being made in transmission to ensure the lights stay on.”

    NDP electricity critic Brian Mason remarked … “They may be in fact intended in the future for export of electricity to the United States and it is hardly fair for the average homeowner to have a very, very large increase on their bills in order to pay for this.”

    I think the line to Fort McMurray will supply industrial operations, not just “ensure the lights stay on”.

    Reply
  12. Cindy

    January 16th, 2015

    Isn’t it funny that the tax revenue remains the same on a barrel of oil but the net tax decreases when oil goes down. When oil was trading below $50/barrel in the 90’s we had huge surpluses and all without a sales tax. What changed, maybe government mismanagement of a non-renewable resource by conceding repeatedly to the multinationals. We have a tired morally bankrupt government that thinks they are better then other provincial leaders and their own citizens. They chuck us under the chin and chuckle if we ask for anything, but they are quick to acknowledge their superiority. When they receive the invoices on their own purchases they are quick to take away our allowance and start selling our stuff, but they have earned their own allowance and stuff. They are “professionals” that are bribed with exceptionally high pay and perks because of the opportunity cost for their services to taxpayers when they are in such demand from the private sector. Maybe if we actually had a voice of reason in the legislature, the ruling party might have seen this coming, but with their tag team leadership dance and the crossing of the floor by the loyal opposition (maybe just a bit too loyal) our politicians have been blindsided. In Alberta, for the last five years, we have been bragging about our flaming economy. We had a (reported) shortage of skilled labour and companies could not get enough workers so we were bringing in temporary foreign workers. Reality was a bit different as companies were laying off tax paying workers to hire these people because of our crazy demand for a living wage, benefits and protections. Alberta hates unions and actively works to bust them, as has been seen repeatedly, because we all enjoy the protection of our leadership. The government workers are always held out as the whipping boy whenever the government wants to make cuts, and we are told repeatedly that these are lazy incompetents who are just soaking up sick days and slurping down all the profits from the economy. We are told that no one falls behind, but today it was reported that 1 in 8 of our citizens are living in poverty. When wages are flat but costs continue to climb because of our “overheated” economy, we are told that we should appreciate a province that is well managed, but what they really meant was well funded. Now the funding is falling, but instead of having a financial cushion from 5 years of high oil prices, we have debts and costs that far outstrip our ability to pay for them. Maybe it is time to look at a sales tax, because then we will have a sustainable pool of money that is not reliant on a non-renewable resource, but I wouldn’t count on it. This government would just cut taxes to business and billionaires so they only ones paying it would be the poor and the working class, just like now. Only who can afford to buy things when you can barely afford to pay the taxes we have now and keep a roof over your head. Time to get off the grid and start making money the old fashion way, with moonshine and bootlegging. Then the government would have a hard time picking your pocket bare and leaving you begging for another bowl of gruel.

    Reply
  13. Barry Madsen

    January 18th, 2015

    Robin Campbell is Finance Minister. Say no more.

    Reply
  14. Keith

    January 22nd, 2015

    Canada’s tar sand projects sprawl across 600 square kilometers of northeastern Alberta. Prime Minister Stephen Harper has called the industrial effort to extract oil from the deposits “an enterprise of epic proportions, akin to the building of the pyramids or China’s Great Wall. Only bigger.”
    ____________________________________________________________

    Ran across the above in Scientific American:
    http://www.scientificamerican.com/article/how-to-measure-true-cost-fossil-fuels/

    Maybe they will also be a tourist attraction in a couple of millennia.

    Reply

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