Meditations on booms, busts, oil prices, sales taxes, Albertans and their governments

Posted on January 21, 2016, 1:43 am
6 mins

PHOTOS: Alberta in the spring of 2014. Actual Alberta drilling operations may not have appeared exactly as illustrated. Below: Conservative premiers Peter Lougheed and Ralph Klein.

If God gives us another oil boom like the one us Albertans are all praying for nowadays, what are the chances that this time we won’t piss it all away again?

Not good, I reckon.

That’s the thing about boom-and-bust economies – they go boom and bust. If we haven’t figured this out by now, there’s not much hope for us.

Peter_LougheedAfter more than three years hovering between $90 US and $120 a barrel, oil prices started moving south in the middle of 2014 and have never really stopped their slide. Yesterday they slipped below $27.

I hate to say this, but I imagine a lot of people in other parts of Canada are feeling quietly smug about this. For years, we Albertans have been lecturing them on how to run their economies and their societies – if only they were as smart as us, they could be as rich as us. Now, instead of being embarrassed, we’re furious.

Well, the sainted Peter Lougheed warned us, didn’t he?

No good could come from too much oil sands development too quickly, Alberta’s first Progressive Conservative Premier, the original “blue-eyed sheik,” advised us more than once. We were setting ourselves up for a big fall, he warned.

Now the fall has come. Again.

Whoever replaced premier Ralph Klein “has to look at how they’re going to have a more orderly development in the oilsands,” Mr. Lougheed prophetically warned Albertans in 2006, 21 years after his retirement from the province’s top political job.

In an interview with the Edmonton Journal in 2006 in anticipation of Mr. Klein’s retirement at the end of that year, Mr. Lougheed excoriated the Klein Regime’s mishandling of Alberta’s Bitumen Sands resource as not merely too much too soon, but way too much at once. He suggested things had been messed up on a superlative scale.

Ralph-Klein-SzmurloThe Klein Government’s mismanagement left more losers than winners and was generally a chaotic and expensive mess, explained Mr. Lougheed, who was premier from 1971, when his PCs knocked off the Social Credit dynasty that had ruled Alberta since 1935, until he stepped aside in 1985.

Oil sands projects should have moved ahead one at a time, not all at once, he argued. “Having all these projects go concurrently is going to substantially reduce the return to the owner – and we’re the owner.” (Not that the latter point ever seemed to bother Mr. Klein very much.)

“If you overheat an economy and you affect citizens generally in terms of the costs of everything they buy … to the detriment of the citizens today,” Mr. Lougheed said in what has to be seen as a pretty accurate description of the overheated state of the provincial economy in 2006.

Mr. Lougheed’s tart commentary followed the unexpected confession in the Legislature by Mr. Klein, who was then near the end of a 14-year run as premier, that he’d had no plan for oil sands development.

Mr. Lougheed died in the fall of 2012 at 84. Mr. Klein died in the spring of 2013 at 70. Oddly enough, at a moment when the state of the economy has many Albertans pining for the “good old days” of Conservative rule, both departed PC premiers have been virtually sainted, if not deified, in the popular imagination despite the fact their governments, and their attitudes, could hardly have been less alike.

In Rachel Notley’s NDP we have a government more like Mr. Lougheed’s than Mr. Klein’s – but like Mr. Lougheed, I doubt Ms. Notley is prepared to risk doing what this province really needs to smooth out the spikes and toughs of oil volatility.

That is, bring in a sales tax like those in other resource-rich jurisdictions such as Saskatchewan (5 per cent) and Texas (6.25 per cent plus another 2 per cent for local governments) while we wait for oil prices to rise again.

The conventional wisdom has it that this would be suicidal – although the conventional wisdom in certain circles right now is also that the NDP is done for anyway.

Could be, although two factors suggest oil prices will go higher again – supply and demand – and there’s nothing like a flow of dollars to make a government look good. So don’t bet the farm on the next election, one way or the other.

That said, when oil prices revert to form, I expect, so will Albertans, no matter who is running the place.

Listen to what Mr. Lougheed had to say? Have a plan? That might just be asking too much of us.

This post also appears on Rabble.ca.

23 Comments to: Meditations on booms, busts, oil prices, sales taxes, Albertans and their governments

  1. Joyce

    January 21st, 2016

    Yes, agreed! What has been described as Peter Lougheed’s ‘Radical Legacy,’ included six principles for resource development. They are: “Behave like an owner. Collect your fair share. Save for a rainy day. Add value. Go slow. Practice statecraft.”
    A good explanation of these principles was done by Andrew Nikiforuk and can be found at:
    http://www.thetyee.ca/Opinion/2012/09/17/Radical-Peter-Lougheed/

    Reply
  2. David

    January 21st, 2016

    Albertans don’t seem to understand that the low oil prices and current oil patch bust started about 9 months before the PCs were thrown out by voters and that the NDP have only been running the provincial government for the last 8 plus months.

    I wonder if they would have been hating the PCS had Prentice not been defeated.

    Reply
    • Expat Albertan

      January 21st, 2016

      No, they wouldn’t have blamed Prentice. Rather, they would have done the time-honoured thing when oil prices are down – blame Trudeau and Ottawa.

      Reply
  3. Athabascan

    January 21st, 2016

    Trillions of dollars sucked out of Alberta over the span of ___ years. And, we have how much saved in the bank to get us through the bust years? If that alone doesn’t raise concerns about how conservatives mismanaged our wealth during that time, then you are surely part of the kudatah crowd.

    Ignore ideology, and do what is rational – institute a sales tax. People who buy more will pay more. If you can afford to buy a BMW or Mercedes, then you’ll pay more than the minimum wage worker who rides the bus.

    Grow Alberta marijuana, legalize it, and tax the shit out of it. That’s the easiest way to raise money and diversify the economy. As a bonus, think of all the savings from unclogging the justice system from needless convictions/incarcerations.

    Contact Tata Motor Company and induce them to build cars here for the Canadian market. Oh, and tell the parasitic professional sports franchises to pay for their own damn coliseums and arenas and stop living off public money.

    Reply
  4. Athabascan

    January 21st, 2016

    Oh, sorry I forgot: Chase down all those rich ranchers and farmers who owe the Alberta government back taxes and rent for their leased land.

    Reply
  5. Gail

    January 21st, 2016

    I usually agree with your commentary but on the sale tax issue I have to strongly disagree. Much like a sin-tax a sales tax is regressive and has more impact on those with lower incomes (proportionally more of their income goes to the tax). A removal of the Alberta flat rate of income tax would be more useful.

    The real change that needs to happen to the tax structure is much higher royalty rates (we are still lower than Alaska) and much higher corporate income tax. The rate of corporate income tax has been declining since the 1980s and has done very little for the average Alberta. Return the tax to a reasonable level and that will do more for the economy than any sales tax.

    Reply
    • Athabascan

      January 21st, 2016

      Incorrect! A sales tax is the most progressive tax of all. The more you consume, because your wealth allows you to, the more taxes you pay.

      As for the poor, taxes can be exempted for basic staples (food, bus passes, etc.)

      Reply
      • anon

        January 21st, 2016

        The math disagrees with you Ath. A poor person spends a greater % of their total income than a rich person so they also lose an unfair share of their income to the sales tax.

        Excemptions and rebates are all very well, but they do not help the cash flow problem lower income people face, which sales taxes make even worse.

        Almost all the money is made by corporations. A high corporate tax gives them the incentive to invest in capital and labour to avoid paying higher corp. taxes. This in turn makes them more efficent and competative while also ramping up the personal income tax take from their workers and suppliers.

        Given our 60 cent Cdn dollar this is an ideal time to raise corporate taxes.

        Reply
      • Northern Loon

        January 21st, 2016

        The wealthy get to put their money that they don’t spend in Alberta into investments where their taxes are deferred, or taxed at reduced rates. The wealthy get to travel and spend their money earned in Alberta in foreign destinations. The wealthy get to invest in jurisdictions where they don’t pay taxes.

        The poor get to pay taxes on everything that isn’t exempt.

        How progressive does that sound?

        Reply
      • Jean Perron

        January 21st, 2016

        Athabascan

        Sales taxes are regressive because people with income above their need to spend on day, save and invest it. In order for VATs (sales taxes) to work, you need to implement many exemptions. I will agree that VATs are hard to dodge, so with the right exemptions I would favour them.

        Reply
    • Bob Raynard

      January 21st, 2016

      Your concerns about a sales tax are legitimate, Gail, but they can be worked around to make the sales tax work fairly, either with generous basic exemptions on necessities, or by harmonizing a PST with the GST and using the GST credits.

      The rest of your comment is dead on. When people talk about how well managed Norway is, they tend to forget that Norway is very highly taxed. My understanding is that Norwegian leaders decided that they would ignore their resource revenue when they prepared their budgets, and tax at a level sufficient to operate the government’s daily operations. Had Alberta done the same we certainly would be in a lot better position now.

      Reply
  6. anonymous

    January 21st, 2016

    Alberta’s enigmatic ex-leader wanders around Nevada and Florida wearing a baseball cap. Would any Canadian take issue with that? I sometimes wear a baseball cap on sunny days. Thanks Alberta!

    Reply
  7. ronmac

    January 21st, 2016

    You want a plan? Turns out I got a plan, a real good plan. Let’s change the bylaws so that Alberta’s urban dwellers can start raising chickens.

    Before we go any furher let’s think about this! A bucket of KF chicken is going for $28 plus. Compare that to a $27 barrel of oil.

    New York City’s doing it.

    https://www.youtube.com/watch?v=Oll2lp9J_Fg

    Reply
    • Jean Perron

      January 21st, 2016

      Are you saying that strangling chickens at 5:00 pm should be our way out of the current mess?

      Reply
  8. Sam Gunsch

    January 21st, 2016

    Some details of the mess conservative elites have created… pointed out by a key Lougheed cabinet minister in a Tyee.ca article in 2011.

    http://goo.gl/wlCXxV

    excerpt: ‘Warrack, one of the architects of the iconic Alberta Heritage Fund, told the Tyee earlier this year that the province is being run like a “banana republic” for failing to collect fair rents for non-renewable resources like the oil sands.’

    excerpt: PM’s favourite province squandered its petro profits like a ‘banana republic.’ Is this any way to run an economy? By Mitchell Anderson, 13 Apr 2011, TheTyee.ca
    ===========
    excerpt: ‘”Since time immemorial, the use of other people’s property has been on a two thirds, one third split,” said Warrack. “The owner gets a third and the operator gets two thirds… If you interpret that in terms of oil or natural gas or oil sands, there should be a third of the value to the owners and in the case of oil sands that is 100 per cent owned by the public.”

    The royalty rate collected on oil sands projects before “payout” is currently one per cent, which according to Warrack is so low it is “like a rounding error from zero.”

    He feels the lack of government oversight and fair royalty collection for the oil sands is creating a massive restoration liability. “There is going to be a thousand years of carnage left up there and we are not even getting fair money for it… I mean this is crazy, just crazy.”

    As far as pledges to restore the area around Fort McMurray, Warrack is not optimistic. “Anybody who thinks the environment [at oil sands operations] is going to get fixed is smoking something. I mean they will just declare bankruptcy and they are out of Dodge. Is there any doubt?” ‘

    Reply
  9. January 21st, 2016

    Klein was a wise fool who played Alberta like a cheap harp. He’s gone, but the sheared flock that followed him remains – looking for the twinkle-eyed shepherd who will fleece them yet again and make them like it, telling them all the sweet lies that can be told as the conquer & divide sucker dance begins yet again .
    As long as Alberta attempts to enshrine and codify the cognitive deficiencies that pass for Conservative and neoliberal thought on this continent, it will be ever thus.

    Reply
    • Jean Perron

      January 21st, 2016

      20mg more Lithium and we’re with you.

      Reply
      • January 22nd, 2016

        Is that the best you have – a drive -by comment that is as empty of meaningful content as your conservative dreams?
        No wonder your party ran on half-baked plans & short-term grift as long as it did, with vacuous insult-slingers like you to reliably pull their levers at election time. Good day, sir.

        Reply
  10. David

    January 21st, 2016

    I agree that we can’t totally eliminate the boom and bust cycle, but we really should try to manage it better and diversify the economy. I hope the current bust will provide some an opportunity for some serious thought on how to do things differently and better.

    Unfortunately, people were saying the same things in 2009 as now, but that bust ended quickly and it seemed they just went back to business as usual and forgot about it when times were better. I hope we are not doomed to keep repeating the same mistakes time and time again.

    I think Lougheed may have managed things better in difficult times, but he left in 1984 right after things started to get bad and handed it to his friend Don Getty to take most of the blame for the bad times. I guess we can never say for sure how well Lougheed would have handled the economically difficult times as he governed mostly in boom times.

    I also think it is premature to predict the future of the Notley government. If oil prices rise in a year or two, the economy will stabilize and probably even pick up in time for the next election. I think much of the hostility is based on the difficult economic circumstances many people face right now, so if things improve so will the fortunes of the government.

    In any event, I doubt we will get a sales tax. It would go over poorly in good economic times and much worse in bad economic times. If anyone thinks it is a good idea politically, I have two words for you – Mulroney and GST.

    Reply
  11. Sub-Boreal

    January 21st, 2016

    As glad as I am to have an NDP government in neighbouring Alberta, it’s disappointing that Ms. Notley is showing so little imagination in her approach to her province’s energy future. As she heads off to try to sell Kathleen Wynne on yet another project that nobody wants, it’s time to face the inevitable.

    All tar-sands pipelines are non-starters. Period.

    Kinder-Morgan’s Trans Mountain expansion and Energy East have all of the flaws that doomed Northern Gateway and Keystone XL. No matter how much nicer Alberta’s new Premier is, no matter how much additional bureaucratic fog of public relations is released, both projects are doomed.

    They’re the last zombie offspring of the 20th Century carbon project. It’s time to euthanize them and move on.

    Reply
    • Chris

      January 25th, 2016

      Miss Notley is in a position to see the real numbers. That is why she is supporting pipelines. She also does not have the luxury of writing off one-third of Alberta’s economy and the elimination of about 500,000 jobs with a simple “time to move on.” She realizes that she and her party cannot survive putting that many people out of work and destroying that much of the province’s revenue.

      Reply
  12. David

    January 22nd, 2016

    It is the hypocrisy of many of the people who argue against pipelines that I think infuriates Albertans the most. Southern California is chock full of people who drive cars and movie stars jet around the world then come up here to campaign against the oil sands. I am quite sure all those cars in the US, Vancouver, Toronto, Montreal and elsewhere do not run on solar power, nor do those jets. I suppose they can get their oil from Iran now that the sanctions are being been lifted. At least I think their human rights record is slightly better than Saudi Arabia and they seem less inclined to support terrorism at the moment.

    Whether you realize or appreciate it from a distance, the relatively new government in Alberta has made some serious efforts to deal with carbon emissions, more than has been done in the last 30 years.

    You can continue to make the oil sands and Albertans your whipping boy. Perhaps it is an automatic reflex by now, but things have actually changed here.

    Reply
  13. TENET

    January 24th, 2016

    I wonder what the landscape would look like, and what the consequences would have been, had the much maligned NEP not been withdrawn? Maybe the lifeboat was dispatched and we missed the boat?

    Reply

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