Alberta Politics
Fossil fuel markets: volatile in Alberta right from the get-go… Below, recent premiers who knew what was wrong with Alberta’s fiscal situation, and failed to deliver what was required to fix it. (Image: Archives of Alberta.)

Alberta’s perpetual fiscal crisis will never be fixed without revenue reform — so you might as well get used to it

Posted on September 10, 2019, 12:19 am
10 mins

Even real conservatives, if such a species exists anymore, know something’s gone awry with Alberta’s fiscal setup and that part of the solution’s on the revenue side.

The fact we’ve not faced up to this is why Alberta is so vulnerable to the unavoidable volatility of the fossil fuel market. Now our new United Conservative Party government is hell-bent on making things worse.

Ed Stelmach (Photo: David J. Climenhaga).

But first the backstory:

Progressive Conservative premier Ed Stelmach certainly understood this. To his credit, he even tried to do something about it. But he failed to introduce modest increases in resource royalties when the Wildrose Party succeeded at the mission it was given when it was bankrolled by the oil-and-gas drilling sector.

After Mr. Stelmach came Alison Redford, who campaigned as if she understood and governed as if she didn’t. This was a disappointment but not much of a surprise. Dave Hancock, who succeeded Ms. Redford as a caretaker for the PC dynasty, certainly did, but didn’t do anything. In his defence, he had other fish to fry.

His successor, Jim Prentice, did too. He announced he would kill Ralph Klein’s 10-per-cent flat tax and implement a modestly progressive tax system. It might not have been sufficient to solve the problem, but it was a toe in the water.

Weeks later, though, Mr. Prentice lost the election he called a year too soon. In 2015, the New Democrats led by Rachel Notley rode into power with a strong mandate for social democratic reform and a comfortable majority. In its first budget, the NDP introduced a progressive income tax increase similar to the one planned by Mr. Prentice, and added 2 per cent to business taxes.

Soon after, though, the NDP introduced a carbon tax that economists, environmentalists and the biggest oil companies liked, but ordinary Albertans hated even though it wasn’t onerous enough to accomplish very much.

Alison Redford (Photo: David J. Climenhaga).

Alas, the carbon tax gave cynical conservatives — who, after all, came up with the idea — an effective stick with which to beat the NDP out of office.

The tragedy is that the NDP, which had a mandate to act, was so timid about making the fixes to tax policy Alberta needed to get off the proverbial perpetual petroleum price rollercoaster.

Now we’re not only still stuck on the rollercoaster, but we are governed by an extremist party (for all practical purposes, Wildrose 2.0) led by Jason Kenney, who appears determined to use the province’s vastly exaggerated financial crisis as an excuse to privatize health care, education and other public services, attack workers’ rights, and cater to the anti-LGBTQ and anti-women’s-rights instincts of his party’s Bible Belt base.

Like the NDP in 2015, the UCP has a strong mandate to implement its program. Unlike the NDP, however, it appears to have the intestinal fortitude to do so. This will not be good for Alberta.

To gin up the sense we’re in the midst of a potentially apocalyptic financial crisis, the UCP created a “blue-ribbon” panel, led by Janice MacKinnon, a disgruntled former NDP finance minister from Saskatchewan with thwarted leadership ambitions. She and the other panel members were handpicked to deliver the justification for the UCP’s neoliberal agenda, parts of which are bound to be wildly unpopular. A week ago, the panel did just that.

Dave Hancock (Photo: David J. Climenhaga).

Now, the Edmonton-based Parkland Institute has published what it calls an “alternative blue-ribbon report.” The Parkland report, released yesterday, “shows that Alberta’s economy remains strong,” its summary says. “Real GDP and GDP per capita growth remain positive. Labour force participation rates, employment rates, and wages remain above the Canadian average.”

Ergo, there is no immediate crisis resulting from public spending.

“Alberta’s real difficulty in balancing the books lies in its anaemic tax effort,” the Parkland report states. “Alberta’s coffers fall consistently short of what is necessary to pay for important public services which Albertans value and expect. In past decades, the revenue hole was filled by non-renewable resource revenues, primarily bitumen, oil, and gas. But those days are gone, and unlikely to return.”

Of course, the Parkland Institute examined the province’s full fiscal situation and then offered the obvious recommendations, whereas the panel led by Dr. MacKinnon was instructed to ignore the entire revenue side of the province’s fiscal situation, which no matter how hard you believe Alberta has only a spending problem, makes no sense.

But while the Parkland Institute certainly offers a more balanced look at Alberta’s true fiscal picture than the MacKinnon Panel did, as well as proposing solutions that are more sensible, even from a truly conservative perspective, it sure has the sound of a barn door slamming shut after the horse has run away.

Jim Prentice (Photo: David J. Climenhaga).

The Parkland report’s conclusion: long-term fiscal stability in the province simply cannot be achieved without addressing Alberta’s long-standing revenue problem. “Our recommendation, echoed by many economists and policymakers over several years, is that Alberta adopt a provincial sales tax,” its three authors state.

By now, of course, everyone in Alberta who has been paying attention knows this is true — even Finance Minister Travis Toews and his boss Mr. Kenney, I’d wager. Indeed, Dr. MacKinnon herself seemed to recognize this, judging by how she couldn’t keep herself from yakking about the revenue side in the report and subsequent news coverage.

The UCP will do nothing of the sort, of course, because it has another agenda, which will be assisted by the intentional fiscal crisis the government is creating by cutting $4.5 billion out of tax revenues and allowing no consideration of any way to deal with that other than making painful cuts.

Indeed, if there were a regulatory college for professional economists, a couple of members of the panel could be charged with misconduct for even participating in such an sham! Dr. MacKinnon, of course, would be off the hook. She’s a historian, not an economist.

Rachel Notley (Photo: David J. Climenhaga).

So the Parkland study revealed — unsurprisingly, since it is so obvious — that Alberta is not in a “critical financial situation” requiring deep cuts to spending on public programs.

Said Parkland Director and study co-author Trevor Harrison, a Lethbridge University sociology professor, in the news release that accompanied the study: “Most of the issues of concern revolve around over-dependence on a single commodity … that has contributed for years to rollercoaster budgeting.”

On the expenditure side, the situation isn’t nearly as dire as the MacKinnon Panel makes it out to be. “The data show that the size of the public service in Alberta relative to total employment is smaller than the Canadian average, smaller than both Ontario and Quebec, and only slightly larger than in British Columbia,” said co-author Richard Mueller, a U of L economics professor.

Let’s give the last word to the study’s third co-author, Robert Ascah, a fellow of the Institute for Public Economics at the University of Alberta: “The causes of Alberta’s failure to face up to its fiscal problems are many, but chief among them is a failure of political leadership,” he said.

“Albertans simply can’t keep pretending the revenue side doesn’t exist,” he said. “If resource revenue is excluded, Alberta hasn’t run a surplus in any fiscal year since 1965, so it is incumbent that Alberta governments look at other sources of revenue to tap as the long-term future of fossil fuel extraction grows dimmer.”

It’s impossible to argue with Dr. Ascah’s observation. Sadly, it’s also impossible to believe anything will change.

6 Comments to: Alberta’s perpetual fiscal crisis will never be fixed without revenue reform — so you might as well get used to it

  1. Jim

    September 10th, 2019

    The narrative needs to be created that the NDP messed things up so bad that even the so called conservative management couldn’t stop the crash. Those who know of course understand that UCP policies will speed up or cause the crash. If the UCP truly cared about the long term health of the province they would put in a sales tax.

    Reply
    • Anonymous

      September 11th, 2019

      Jim: The Alberta PCs, after Peter Lougheed left office, are the ones who are totally responsible for virtually depleting Alberta’s finances, from multitudes of very costly scandals and neglect. This includes them doing the most costliest scandals in Canadian history. The Alberta PCs put in taxes of various sorts, including a carbon tax that Ed Stelmach put in. Alberta still has a carbon tax. Before Alison Redford was premier of Alberta, the Alberta PCs were thinking of putting in a P.S.T for Alberta. Wonder why that was? We already know the answer to that. The UCP’s corporate tax cuts have cost Alberta $4.5 billion. The UCP has already made over $13 billion in very costly mistakes.

      Reply
  2. D. Bruce Turton

    September 10th, 2019

    Interesting that the Parkland report keeps suggesting that “the long-term future of fossil fuel extraction grows dimmer”. Goes with other analyses like that of Tim Morgan and Andrew Nikiforuk, among many others, that there is no going back to the ‘good old days’ , which have no basis in fact, obviously (“If resource revenue is excluded, Alberta hasn’t run a surplus in any fiscal year since 1965″)! No matter the politics (but that of neoliberalism particularly), the reality is that ‘More Oil’ = More CO2 = More Heat. We need to ‘deal with it’, not keep running away to a past that never really existed and from a future that will not accommodate the fantasies of that same imaginary past.

    Reply
  3. Dave

    September 10th, 2019

    In some ways this discussion should be a non partisan one. For years, it was various organizations and thinkers on the right who would periodically bring up the issue of implementing a sales tax, only to be shot down by the PC political leadership. Often their proposals would include the sweetener of lower income tax rates or no income taxes to try to appeal to fiscal conservatives, apparently without great success. It seemed a bit out there, but really it is not too far off, a number of US states do have currently have sales taxes but no or low income taxes.

    It is interesting that since the Stelmach years, the argument for a PST or HST has been taken up more by people on the left. Alberta has been running a deficit for a number of years, it is not a new thing or as the UCP would probably like us to believe a NDP thing. In fact the PCs had more years of deficits than the NDP did. Even in the Redford years when oil prices were at their highest, we ran a deficit, so at this point it seems fair to say that Alberta’s deficit is structural. The observation has also been made that if Alberta had similar levels of taxation to any other provincial government we wouldn’t have a deficit, but a significant surplus. I suspect when people in other provinces hear still relatively well off Alberta whine about its chronic deficits, they probably think, why don’t we just get on with it and easily fix it by bringing in a PST or HST.

    In theory this is easy, but politically not so much. In some ways this is much like the carbon tax debate that was originally championed by those on the right as the least disruptive way to reduce carbon emissions, as opposed to numerous and complicated emissions caps and regulations for industry. Now it seems most Conservative politicians in Canada have abandoned this thinking for a more populist approach, except for maybe PEI where the PC minority government needs to work with the Greens, for what seems to be a hodge podge of unworkable and expensive measures, the only benefit is politically they can’t be directly tied to the price at the pumps.

    I remember the last time any Canadian government was brave on the issue of tax reform. It brought in a direct tax to replace the inefficient manufacturers tax that cost Canada exports and jobs. The tax was called the GST and in the election after that it lost about 170 seats. As any politician can tell you, you can’t tell the voters what they don’t want to hear. The carbon tax even with its offsetting rebates to most voters was a hard sell, a PST or HST in Alberta, will be even harder, which is why I doubt it will happen any time soon. If it does I suspect it is quite possible that party that brings it in will be “thanked” much like the PCs were in the early 1990’s, which is why I think politicians (whichever party they belong to) will not do it. So back to my original comment – it is a non partisan, non starter.

    Reply
    • Farmer Brian

      September 11th, 2019

      Excellent post Dave, the first two jurisdictions in Canada to have a carbon tax were B.C. And Alberta. The B.C. Liberal’s were in power at the time and technically a center right party. I did find this story on the CBC website very interesting: “B.C. Greenhouse gas emissions still near 2007 levels, ministry says.” C02 emissions in 2017 were 64.46 million tonnes compared to 64.76 million tonnes in 2007. What was missed in the article was that in 2015 B.C.’s C02 emissions were 61.3 tonnes, in 2016 B.C.’s C02 emissions were 62.3 million tonnes. So from 2015 to 2017 B.C.’s C02 emissions increased over 5% with a carbon tax in place that is higher than is required by the current federal government. Also keep in mind that residents of B.C. due to lack of refinery capacity have historically payed among the highest prices in North America for gasoline and their emissions are going up. So this much ballyhooed carbon tax in B.C. over the last 10 years has not accomplished what everyone says a carbon tax will do. In fact if you look at graph of B.C. C02 emissions, there was a drop of almost 4 million tonnes from 2004 to 2007, then it levelled off and another drop from 2008 to 2009, after that it has trended up ever since. The drop in 2008-2009 corresponded with the recession in Canada. Enjoy your day.

      Reply
  4. Sam Gunsch

    September 14th, 2019

    re: Soon after, though, the NDP introduced a carbon tax that economists, environmentalists and the biggest oil companies liked, but ordinary Albertans hated even though it wasn’t onerous enough to accomplish very much.

    Alison Redford (Photo: David J. Climenhaga).

    Alas, the carbon tax gave cynical conservatives — who, after all, came up with the idea — an effective stick with which to beat the NDP out of office.
    ===========================

    And thus the policy wonk class among ENGOs and most economists, doomed the NDP to a one-term government. They did the same thing to Dion in advising him to go for broke with the Green Shift.

    Retail politics and polling ignored because ‘textbook economics’. gawd

    Reply

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