By Bradley Lafortune
In quiet Zoom meetings of economists and energy analysts around the province you can almost hear the murmurs: “Fiscal insanity … again!”
But there is hope, however faint, because the imperative could not be more clear that Alberta must plan for a long-term recovery through savings, reinvesting in basic public services, and an urgent and methodical transition to a sustainable economy.
The fact that $70-a-barrel West Texas Intermediate (WTI) benchmark crude seemed a perfectly reasonable projection when the United Conservative Party government began putting its budget together just two months ago highlights just how reckless it is to build the province’s entire fiscal plan on such a volatile revenue source. That we continue to take this approach to budgeting year after year is the height of insanity. And it’s intensely frustrating that Albertans continue to ride this stomach-churning revenue rollercoaster over and over again.
While the UCP government is patting itself on the back for its “balanced” budget – one that one continues to underfund public services, privatize health and education, and cut billions from our cities and towns – the fact that we don’t a have a plan for reinvestment in our services, a blueprint for savings, or a transition to a sustainable economy makes this budget and the government’s entire fiscal narrative deeply misleading.
The day the UCP introduced their budget, WTI was trading at $93/bbl. Last week it was at $125/bbl. And when the budget was being planned in January, the UCP government set $70/bbl as its projected price. There is simply no way to responsibly budget on such a highly variable stream of revenue.
Although international oil prices are just one factor impacting resource revenues, they are an important factor. Every dollar that WTI goes up means as much as $500 million in increased revenue for the province.
Well-known University of Calgary economist Trevor Tombe notes that an increase of $15/bbl above budget projections would mean an additional $5.8 billion in the provincial coffers just this year. And an oil price average of $85/bbl is not out of the question given the volatility in the market and the world’s oil producing regions.
The very real likelihood of billions more in revenue after a pandemic and years of a struggling economy provides an urgent opportunity for the Alberta government to reset its fiscal planning and launch a strategy to create a just recovery and long-term fiscal stability for all Albertans in every corner of the province.
In 1976, the Alberta government recognized the short-term nature of non-renewable resource value and that “revenue from the sale of those resources will ultimately decline.” Accordingly, the Alberta Heritage Savings Trust Act required 30 per cent of revenue be set aside for “the benefit of people in Alberta for future years”. In 1983, that law was amended to reduce the amount to 15 per cent. Soon after that, in 1987, investments were suspended indefinitely until the mid-2000s, when a short-lived energy price boom led to sporadic investment into the Alberta Heritage Savings Trust Fund.
The short-sighted political urge to shore up revenue for spending with non-renewable resource revenue, rather than build a stable and predictable revenue stream, led to the quick demise of the original fiscal structure of the fund. And, as one friendly economist reminded me recently: this has been a cross-partisan effort, not a partisan one.
Oh, but what could have been. In 2008, during the heady thinking brought on by another boom, the Parkland Institute’s report “Saving for the Future” showed that with prudent savings, improved budgeting, and proper taxation, Alberta could easily build the fund to $200 billion in just a decade.
Today? Well, the last quarterly report ending December 2021 puts the fund at $18.6 billion. A far cry from what the economists and analysts from across the political spectrum thought was possible during the last big boom in 2007-2008. But at that time, at least the province was turning its head toward the possibilities of returning our thinking to the original intent of the fund.
We must once again call on politicians to plot out what Alberta could do with our resource revenue. This could be our last chance to imagine a future supported by the value of this non-renewable resource.
We’ve seen this movie before. Every so often prices spike and our governments want to spend money like drunken sailors. When prices fall again, they panic and advocate destructive austerity.
Like Ralph Klein before him, Jason Kenney has gutted public services and made significant moves to privatize health and education. With the increased urgency of climate change mitigation and adaptation, as well as reduced services, makes the poignancy of this current moment feel different than 2007-2008.
The crucial first step today is for progressive-minded advocates, economists, and Albertans to call for immediate reinvestment in basic public services. At a time when inflation, energy prices, and massive instability in international trade and relations are causing anxiety and uncertainty for regular Albertans, we need to get the fundamentals right. This means reversing the UCP’s agenda of cuts and privatization.
From there, we need to stop promising not to piss away this energy boom, and actually stop doing just that!
We must act like the owners we always say we are. This requires massive reinvestment in innovation, transition, and long-term fiscal stability. For the sake of our quality of life, our province, and the world, this time we simply have to get it right.
Bradley Lafortune is executive director of Public Interest Alberta, a non-profit, non-partisan, province-wide organization focused on education and advocacy on public interest issues and understanding the importance of public spaces, services and institutions in Albertans’ lives.
Revenue roller coaster? What pap.
“reinvesting in basic public services” We already invest more than any other province, and then you can take into account transfer payments.
“an urgent and methodical transition to a sustainable economy” Which type of economy is that? One with big populations? Not gonna happen with our climate and land lockedness.
The Kenney government is already doing the economy thing. The last thing the Alberta population needs is government building a woke economy and trying to out compete the west coast.
“We”don’t “make” transfer payments, all albertans pay federal taxes, it’s not the government of Alberta sending money to Quebec, shut up already, it’s a ridiculous claim.
BRET LARSON: As for pap, you pretty much said that.
Once upon a Tuesday there was a student whose teacher told them there was a pop quiz coming by Friday. The teacher even defined a pop quiz as, “a test you can’t know is coming in advance. ” The student reasoned that it couldn’t be on Friday, because if Wednesday and Thursday passed, everyone would know when the test was. So because it couldn’t be on Friday, it also couldn’t be on Thursday, because after Wednesday passed people would know in advance that it was Thursday. It also couldn’t be on Wednesday, because everyone knew it had to be on Wednesday but it had been defined as something you can’t predict in advance.
The child proudly refused to study, then squawked like a stepped on chicken when the test was given and they failed it.
If we choose to believe absurdities we are choosing to experience the consequences of our absurd actions.
A great blog by your guest. Very well articulated. I’m not the only one to have these sentiments, but Alberta’s financial troubles came from Albertans supporting pretend conservatives and Reformers, like the Liberal turned Reformer, Ralph Klein. Ralph Klein basically sabotaged the great things that Peter Lougheed did. Alberta is out $575 billion, due to the drastic reduction of Peter Lougheed’s oil royalty rates. Albertans also have to fork over $260 billion to cleanup abandoned oil wells in Alberta. Alberta lost $150 billion more from bad tax policies. These things happened from Ralph Klein, and he also did many other very pricey shenanigans, which cost Alberta billions of dollars. Ralph Klein then had the excuse that he couldn’t find healthcare and education in Alberta, so he made cuts to it, just so he could have the excuse to privatize it. Ralph Klein’s reckless cuts to healthcare in Alberta had put people’s lives in jeopardy. Now, we have pretend conservatives and Reformers in the UCP. What are they doing? More very pricey shenanigans. $10 billion in revenue is lost, because of corporate tax cuts, which were assumed to increase employment, but didn’t do so. $7.5 billion is lost because the UCP believed Donald Trump would get a second mandate, and the pipeline would get the green light. There are so many other very pricey shenanigans that the UCP has done, which cost Alberta billions and billions of dollars. The UCP also wants to emulate their hero, the Liberal turned Reformer, Ralph Klein, and gut public healthcare in Alberta, so they can privatize it. The head honcho of the UCP, is another Liberal turned Reformer, so he can’t be trusted to do the right things for Alberta. Neither can the Reformer, Brian Jean. The UCP doesn’t grasp the vulnerability of oil, as a commodity. Pretend conservatives and Reformers simply don’t. They will make all kinds of excuses, like the National Energy Program, or something else, that they can concoct, to detract from the real issues and problems that they have created. These pretend conservatives and Reformers don’t understand that governments don’t control oil prices, global market forces do. So, with them doing the most priciest shenanigans, not collecting the proper corporate and oil royalty rates, like Peter Lougheed did, this leaves Alberta with substantially less, when troubled times appear. The recent higher oil prices were only short lived, but the pretend conservatives and Reformers in the UCP thought a big oil boom was coming and it will save the day. There is no sense in any of this.
Eminently sensible and immensely thoughtful Therefore completely untenable as official policy in Albaturda.
Thanks for saving me a thousand words saying the same thing.
The groundwork is being laid for the unsustainable Alberta of the future. What future do any of us have here? Devastating cuts to post-secondary education will cut off the path to innovation. Without innovation, how will we adapt to the rapid changes to society that climate change will bring? As for health, have we not learned through two years of a world pandemic just how important that is? No, apparently not. We have a government that cannot see past its own nose to next month, let alone next year.
Almost had a good point, then you quickly made a boogeyman out of privatization. You know privatization doesn’t vote conservative, right? And that our great “public” health care system is crumbling, and the laughing stock of the world? Come up with some ACTUAL complaints instead of your typical “sky is falling” nonsense and maybe cons wouldn’t continuously win the popular vote. This blog reads like a broken record.
Privatization: pay more, get less, send profits to America.
Our system is not perfect. Is there a privatized model that exists in the world today that you would want to emulate?
ALBERTANDUDE: Who caused our public healthcare system in Alberta to crumble? Ralph Klein did, with his foolish cuts, just to weaken it, so he could justify privatization of it. The UCP certainly have the same goal. Healthcare shouldn’t be for the rich.
David you have certainly nailed it. Too bad we have fools like Bret Larson and Albertandude who just aren’t smart enough to understand it. Lawyers, accountants, oilmen, bankers and the former MLAs that I knew certainly did.
You would have to be a damn fool to sit and watch Alaska and Norway build up their massive savings account while they watch ours being given aware to this governments rich friends. Especially after Alaska and Norway studied our system under Lougheed and their oil production isn’t nearly a large as Alberta’s.
What these fools ignore is the fact that the Public System works fine when you are collecting proper royalties and taxes and funding it properly, like Lougheed did and Norway and Alaska are doing.
Albertandude – You claim to have read this article but did you actually take any of it in? It’s not “sky is falling” nonsense, it’s a perfectly reasonable position to suggest or even demand that govt “build a stable and predictable revenue stream.” You are the broken record, picking out your own boogeyman of govt investment in society to make some criticism – of what it’s not exactly clear. It is indeed the govt’s job to ensure a stable, healthy society for the people and if your much-vaunted private sector won’t do it then govt has to. Nowhere will you find private money sustaining the infrastructure like health care, education, roads, firefighting, etc necessary for a descent society.
Sure our health system has issues (caused by under funding it is said here) but you don’t get out much evidently because “laughing stock of the world” is a clearly false statement. Bret above says “Revenue roller coaster? What pap” and that is more BS. If Alta isn’t on a revenue roller coaster what the hell is it? This essay is correct, we should all demand our govts, indeed all institutions, promote diversified, stable, resilient economies for their constituents.
“Every dollar that WTI goes up means as much as $500 million in increased revenue for the province” says the essay above but I’ve been reading for years (including in comments in this website) that govt taxation and royalties on this industry are dismal? The BC & Alta NDP govts have been lambasted for this. I’ve even read that it’s a net loss for govt? Which is it?
If the UCP has “gutted” public services, what have other provincial governments, all of which spend less per capita, done?
Well said Mickey Rat. Our health care system is in fact one of the most respected in the world. An American cousin of mine has been saying for years “ For gods sake don’t let anyone destroy your Public Health Care System, trust me you don’t want ours”
But of course these ignorant seniors aren’t smart enough to think for themselves and aren’t smart enough to do any research. There are several web sites pointing out that while 76% of Americans may have private health care insurance they still end up in financial ruin and have to declare bankruptcy. Americans find private insurance only pays a small portion of the medical procedure needed. It’s the number one cause of bankruptcies in the U.S.
These phoney conservatives starting with Ralph Klein cut royalties from 35% of oil production down to 3% to benefit their rich friends. You might want to Google this. “ Royalties down 32% Billions in Federal revenue Lost”. Read what Lougheed had to say. It was brought to my attention by a former MLA from the Lougheed era he was furious with what these Reformers have done to us.
Oh the conundrum of Alberta politics and perhaps what is a conundrum of politics everywhere – what is best for you is not always popular.
I recall Mulroney in the early 1990’s trying to convince us that replacing the hidden Manufacturers Tax (so well hidden, few Canadians actually realized it existed) that made Canadian exports uncompetitive with a GST that applied more broadly and was clearly shown on every bill, was a good idea. How well did that go? Well, his party won two seats in the next election, so it wasn’t killed off, but very nearly.
So, this debate is the political equivalent of trying to convince people to eat their vegetables. Even worse, an Alberta PST would not be replacing an existing tax, it would be an additional one. Yes, it would be a more stable revenue source. So yes, it would also allow us to maintain spending when resource revenues fell and save money when they were higher. However, take a poll and ask people if they want to pay more tax. Maybe Mulroney did, or maybe he knew what the answer would probably be and just didn’t bother. Oh, they did take a poll lately in Alberta – PST, as unpopular as ever. So, it is not happening any time soon.
Even worse, when times are good and the budget is balanced the pressure is off and some Albertans who should know better start spouting off about our exceptionalism – look, low taxes and balanced budgets, aren’t we smart fiscal managers? When times are bad and the revenue is needed, try convince someone whose wages or hours have been cut that they need to pay more tax and see what happens. It will not be pretty.
There is a reason we have been talking about PST for decades and it hasn’t happened. Albertans are not going to eat their vegetables, but they do want to have their cake and eat it too. Sorry, that is not going to change any time soon.
Dave: Ah! The magic sales tax! Why its 25% or more in many US municipalities (yes you can pay more or less sales tax in adjacent states and even counties) and they are still mostly poor societies. Make the poor pay more while having a trivial effect on the more well off. On the other hand a progressive income tax, say 80% on the top one-tenth of one per cent would actually provide revenue and encourage investment by the oligarchs who are looting Alberta. Nothing like investing in new plant and equipment to avoid paying income tax. This creates a virtuous circle of investment and job growth.
Sales tax is 100% the bourgeoisie wanting to have their cake and eat it too. The rich don’t spend all their income, the poor do. This means the majority of their money stays untaxed in their bank accounts, and the poor pay for the services and infrastructure they enjoy.
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