The Mysterious Wedge

Like the proverbial eagle, the 2011 Budget has landed—with less hoopla than expected.  Yes, the $39 billion budget came with a $3.4 billion shortfall but it left health services intact.  This was a wise decision on the part of the Tories given that over 60% of Albertans feel that healthcare system is in crisis and the cause is inefficient management.  Not that the government had any choice.  Just last fall the government unveiled the 5 Year Health Funding Plan which underpins the 5 Year Health Action Plan.  To shave even a penny off the health budget in the face of these announcements would have been the height of hypocrisy, if not political suicide.

While others were focusing on the healthcare and education budgets, I decided to spin the spending pie chart *and examine the mysterious wedge called “Other”.  This wedge is so interesting because it’s so big—it accounts for 13.8% of the spending budget.  That’s $5,382 billion.  That makes “Other” the third largest expenditure category after health and education.  It’s larger than social services at $4.1 billion (10.6%), agriculture, resource management and economic development at $2 billion (5.1%), transportation, communications and utilities at $1.9 billion (4.9%), and debt servicing costs at $585 million (1.5%).  In fact it’s larger that the last three categories combined and is one and half times larger than the deficit itself.  The deficit will be offset by further draws on the Sustainability Fund (also a concern but a topic for another day).

The really tantalizing question is—what is “Other”?  Clearly it’s something other than social services, transportation, communications, utilities, agriculture, resource management, economic development and debt servicing costs.  What else is left?  In my experience, a category called “Other” is a catch-all for the bits and pieces that are too small or insignificant to put into a category of their own.  Since a wedge as small as 1.5% (debt servicing costs) made it on to the pie chart as a stand-alone wedge, logic would dictate that “Other” is packed with little wedges which are smaller than 1.5% or $585 million.

On the other hand, another reason to create a category called “Other” is to mask its contents and cost in order to avoid public scrutiny.  In the past, the Tories have buried private sector subsidies in this wonderfully nondescript no-need-to-look-here category.  These subsidies off set revenue received from non-renewable resources (royalties and tax payments) which in this budget is expected to be 23.4% or $8.3 billion.

In Nov 2010 the International Institute for Sustainable Development (IISD) reported that the Alberta government subsidy for upstream oil activities was estimated to be $1.05 billion.  These subsidies are intended to increase exploration and development through a combination of tax breaks and royalty reductions.  Well, the subsidy doesn’t appear on the pie chart, in fact Energy doesn’t appear on the pie chart.  So a peek at the business plan for the Department of Energy is warranted.

The revenue side of the statement of operations reveals an interesting item called “Energy Industry Drilling Stimulus Program”.  Items in the revenue column normally increase overall revenue, however this item is a deduction from revenue.  In 2009-10 this subsidy decreased revenue by $1,119 billion.  In the 2010-11 fiscal year the subsidy was budgeted to decrease revenue by $732 million, however the 2010-11 re-forecast shows the decrease to revenue will be $1,660 billion—more than double what was expected.  Put another way, the IISD estimate of $1.05 billion in government subsidies to the upstream oil industry is likely correct and, if anything, understated.  However, this is an austerity budget and the Stimulus Program disappears in the 2011 to 2014 time frame.

Albertans have suggested that the government has mishandled healthcare and is  responsible for the healthcare crisis.  Similar concerns have been raised on a broader scale—the relationship of the government with industry.  Are the stimulus programs properly applied at a time when basic social services are being cut or frozen?  Secondly, are the existing programs which collect non-renewable resource revenue (budgeted at 23.4% or $8.3 billion in 2011-12) properly managed?  A coalition of unions, including the United Nurses of Alberta and the Alberta Union of Provincial Employees believes that the government has failed to collect billions of dollars in resource revenue and has asked the Auditor General to investigate.

Hopefully the audit process will shed some light on this mysterious wedge and we’ll have an answer to the $5,382 billion question—what exactly is “Other”?

*Calgary Herald, Feb 25, 2011, p A5

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