“Follow the Money” – The Coles Notes Version

Government is all about money—finding it, spending it and saving it.  Politics is all about where you find the money, who you spend it on and how much, if any, you save.  The trifecta for any political party is to get all three of these right in the eyes of the voters.  How well has Alberta’s PC government done in the trifecta…grand slam or bust?  Kevin Taft’s new book Follow the Money gives us a pretty good idea—turns out it all depends on whether you’re a person or a corporation.*

First a little background.  Alberta is the richest province in Canada and one of the richest jurisdictions in the world thanks to its oil and natural gas reserves.  These reserves belong to all Albertans and are managed on our behalf by the government.  Given this great wealth why is our healthcare in the bottom third of all provinces in Canada?  Why are our schools over-crowded and underfunded?  Why are our seniors shunted from pillar to post instead of enjoying their waning years in a safe, let alone comfortable, long term care facility?  Where did all the money go?

Find the Money

Starting with the first leg of the trifecta—find the money—the traditional source of revenue for every government is taxes.  The PCs take inordinate pride in the fact that Alberta’s personal and corporate tax rates are the lowest in all of Canada.  Mr Snelgrove boasts that he could increase taxes by $11 billion and Alberta would still be the lowest taxed jurisdiction in the nation.

Why is this a good thing when Albertans are not receiving basic public services?  We would be prepared to pay higher taxes, if that money were put to good use.  Just ask Finance Minister Liepert.  He was given this message loud and clear by card-carrying PC party members;  the only people invited to participate in his budget consultation process.

A second source of revenue in a resource rich jurisdiction is royalties.  Former premier Stelmach commissioned an expert panel to review Alberta’s royalty framework. Unfortunately the review panel hit an iceberg and sank once it announced that royalties should increase by 20% or an additional $2 billion a year.  Energy companies threatened to pack up their rigs and leave the province.  Some of them did.  Apparently the concurrent drop in the price of natural gas was merely coincidental and in no way influenced their decision to flounce out the door.  The PCs snapped to attention and merely tweaked the royalty framework.  By happy coincidence oil prices began to surge and the energy companies came back.

Stripping away the corporate histrionics, the fact is that in 2011 Alberta corporations paid a combined provincial and federal tax of 26.5%.  Compare that to US companies which paid a combined state and federal corporate tax of 39.2%.   And remember that royalties weigh lightly on the balance sheet.  Syncrude sells crude oil for an average of $111/barrel and pays a mere $10/barrel in royalties.  There’s room for improvement, right?  And that’s where the issue becomes political—will increasing taxes and royalties drive voters into the arms of the Wildrose party?

Spend the Money

“We have a spending problem, not a revenue problem”.  That’s been the PC’s mantra ever since Mr Klein stepped into the premier’s office.  The poster child for excessive spending was (and remains) health care.  Public education is not far behind.  But is this true?  Not when the statistics are adjusted for inflation and population growth.  Alberta’s per capita spending on public services has remained flat for the last 20 years.  The 5 year average for 2005 to 2009 was $10,208 per person.  That’s $89 more than the 5 year average for 1989 to 1993 ($10,119 per person).  $89…??? 

Why is it important for the PCs to maintain the misconception that spending is out of control?  Kevin Taft urges us to “follow the money”.  Two things happened in the 1980’s that caught the PCs unprepared and started the yo-yo budget process.  Oil prices crashed and interest rates soared.  The PC’s strategy of borrowing to offset the loss of resource revenues imploded.  The annual deficit skyrocketed and debt grew.

And this is where politics comes in.  Rather than raise personal and corporate taxes and risk losing votes, the Klein government blamed the people and slashed public service spending by 50%.**  This budgetary oscillation continues today.  Resource revenue drops and public services are slashed;  resource revenue goes up (or an election is called) and public services are increased.  Unless we find a way to smooth out the impact of the boom/bust cycle this budgetary strategy will end badly.      

Save the money (or at least some of it)

The Alberta government saves money in two key funds:  the Sustainability Fund and the Heritage Fund.  The Sustainability Fund was created in 2003 to tide us over when oil and gas revenues drop.  It’s a brilliant idea and it works—in the short term.  The Heritage Fund was created by Peter Lougheed to save a portion of Alberta’s oil and gas royalties to protect us in future.  It started with a bang in 1976 but soon ran into trouble as Alberta slipped into the bust part of the boom/bust cycle.  The government reduced or eliminated contributions and inflation took its toll.  As a result the Heritage Fund is worth less today (in real dollars) than the day it was created.

Bottom Line

The Alberta economy has exploded—it’s up 70% per person over the last 20 years—and yet spending has remained flat and revenues (from taxes, royalties, etc) are not sufficient to balance the budget.  Why?  Because corporations are not required to pay their fair share.

So we come back full circle to the first leg of the trifecta:  Find the money.  Instead of finding the money by reducing public services and making the public pay, the government must turn its attention to Alberta’s corporate citizens and make them contribute by way of an equitable tax and royalty structure that will sustain the province for the long term.

“You’re richer than you think” is not just a Scotiabank slogan that flashes across the screen before the movie starts.  Here in Alberta it’s true…assuming your government properly performs its duties as steward of our natural resources on behalf of all Albertans, not just those who run oil and gas companies.    

*The facts presented here are drawn from Kevin Taft’s new book Follow the Money.  It is available at Audrey’s in Edmonton and can be ordered through your local bookstore.  I picked up my copy at The Owl’s Nest in the Britannia Shopping Centre.

** Follow The Money YouTube Video. 

 

 

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20 Responses to “Follow the Money” – The Coles Notes Version

  1. Rose Marie MacKenzie-Kirkwood says:

    The little people’s point of view. I work hard and if I make less than approximately $34,000 per year I pay 6% provincial tax, now when I get that so needed raise that increases my salary by $600 per year (approximately a 1.76% increase), why does my tax base increase to 9.15%? My questions is, does the government use the same sliding scale for big business?

    It is time for big business to pay it’s fair share.

  2. Very interesting question Rose Marie. The nice thing about corporate taxation–for the corporation, that is–is that corporations get all sorts of special favours. Examples include royalty “holidays” which mean they don’t have to start paying royalties until certain costs are recovered, or special grants to encourage research in renewable energy like solar and wind energy, etc. All of these measures mean fewer of our tax dollars go into public services because they are being used to subsidize corporate activities. The “little people” are tired of this and have started looking for an alternative to the PCs.

  3. roy wright says:

    I am dismayed with how Albertans, myself included, have been duped into thinking it is all about spending while the PC’s have been handing out our heritage to corporations. It all started with Ralph, as you correctly pointed out, and yet he is still viewed as a hero in many minds. Steady Eddie tried to rebalance the ship in terms of royalties, but he hesitated and blinked and we are back to giving away our future once again. I would hope that people pay close attention to the upcoming election and that the issues can be painted just as clearly as you have done in your blog. Hopefully we don’t get swept up in the plunge to the bottom of cutting public services with Wildrose (PC’s on steroids!). Then perhaps we can start to reap the short and long term benefits associated with resource extraction in an enlightened manner.

  4. Roy, what makes all of this even more troubling is that Peter Lougheed, the father of the Alberta Conservative Party, urged the government to “think like an owner” when dealing with its natural resources. In other words, don’t give them away at bargain basement prices, develop them responsibly and upgrade them here. Is it too much to hope that the new generation of PCs might heed his wise advice? .

  5. Carlos Beca says:

    Peter Lougheed was in a class by himself. Since then, unfortunately, it has been quite scary to say the least and it is going to continue. Alison Redford, just like Stelmach, is affraid of threats from the oil barons. Let them leave, others will take their place. There aren’t many places in the world like Alberta to get oil paying insignificant royalties and taxes.

    If the Wildrose was in a position to win it would be a disaster for this province. I just heard this morning on the Alberta Weekly Magazine (CKUA) Doug Main saying that some friend commented that this talk of higher taxes and higher royalties reminded him of the Soviet Union. Doug agrees of course and he is now some kind of a political consultant to Danielle Smith.

    In the meantime, our Prime Minister is finally showing the colours. The pressure is on from those that put him there, and is payback time. Suddenly cuts are absolutely necessary, pensions have to be less rich except for MPs, transformation is coming he says. This coming from a Reformer means, lower corporate taxes, less health care for Canadians, more investments in jets and whatever else the Americans need to sell to our Armed Forces and less hope overall as they just love fear and keep people affraid of their future. The more unstable people feel the easier it is to control salaries and keep benefits down. He even makes these announcements in Davos to get the slasher brownie points in front of Big Money and the executives of big corporations.

    • It’s sad when people like Doug Main resort to scare mongering instead of stopping for a moment to examine the facts. What’s even sadder is that so many people jump on the bandwagon without ever asking themselves “Is this really true?”.

      That’s why I like Kevin Taft’s book. He focuses on the evidence and is not afraid to give credit where credit is due; an example is his support for the Sustainability Fund. This gives Taft great credibility. All Albertans should read this book so that they can make an informed choice when they step into the voting booth. Thanks for your comments Carlos.

  6. david swann says:

    Excellent summary of the Tory ‘bait and switch’ approach where they ‘save’ money at the expense of public services and then argue for more privatization to improve ‘efficiency’. The combination of hiding the poor financial management and intimidating those who would expose their malfeasance has been devastating for our human services staff and for those who depend on these supports for their health and safety. Citizens who are paying attention are, in too many cases, losing heart and either leaving this province or abstaining altogether. This election holds the greatest opportunity for a more honest government.
    After 7 years in Opposition I am just as passionate as ever about electing more opposition members and forcing greater accountability in government. We owe it to our children to be actively engaged and choose representatives of integrity and wisdom.

    • David, I couldn’t agree with you more. Many Albertans are so fed up, tired or scared that they refuse to vote. What a sad indictment of the political process under the Torys. But we can’t just put our heads in the sand and hope that it will all work out in the end. We have a unique opportunity to really make a difference in the next election. Everyone needs to find a candidate they trust and volunteer, donate and VOTE. It’s the only way we’ll break the Tory stranglehold on our province.

      Thank you for all your hard work on behalf of ALL Albertans. It must have seemed like a futile task at times, but you made a difference.

  7. Wow — I worked closely with Kevin on the book, and you have done a fantastic job of providing a quick, lively, accurate summary. I often joke that each new project we work on will be “the one that changes everything” — wouldn’t it be fantastic if this actually turns out to be the one?

    Wake up, Alberta! We have been played for decades. Share this blog, send the video to everyone you know, and buy the book. Let’s frame our new provincial dialogue around this.

    • Oh good! I’m pleased to hear that I got it right (although Kevin’s book is so clearly written that the blog pretty much wrote itself). And yes, this book could be “the one that changes everything”. People need to get engaged, to find out what’s happening to their public services, their natural resources, their lives. A friend once told me that “if you’re not at the table, you’re on the menu”. In the Tory political milieu truer words were never spoken!

  8. Shannon Bailey says:

    This is a great article, thoughtful and insightful comments – but it leaves out one fact that must be addressed and that is that most Albertans do not care, are not engaged, remain uninformed because they choose not to look at what is really going on. Until that can be answered we will continue down the same road – the Alliance will become the official opposition and we will go further to to the right – look at where Harper is taking us and there is no discussion by Albertans about the lack of democracy, the secrecy and control or their role in having this man feel he can act without any fear that someone in Alberta would hold him accountable. If Alberta takes on the leadership role in the country that their economics seem to indicate, the rest of the country will join into this downward spiral – we have the flat tax that most of the US recognizes in their current situation as a handout to the rich at the expense of everyone else – we did not even have the debate.

    • Shannon, you raise an extremely important point—the apathy of the Alberta voter. I’m mystified by people who say they’re not interested in politics. They don’t seem to realize that politics controls the quality of their lives from the minute they’re born. Their health, education, and job prospects depend on it. Their environment, the air they breathe and the food they eat depends on it. And most important, their freedom depends on it. Like you I worry that Albertans will miss the boat (again), but like you I’m doing all that I can to make sure that doesn’t happen. Thank you for joining the conversation.

  9. Phil Elder says:

    Greetings, Susan
    I’ve just learned about your blog, which is terrific. I’ve subscribed. Can I also follow you on Twitter?
    Phil Elder

    • Phil, I’m pleased you like the blog. Coming from you—a man who’s been active in politics for a number of years (we won’t say how many)—that really means something. I’m sure you’ve got some amazing stories to tell, perhaps you’ll share them with us some day.

      I’m a neophyte on Twitter…you can find my little peeps @susanspbx.

  10. Glenn Taylor says:

    Susan, both you and Kevin raise some very good points and ask some rather appropriate questions in both the book and your ‘Coles Notes’ version of it in this blog. Thanks for posting it.

    I would like to note that there is an even less known side to all of this. When you posit the question “Why are our schools over-crowded and underfunded” in your opening comments I would offer an answer that many, if not most, Albertans are quite unaware of.

    In 1984 the province provided a a tax relief mechanism for industry at a time when the economic conditions in Alberta were less than positive. This resulted in some $140 million in annual municipal property tax savings to industry, a tax burden shift to other taxpayers, or a combination of both.

    In the mid to late 1990’s, the Province under Ralph Klein phased out the education property tax on machinery and equipment altogether. Using an education tax rate of .005, the education property tax revenue on $40 Billion of machinery and equipment would be some $200 million in annual revenue for education purposes. As the total education tax requisition is currently in the area of some $1.6 Billion, this represents about 12.5 percent of the total education property tax levied.

    It should be noted that machinery and equipment is not technically exempt from taxation; however, ever since the late 1990’s the Province has set the equalized education tax rate for machinery and equipment at 0 by Order-in-Council.

    When we ask the questions, the answers are not all that hard to find. They lie in the willingness of a government to pass a burden from one group to another, in this case a willingness to pass a significant burden on to homeowners rather than industry. A rather sad state of affairs.

    It’s time for Albertans to stand up and say “No more!” This spring we have that opportunity.

  11. Glenn, thank you for providing us with a clear example of how the Tory government used its taxing power to “pass a burden from one group to another”. Unfortunately there are far too many examples of children, the sick, the old and the weak having to carry the burden for those who are wealthy and powerful. I agree with you…this must stop.

    Albertans can make a difference in the coming election. I know that you are working very hard, both as a candidate and as the leader of the Alberta Party, to ensure that Albertans have a viable alternative to the status quo. You’re doing your bit and then some…the least we can do is get engaged—volunteer, donate and vote for the candidates who understand that their first duty is to the public, not to private interests.

    Thank you for taking up this challenge Glenn. I wish you all the best!

  12. Carlos Beca says:

    I would like to make a comment about both Shannon Bailey and Glen Taylor’s posts. It is absolutely true that Albertans do not make an effort to know what is going on in this province and in many cases they do not want to know even if someone could provide that kind of knowledge. I have had that kind of experience and seen it many times. The problem is that politicians and people that like us read about politics and are interested in social issues do not do much better. We are in 2012 on the verge of another provincial election and none of the parties is offering any measures whatsoever on democratic renewal other than some minor changes on the election date and other minor stuff like that. Dozens of studies have been done and are shelved and most of them just say nothing or emphasize what the government wants to hear. In order to get people to believe that politics actually matter we have to implement drastic changes that will make a difference. We are all tired of show and tell conferences to satisfy the process governments call democratic. We are just witnessing another one right now. The governement is going around the province to listen to Albertans when we all know that the budget is already sealed to come out on Feb 7th and the govenment could not care less about what we think. It is what the oil companies and elites think that matters.

    You want Albertans to get involved here is some changes that could make a difference:

    1 – Proportional Representation
    2 – Ban lobbying and get corporations and other powerful interests to present their concerns in constituency meetings just like the rest of us do.
    3 – Make the legislatures to be a real place for democratic discussion. Why is it that we have to use the so called euphemisms that Susan referred to just the other day in a wonderful post. People no longer understand reality. People should be liable inside the Legislatures and if they lie then suffer the consequences. People should be able to discuss important issues without interruptions from rules that sometimes are laughable. We need to have real discussiona about real issues.

    Many other changes could be made but at least these could be offered.

    Just saying that we have to stand up and ‘No More’ it is not reasonable and Glen knows that very well. I have stood up every single election in this province and my vote does not even count. People are tired of this garbage and are expecting that those that have some power to at least start change, do it. Unfortunately we see almost nothing. It just seems that every single party is waiting for an opportunity to be in power on their own. Why are the Liberals, the NDP and the Alberta Party not talking about a temporary coalition with clear rules that would help gain way more seats in the Legislature especially when there is a possibility for a split on the right? This is done in Europe constantly and works very well. They do not have to forget their differences, they just have to obey to certain rules to be able to govern while the coalition is on.

    In summary – citizens do not feel at all that there is any real effort from our political class to real make a difference. In that case why vote or get involved.

    Glen I can give you a clear example. I went to a big listen of the Alberta Party for Democratic Renewal and I presented the Proportional Representation issue to only be told that we were not going to discuss the voting system because the first priority was people participation. Well the main reason for lack of participation is the voting system. This system is not inclusive at all. People do not see any point on voting when everyone knows that the PCs have the most votes on the winner takes all system. This is the only reason why they have been there for 40 years and will be 50 or more. This system only represents the winners not all Albertans.

    I agree with your points but we are avoiding the real reasons for poor participation.

  13. Ted Woynillowicz says:

    The claim that oil companies will leave a jurisdiction if they don’t get their way is a false notion. Two countries in South America, Bolivia and Ecuador prove this is not the case. Both countries were receiving about 18% of the revenues while oil companies took the rest, a staggering 82%. Both countries decided to nationalize their oil. Threats were made by oil companies that they would pack up and leave, but at the end of the day, the vast majority of companies stayed put. The things that is different now is that Bolivia takes 82% of the profits and the oil companies take 18%*. Ecuador is similar. Meanwhile oil companies are still there making profits while both nations are able to provide much needed services such as health care, education etc to their populations. What it proves is that democracy does work in some countries. What we need in Canada is to nationalize our government so that it serves in the best interest of its citizens.
    * http://mobile.zcommunications.org/from-water-wars-to-the-fight-for-climate-justice-by-pablo-solon

    • Carlos Beca says:

      Ted you are absolutely right but you forgot to mention that in smart business Alberta, where ex premiers and ministers become oil consultants or members of the board of different oil companies, we are no banana Republic and we do way better – we take 14% royalties and they take the rest. Of course the difference is that we have business experience and we know what we are doing!! Not only that, because our oil requires a lot of gas and water for extraction, we will run out of both at the end of this process of going for broke for China or the US or both.

      I am impressed that you actually had the guts to suggest the nationalization of our government. Many people reading this blog would love to send you to Siberia but do not feel bad because I would have to go as well. What is happening in this province is a crime against human intelligence. Making a cent on 1 million dollars is great profit for our Conservative government. They all care about families and seniors …etc, but first their donours and their masters. At the end of the day there are crums left for regular, democracy believers, perplexed Albertans. Conservatives are mentally bankrupt, here and at the federal level and should form a colony somewhere warm and go enjoy their market paradise there. Our federal government for example, completely horrified with government interference and social programs and unions….etc, is now on a tour to sell whatever it can to a comunist government which oil company already has their hands deep in our oil sands and they do not mind it a bit. They even forgot the human rights violations and crimes in Tibete …etc. No problem. It is the cost of doing business. The chinese love the market and that is good enough. They can take over ours in the process. It is interesting to note that the whole of the democratic capitalist world is now begging for help to the greatest comunist state, the same they have for decades acused of everything that can possibly go wrong in social and political terms. Just 10 years ago they were to low ethically and morally to even be approached. Now they have one thing we do not – MONEY and that changes the rules of the game.

      It is a shameful state of affairs and to these people it all seems normal. Sell anything or everything and MAKE MONEY. The rest is details.

      Yes Ted I finally came to the same conclusion, actually I am a bit more radical than you – Democracy is a sham. Like my Dad use to say, dictators are politicians that have not been smart enough to use democracy efficiently.

    • Ted, thanks for providing the link to the Pablo Solon speech. He makes it clear that notwithstanding what the oil companies say, in the end the decision to stay or go is an economic one. Not surprising.

      Mr Solon’s description of the water wars and the battle with the oil companies demonstrates that social movements can achieve great things. I was very interested in his comment that in order to effectively harness the power of a social movement you need an agenda. Makes sense, how else would you achieve the coherence and focus necessary to produce the desired changes.

      Carlos, once again my approach is more moderate than yours, but I think we’re all focused on making things better and that’s what counts.

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