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.
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.