Notley’s Budget: Myths and Facts

The NDP government unveiled its budget on Thursday.  The conservatives reacted as if the government dropped a neutron bomb on the people.

Wildrose leader Brian Jean worried that parents driving their kids to hockey practice would end up in the poor house if they had to pay an extra 4.5 cents per litre for gas.  Progressive Conservative leader Ric McIver said it was the monster in the room (whatever that means).

The Budget

A few facts before we dive into the myths.

The government expects to collect $41.4 billion in revenue and spend $51 billion on expenses.  It’s facing a revenue short fall and will borrow $10.4 billion this year, $10.1 billion next year and $8.3 billion the year after that.

alberta-premier-rachel-notley

Premier Notley

The fact that money is being borrowed to fund operations is driving the conservatives bananas.

So they cranked up the myth-making machinery.

The Myths

Myth #1:  The private sector could teach the NDP a thing or two about budgets 

Conservative economist Mark Milke says Albertans would be well served if the NDP would emulate private sector companies like Trican, a well service company.

Trican is going to cut wages by up to 50% for two months to preserve jobs.

Mr Milke admits this will be “brutally painful” but says it will allow some employees to pay their mortgages and provide for their children.  Presumably those who can’t will go to the food bank.

What Mr Milke fails to mention is that Trican is a spectacularly poor example of the private sector in action.

In 2015 it underperformed the S&P TSX by 57.55% and delivered a net profit margin of minus 69.23%; nevertheless it managed to scrape together over $1 million in compensation for its CEO and between $523,475 and $940,236 for its executive team.

Which leads us to…

Myth #2: Just roll back wages silly!

Mr Milke says resource revenues dropped by 16% last year so the NDP should demand a 16% wage cut from all government and public-sector employees (following this logic Trican should reduce executive compensation by 69.23%).

Mr Milke ignores the fact that a private non-unionized company would never embark on a 16% wage cut program without a team of high priced lawyers at its side–the risk of constructive dismissal litigation is just too high.  A private unionized company would do nothing because it’s bound by collective agreements.

The bulk of Alberta’s government/public sector work force is unionized.

Seventy-five percent of Alberta government employees belong to AUPE, 30,000 nurses and allied workers belong to the United Nurses of Alberta, 10,000 physicians belong to the Alberta Medical Association and 43,500 teachers and teaching administrators belong to the Alberta Teachers’ Association.

All of these unions have binding agreements with the government.  Only a fool (or Margaret Thatcher) would embark on a 16% wage cut scheme and expect to come out of it unscathed.

Myth #3: The DBRS downgrade is devastating and will negatively impact investment

DBRS reacted to the budget by downgrading Alberta’s credit rating from AAA to AA(high).  Moody’s put Alberta on negative watch but left its AAA credit rating intact.

mciver-jean

Messrs McIver and Jean

DBRS rates British Columbia as AA(high) and Saskatchewan at AA so Alberta isn’t exactly Greece, nevertheless the Wildrose and the Progressive Conservatives hit the panic button.

Their fears are unwarranted.

University of Calgary economist Trevor Tombe says he’d prefer to see Alberta eliminate the deficit before 2024 but notes Alberta’s future financial health is not at risk and its borrowing costs will continue to be considerably lower than its provincial peers.

FACT:  Alberta is overly reliant on resource revenue  

The difficulty the conservatives face is that the only way to attack the NDP budget is to argue that it’s still overly reliant on resource revenue…and that leads them straight into the jaws of the sales tax debate.

Over the last 44 years resource revenue contributed 20% to 45% of the revenue required to provide public services.

Yet every conservative government, with the exception of Peter Lougheed, failed to create the appropriate tax and royalty regimes to ensure there would be enough revenue to carry Alberta through the lean years.

This year’s budget illustrates Alberta’s predicament.  Resource revenue sits at $1.4 billion, the lowest it’s been since 1994, forcing the government to borrow to cover operating costs.

Energy economist Peter Tertzakian suggests the energy industry may never attain the lofty heights it experienced in the past which means this budget may not be an anomaly.

If the government hopes to avoid a perpetual revenue shortfall it will need to revisit its revenue model.

The NDP government made a good start by restructuring Alberta’s personal and corporate tax regime, introducing a carbon levy, increasing sin taxes on cigarettes and alcohol and “bending the curve” on public sector wages.

It is also focusing on diversifying the economy with incentives to value-added industries and increased support for post-secondary education and innovation.

But that’s not enough.

Cue scary music…

Brian and Ric I’ve got a job for you

The Wildrose and the Progressive Conservatives criticize the NDP for being ideologically driven.  They say they’re just the opposite—pragmatic supporters of the free market.  Proof of their pragmatism lies in their reliance on prominent economists like Jack Mintz.

Mr Mintz and other economists say Alberta needs a sales tax coupled with credits for low income earners to make ends meet.

Wouldn’t it be fun if the conservatives did something constructive for a change and instead of whining about this year’s budget initiated a conversation about the pros and cons of a sales tax?

Or are they too ideologically hide-bound to give it a try?

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26 Responses to Notley’s Budget: Myths and Facts

  1. Robin Wortman says:

    “Political Suicide Tax” is a clever ploy by spin doctors to conjure up images of a boogeyman electorate in Alberta that is so devoid of intelligence and critical thinking ability that it can be consumed, obsessed, and manipulated by a cute turn of phrase. Albertans are better than that; it was evident on May 5th, 2015.

    The question facing the government is: will Albertans forgive Premier Notley and her Government Caucus for promising not to introduce a provincial sales tax during their first term in office to avoid accumulating a massive debt and the debt servicing costs it will impose or will Albertans insist that its government incur almost $30 billion in debt by 2019 to remain the “only province without a provincial sales tax”?

    There is a third option which achieves the desired revenue goals and it’s not a provincial sales tax; it’s a variation that would be implemented for a specified period of time with clear goals and performance measures. The government’s progress or lack there of would be publicly scrutinized on the floor of the Legislature when the annual report of the “Debt Avoidance Levy” (DAL) is tabled by the appropriate Minister(s).

    The 8 percent DAL would be harmonized with the GST for five years from the date of Royal Assent and removed automatically by a sunset clause embedded in the legislation. The DAL would raise over $8 billion each year including $1 billion that isn’t currently being collected from visitors to Alberta due to the lack of a PST. The DAL would reduce the projected borrowing requirements from $30 billion to $7 billion over the next three years.

    It may be political suicide not to do this because the Conservatives will have, once again, frightened a social democratic leader from doing what is necessary (Mulcair promised a balanced budget to escape possible attacks accusing him of being a “tax and spend” socialist). Then, the Conservatives will campaign against the NDP government in the next election using a bludgeon
    that was crafted by the NDP themselves: $29 billion in debt.

    A DAL harmonized with the GST will be cost effective and provide the essential protections for families, students, low-and-fixed income recipients, and the poor. It will also provide the government the “wind in its sails” to navigate difficult economic times and switch course more quickly, with relative ease, less risk, and no massive debt that would hobble future governments’ ability to meet the needs of Albertans.

    And, no broken promise. Just prudent financial management, finally, after 44 years.

    • Robin, what a creative solution to problem created by the PCs and exacerbated by the NDP. Albertans say having no sales tax is a matter of pride. They rail against Ontario, Quebec, BC and Ottawa for failing to get them out of an economic conundrum they’ve created for themselves. There comes a time when provincial pride needs to give way to practicality and this may be it.

  2. jerrymacgp says:

    Many economists do indeed recommend a provincial sales tax, but from a politically realistic perspective, it’ll never happen. A PST is the proverbial “third rail” of Alberta politics: touch it, and you die. As for my own views on a sales tax, a broad-based VAT-type sales tax is inherently regressive, in that lower-income people pay a higher proportion of their incomes in sales tax than higher-income people. A more narrowly-based sales tax, like a luxury tax or inheritance tax or something similar in intent, might be a better idea.

    • Dave Cunningham says:

      4 quick thoughts jerrymacgp : 1. You are right that a sales tax is going to be very difficult to implement because it is likely political suicide for the party that does that. 2. Yes, a straight sales tax is very regressive and harder on the poor but it is also the simplest tax to implement and administer and will likely therefore be the tax put in. 3. Until Alberta has a sales tax and a guaranteed source of revenue, the province will struggle badly every time its resource revenues. dip. 4. A sales tax is decades overdue and the longer we wait, the harder it will be to implement politically and the more that Alberta’s fortunes will suffer. It needs to be done NOW.

      • Dave, just to underline your point about the need to implement a sales tax now. The Daily Oil Bulletin issued a breaking news alert on Sunday reporting that the negotiations between 16 global oil producers in Doha ended with no agreement on limiting supplies. It described this as “a diplomatic failure that threatens to renew the rout in prices”. It’s disheartening to know that Albertans will be on the receiving end of that “rout” unless the government takes action to fix the revenue structure.

    • Jerry, I agree. I used the term “sales tax” loosely. I’m sure there are many mechanisms available to off set the regressive nature of a flat tax. Jack Mintz supports the idea of a rebate but thinks part should go to low income Albertans and the rest should go to reduce personal taxes and corporate taxes. I’d apply all of the rebate to low income earners, I think Notley did a nice job with the new personal and corporate tax structure.

  3. Sky says:

    I have so had it with those tired old men and their tired old man approach to politics…it’s an effort to even read about them. Time wasted I would say. I feel like closing my eyes, sticking my fingers into my ears and “singing” la la la until they go away! But of course it’s never a good idea to be willfully ignorant in any situation especially this one. Keep those clarifications coming!! Thanks for these posts.

    • Thanks Sky. Your characterization of “tired old men and their tired old man approach to politics” hit the nail on the head. Like many Albertans I’ve been watching the WR and the PCs closely to see whether they’ve learned anything from the NDP (and federal Liberal) sweep into power. Apparently not. It’s the same old thing in Question Period and the same old thing in news conferences. We’re in desperate need of politicians who can work together with the government to move Alberta forward.

  4. david says:

    Nice analysis Susan – you’ve flipped the ‘ideological’ argument used by the PC’s and WR on its head. The real question about debt and taxes is What is in the longterm public interest? Alberta governments have received, on average over the past decade, approximately $10B less than the next lowest taxing province in Canada. No wonder we’re behind the 8-ball on every front!!

    • Well put David. The PCs and the WR continue to argue that raising taxes and adding a sales tax will destroy the “Alberta Advantage”, however being the lowest tax jurisdiction in Canada (and forgoing $10B a year) has done little to ensure Alberta’s prosperity. OPEC has more control over our destiny than we do.

  5. Carlos Beca says:

    I came to Alberta in 1981 and this Sales Tax discussion was already our pride and joy. It is now 2016 – 35 years later – and it is still under discussion. If anything this is a monumental political and intelligence failure. Every single year since we have had deficits when the oil prices drop. It is not difficult to understand that oil revenues have been sustaining our budget. So the alternatives are that we need more revenue to offset the dependency on oil revenues or reduce public programs. Thinking otherwise is just an enormous waste of time.

    The caretakers of the Alberta Government for the last 43 years have been the Progressive Conservative party so the failure is theirs. They have not been able to understand this easy principle no matter what. To alleviate the situation until the next boom develops, they make these crazy cuts that have the effect of destroying whatever is left of motivation and caring that still exists in our public services.

    So what is the question about the sales tax? Every single civilized nation cannot run their affairs without one. The only reason we can is because our politicians have been lucky the boom times always come back and so problem resolved. The difference is that those places that have a sales tax put their oil money in funds for future needs. We of course are different. We are smarter than everybody else and so here we are again with 10 billion deficit and our oil fund is sitting at around 16 billion for the last 35 years. Another example of absolute bright politicians.

    The big difference is now it is very likely that the oil booms are over. So the money has to be found no matter what. Implementing a sales tax is fundamental. The NDP may not do it for political reasons and hope for another boom, but that is what has been done for 43 Years and IT DOES NOT WORK. They are betting on diversification but that is not done in a year or two. That is naïve thinking. The PCs tried it for the last 43 years with very limited success.

    Unless Brian Jean or MacIver can tell us what programs they will get rid of we have no chance of fixing this problem regardless of their repetitious stinky ‘tax cuts’ old song. How are they going to cut taxes or services to balance off 10 billion dollars? This is irresponsible to say the least.

    How many more years are we going to bang our heads against the wall ad nauseum?
    Implement a sales tax to balance the budget and move all of the oil revenues to the Heritage Fund.

    • Carlos, thanks for putting this discussion into a historical perspective, The fact that we’re no further ahead after 35 years is disheartening. Interestingly, many of the people who argued against some form of sales tax 35 years ago will be hitting retirement age now and will, no doubt, be in need of specialized healthcare, continuing care, etc as they hit their 60s and 70s. I wonder whether they’re still confident that Klein was right to blow up the hospitals and reduce healthcare spending and Stelmach/Redford/Prentice were right to delay the Calgary Cancer hospital?

      • Val Jobson says:

        I still recall Don Martin writing about Klein’s health care cuts in the Herald, that “the numbers add up.” No, I don’t think they did.

      • Val and Carlos, a friend just sent me Sarah Hoffman’s reply to an article that appeared in the Edmonton Sun in which a columnist criticized the health minister for saying she wasn’t going to put a wrecking ball through essential hospitals like we saw in the 1990s. The columnist accused Hoffman of the “lowest form of political rhetoric”. What’s wrong with these people? Have none of them connected the dots between cutting back healthcare and longer wait lists for treatment? As Val points out, the numbers just don’t add up.

      • Carlos Beca says:

        I do not believe anybody in the Klein Government had any idea about what they were doing except for the fact that it had to be shock and awe like the Guru from New Zealand had suggested. It also satisfied those that at the time thought about nothing but just cuts fast and furious to avoid any backlash. No one knows if this worked because in the meantime another boom started and he became an instant hero. What I know for sure is that now we know the results of indiscriminate cuts and we never really recovered despite the money invested since.
        I do believe in living within what we can afford but I think in Alberta the problem is that we have not defined what is it that we can afford.
        No income taxes like Klein suggested at one point in his admirable premiership does not allow for any programs. If that is what the Conservatives really believe in, then just say it. Nothing wrong with that belief but you have to let us decide if that is what we want.
        Just singing the ‘Lower Taxes’ song without explaining how one goes from a 10 billion deficit to a balanced budget with lower taxes just does not work. Unless of course one of our major programs like Education is cut.
        Just say it then, that is why we have democracy. Maybe people in Alberta are willing to vote for the Wildrose and have 1% taxes and no medical care, education, roads …..etc.
        The 1% would be to pay for the thinking that Brian would have to do. It is a tough job.

  6. GoinFawr says:

    Here’s a fact: the small business tax has been marginally reduced.

  7. GoinFawr says:

    Re:The Daily Oil Bulletin issued a breaking news alert on Sunday reporting that the negotiations between 16 global oil producers in Doha ended with no agreement on limiting supplies. It described this as “a diplomatic failure that threatens to renew the rout in prices”

    A few points regarding the price of oil that, in my opinion, are under reported or misunderstood:

    i) despite a widely touted ‘slowing’ economy in China, in 2015 that nation still imported more hydrocarbons than they did in 2014

    ii) while the rate of increase in worldwide hydrocarbon consumption may have decreased yoy from 2014-15, it certainly did not go negative; which means the worldwide rate of consumption of hydrocarbons still increased yoy, just not as much as the year before.

    iii) despite almost daily reports of massive oversupply ‘cushing’ somehow never seems to be able to reach maximum storage capacity

    iv) it’s probably just a coincidence, but in 2015, in the midst of the crash in the price of oil, the Rockefellers loudly broadcasted that they were liquidating that part of their portfolio

    v) probably another set of coincidences, but, just like in 2008, in 2016 the price of oil reached its very bottom at almost precisely the same time that the Alberta gov’t released it’s royalty review

    • Goinfawr, thanks for sharing your thoughts on the oil price “rout” that people are expecting in the wake of the failed Doha negotiations. Frankly, I’m skeptical of the whole thing. Every time something disastrous happens, the financial crash of 2008 in a good example, we take steps to ensure that we won’t get caught unprepared again…and a few years later we’re doing the very same thing that got us into trouble in the first place.

      I wonder whether Alberta will finally find a way to escape the boom/bust cycle, not because of anything it does but because the days of $100/bbl oil are gone forever. Maybe the Rockefellers know something we don’t know.

  8. Maria Civitarese says:

    Allied health care are not under the Nurses Union but rather HSAA. Only RNs are represented by UNA!

  9. Alfredo Louro says:

    If taxes need to be increased, it does not make sense to introduce a regressive tax like a sales tax. Tax the wealthy first. Especially the ones with the offshore accounts.

    • Carlos Beca says:

      The reason I mentioned a sales tax is because it is the tax that raises more funds. I do not disagree that it is regressive but it is also a fact that the rich buy more and more expensive items so it hits them the most. I just think that income tax for the rich never works very well. just look at the offshore accounts. They can avoid them with loopholes and gimmicks especially designed for them.

      The rich with offshore accounts and no taxes paid on that money should go to jail period. There are way more than we even imagine. Furthermore any company or bank that has helped setting up these accounts should be shut down. There are no shades of Grey here 🙂

  10. Carlos and Alfredo, this discussion about the sales tax is becoming more interesting every day. Yesterday’s Globe and Mail ran an article suggesting that more Albertans are starting to think it might be necessary. Today’s Globe quoted Notley saying she would not support it in her first term, if ever. Her comment appeared in an article on pipelines where she said she’s no longer irrevocably against the Northern Gateway pipeline. Notley is a smart politician. She’s softening her position on Northern Gateway and she may soften her position on a sales tax too if it can be structured in a way that doesn’t weigh too heavily on lower income Albertans, perhaps it could include rebates similar to those available under the GST regime and the carbon tax regime. My point here is that we should be talking about all of the mechanisms available to raise revenue in this province…no more sacred cows.

  11. Bob Pisko says:

    Yup. No argument. Conservatives? Please respond so the whole world can see how stupid you are . . .

    On 17 April 2016 at 14:39, Susan on the Soapbox wrote:

    > susanonthesoapbox posted: “The NDP government unveiled its budget on > Thursday. The conservatives reacted as if the government dropped a neutron > bomb on the people. Wildrose leader Brian Jean worried that parents driving > their kids to hockey practice would end up in the poor house” >

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