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).
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.
The fact that money is being borrowed to fund operations is driving the conservatives bananas.
So they cranked up the myth-making machinery.
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.
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?