Before you let the Opposition parties scare you to death with apocalyptic warnings that Alberta is “drowning in debt”, “driving over a fiscal cliff” and “unfairly burdening future generations” read this article by U of C economics prof Trevor Tombe.
Tombe points out that the amount of debt per se is meaningless.* The relevant metric is the debt-to-GDP ratio. By that measure, Alberta is doing better than all the other provinces and will continue to do better right through to 2020.
In fact, Alberta could run a $6B deficit forever and assuming the economy continues to grow, we’d be just fine.
The problem with this budget and the shadow budgets offered by the Opposition parties is that they don’t address the elephant in the room: continuing to rely on royalty revenues leaves Alberta firmly stuck on the royalty roller coaster. Sure the ride up is exhilarating but the ride down is awful, especially when you can’t see the bottom.
Tombe says there are three ways to avoid deficits: (1) develop new sources of revenue, (2) cut spending further or (3) a combination of the two.
Which option did the government and the Opposition parties choose? Door # 1, door # 2 or door #3?
Door #3 with a bump
The government created new revenues by introducing progressive income taxes, increasing corporate taxes, increasing the emissions levy and introducing a new carbon levy.
They cut spending by reducing executive compensation in public agencies and freezing salaries for MLAs, political staff and government and agency managers. They reduced waste by identifying $200 million in savings.
But they also increased spending to fund job creation plans, provide a “shock absorber” for Albertans impacted by the recession, fund the Climate Leadership Plan and fill the operational and capital gaps left behind after decades of PC austerity. The result—a $10.3 billion deficit and growing debt.
Door #2 with a twist
The Wildrose say they’ll balance the budget within three years by cutting spending and revenue and filling the revenue gap by “sustainably growing the pie of our provincial economy” (whatever that means).
They’ll cut operational spending by $2.6 billion, freeze wages and leave positions vacant if someone leaves (attrition is expected to save $312 million—assuming it’s not offset by increased overtime).
The Wildrose will eliminate the carbon levy and explore cutting personal and corporate taxes but don’t commit to do so (presumably because tax cuts will negatively impact their balanced budget target.)
Forget the doors, the party is dead
The Progressive Conservatives promised to balance the budget in two years but offered little beyond wage freezes and holding the health budget to population growth.
But none of this matters because the PC party died over the weekend and the new guy will replace the PC budget with something more to his liking.
Door #3 in one form or another
The Alberta Party is open to exploring all options but its budget mirrored the WR and PC budgets with its focus on wage freezes, reducing taxes and continued reliance on royalty revenues. This is surprising given Greg Clark’s earlier comments that he’s prepared to entertain a sales tax.
The Liberals did not present a shadow budget but issued a press release expressing their concern with rising debt and the continued reliance on volatile royalty revenues. They called for “an adult conversation about spending AND revenue”.
Sales tax anyone?
Neither the government nor the opposition parties presented a way to avoid deficits in the future, no doubt because the best way to avoid a deficit would be to replace royalty revenues with a predictable sales tax and in Alberta PST stands for Political Suicide Tax.
But the political climate in Alberta is changing. The election of Jason Kenney to lead the united right crystalized the distinction between the free enterprise conservatives and the social progressives.
It’s only a matter of time before Albertans demand a meaningful discussion about the PST so they can decide for themselves whether to run deficits to fund the services they demand but aren’t willing to pay for or join the rest of Canada and implement a sales tax.
*Prof Tombe also points out that the government’s assertion that it’s holding spending growth below the combined rate of inflation and population growth is not true.