When Jason Kenney asked former finance minister Janice MacKinnon “to conduct a deep dive into Alberta’s fiscal situation” he told her to deliver recommendations to balance the budget by 2023 and develop a plan to retire the province’s debt without considering the revenue side of the equation.
Ms M accepted this cock-eyed mandate and worked her magic.
There’s been a lot of talk about Ms M’s recommendations, but very little discussion about whether her data support those recommendations or indeed whether the Blue Ribbon Panel lost all credibility when she agreed to Mr Kenney’s wonky mandate in the first place.
Half a budget
For a government that prides itself on being willing to use “all of the tools in its toolbox”, the fact Kenney prevented Ms M from considering the revenue side of the budgeting process confirms he was looking for a political report, not one based on economic logic.
Ms M started by reassuring Albertans she understood the importance of revenues. She defined a budget as a plan “outlining anticipated revenues and expenditures” and warned that to manage Alberta’s finances it would be necessary “to increase stable sources of revenue and decrease reliance on volatile non-renewable resource revenues”.
That said, she began to spread the pixie dust.
She selected three comparator provinces, BC, Ontario and Quebec—all of which have a provincial sales tax and higher personal income taxes than Alberta and factor them into the revenue side of their budget deliberations—and concluded Alberta had to cut $600 million in spending and radically change its approach to capital investment or face disaster.
No one, not even Ms Notley’s NDP, disputes the idea that Alberta’s economy is facing “crisis” given its unsustainable reliance on volatile non-renewable resource revenues to balance the budget; where we part company with Ms M and Mr Kenney is on how best to address it.
The magic rule: cheapest is best, always
Throughout the report Ms M’s tries to justify her recommendations with evidence but when the evidence isn’t in her favour she simply defaults to the magic rule: Alberta must match the cheapest province in the comparator group; and when Alberta is the cheapest province she sets the bar even lower by expanding the comparator group.
Ms M said Alberta’s healthcare spending per capita ($5077) is higher than BC ($4267), Ontario ($4080) and Quebec ($4370). She noted Alberta’s healthcare spending increased by 26% over the last 10 years but the rate of increase slowed to 3.2% (in line with the other provinces) under the NDP. Ah, so the NDP’s plan to “bend the cost curve” was working.
Ms M said one would expect higher spending to produce better health outcomes but Alberta’s “outcomes are no better and are often worse than comparable provinces.” This is not entirely true.
Some of Alberta’s outcomes lag the comparator provinces, but others are better (eg. general mortality rates and the treatment of kidney disease) or on par with the other provinces (eg. hospital sepsis, patient readmittance to hospital, the number of family practitioners and specialists per 100,000 and wait times).
Alberta’s supposedly poorer health outcomes do not justify reduced spending…and it doesn’t need to because the magic rule is Alberta’s spending must be as low or lower than the rest of the comparators. Period.
There’s no doubt Alberta needs to improve its health outcomes (all provinces do) but Ms M provided no evidence to support her recommendation that the solution lies in more privatization and picking fights with doctors and other medical professionals over compensation.
Guess what, Alberta’s K – 12 teachers are not the highest paid in the land. They make less than Ontario teachers, and more than BC teachers, there is no comparative information for Quebec.
The same is true for Alberta’s spending per student and the split between program spending versus administrative spending—Alberta spends more than BC but less than Ontario and Quebec.
Nevertheless, the magic rule dictates Alberta’s education budget be reduced to match BC with no consideration of the fact that Alberta has two education systems (public and separate) while BC only has one (public). This is so easy when you don’t have to think about it.
The most troubling part of Ms M’s analysis is she fails to distinguish between public and private education. By blurring the lines, she obscures the impact of her recommendation that the funding formula move away from one based solely on enrolment to one that considers outcomes including a school’s success at delivering “strategic outcomes desired by the ministry”.
Leaving aside the uncertainty around what “strategic outcomes” means and how it would be measured, this recommendation paves the way for private schools to get more public funding than public schools whose outcomes are impacted by fewer resources and the fact they can’t screen out higher needs students.
With respect to post secondary institutions, Ms M found Alberta spends $$36,510 per full time student, this is more than BC ($31,299), Ontario ($21,536) and Quebec ($25, 822), and less on administration than Quebec but more than BC and Ontario.
What’s not clear is why. (Ms Soapbox found the bubble charts and bar graphs incredibly unhelpful).
In any event Ms M’s recommendation is clear: some institutional aren’t as financially viable as others and should be on the chopping block. One suspects institutions with strong UCP supporters on their boards of governors will be just fine. The rest are on their own.
This is where Ms M’s logic went right out the window.
Ms M says the government grew in size from 2014 to 2019 despite the recession and growing deficit and debt. What’s that got to do with it? A caring government strengthens the social safety net in tough times, it doesn’t rip it apart. (Incidentally, the increase over those five years was small, only 5.4%).
Ms M says the government is too big, but the metric she uses (# of employees per 100,000 population) shows it’s just right. Alberta’s public service is similar in size to BC, higher than Ontario but much lower than Quebec. It’s in the sweet spot and arguably should be left alone…but for the magic rule, cheapest is best.
Ms M acknowledges the unions exercised “restraint” in past years but suggests a 2.5% pay hike in 2016/17 and 0% and 0% in the next two years wasn’t enough “restraint” because union employees are well paid and get other benefits. This ignores the fact that they did not get sky high salaries and bonuses in the good times; if they can’t take advantage of the “boom” why should they be penalized for the “bust”?
Then Ms M does an about face and recommends the pay freeze on government non-union employees be lifted. The only distinction between these two groups is one is unionized and the other is not.
She wants to overhaul collective bargaining by tying pay raises to salary levels in comparator provinces. This recommendation undermines the role of unions which is to negotiate the best deal for their members here in Alberta. Furthermore, it’s inconsistent with the practice in the private sector where compensation is based on annual surveys performed by Towers Perrin and Mercers who compare salaries and benefits across the employers’ peer group in a specific marketplace. What an oil company’s peer group pays its engineers in Calgary sets the benchmark for Calgary, no one cares what a company pays its engineers in Ontario.
Ms M recommends the government reduce the size of the public service by attrition (good), eliminating lower priority services and programs (let’s talk) and alternative delivery options (oh you mean privatization, we really need to talk!).
This one had poor Ms M scrambling.
It turns out Alberta’s capital spending is low when compared to BC, Ontario and Quebec. No problem, Ms M simply ditched the conventional way of measuring capital spending (it’s used across Canada and internationally) and replaced it with a metric that compared Alberta’s capital spending on a per capita basis with the 10-province average. And voila, Alberta’s spending was above average for the last 20 years.
She wants Alberta to decrease capital spending to align with the 10-province average. Furthermore, she’s against borrowing to finance capital spending. She wants the government to implement a long term capital plan that finances capital spending out of current revenues.
This is contrary to David Dodge’s advice that the government should borrow to finance capital spending in times of slow growth. He believes “attempting to maintain a balanced budget each and every year will exaggerate cyclical economic volatility and have a perverse impact on long run growth.”
So, who do we trust: Ms M or David Dodge, the former governor of the Bank of Canada, and the national and international community?
The magic continues
Ms M expects Alberta to increase its revenues by growing the economy. She applauds the corporate tax cut as one way to get there. Given the fact Alberta was already the lowest tax jurisdiction in Canada it’s questionable whether the $4.5 billion gift to corporations will make a significant difference. However, any moves on Mr Kenney’s part that damage publicly funded and publicly delivered healthcare, education and other public services will negatively impact Alberta’s reputation for offering a good quality of life.
And no amount of pixie dust will change that.