Alberta is always in Tough Economic Times

“They don’t know what to do with tough economic times. It was easy enough to govern when the money was flowing in, when things were going well. They took all the credit for it at that time. It’s much harder to govern, and the mark of a good government is how they handle it, when times get difficult.” – Ray Martin, Leader of the Official Opposition (June 13, 1986)

Jim Prentice Premier Alberta

Jim Prentice

Despite Alberta’s prosperity, Premier Jim Prentice is warning we could be heading into tough economic times. The decline in the world price of oil has spooked the 43-year governing Progressive Conservative establishment and the corporate elites in downtown Calgary.

The perilous “price trough” has led Mr. Prentice to warn of a potential $7 billion revenue shortfall if oil prices remain at lower than expected levels for the entire 2015/2016 fiscal year. According to a government spokesperson, some of the missing $7 billion could come from revenue streams such as land leases, but at this point the number is largely based in speculation and politically spin.

Mr. Prentice’s prophetic $7 billion shortfall becomes more startling when learning the Alberta Government is projected to collect only $7.5 billion in crude oil and bitumen royalty revenue in the 2014/2015 budget year. This projected revenue is based on the price of Western Canada Select (WCS) oil remaining at $77.18 per barrel. Although the yearly average price is $84.02 per barrel the current price of WCS  has dropped to $48.44 per barrel.

Ray Martin NDP MLA School Trustee Edmonton Alberta

Ray Martin

If the “tough economics times” message sounds vaguely familiar, that is because it is. In oil-rich Alberta, we hear a lot from our political leaders about tough economic times, even when times are prosperous. In most cases, our politicians are managing voters’ expectations and positioning themselves to take credit as ‘prudent fiscal managers’ when the world-wide price of oil inevitably increases.

Meeting the Challenge of Tough Times” was the name of the three-year economic plan launched by Premier Ed Stelmach’s PC government in 2009.

Bitumen Bubble Alberta

Bitumen Bubble

The sharp decline of natural gas royalty revenue and that year’s world-wide recession, which felt more like a mild economic pause in Alberta, even convinced the Tories to amend the Klein-era Fiscal Responsibility Act to allow the government to pass deficit budgets.

And in January 2013, Premier Alison Redford used a televised address to warn Albertans that a $8 billion shortfall in the provincial budget was being caused by an ominous “bitumen bubble.” Ms. Redford’s bubble was then used as justification to slash funding to colleges and universities by 7% in that year’s budget.

Alberta Finance Minister Ron Liepert

Ron Liepert

But the PCs have not always predicted “tough economic times.” In 2012, then-finance minister Ron Liepert told the Calgary Chamber of Commerce to expect $16 billion in projected resource revenues by 2015. A huge jump in revenue would certainly increase the likelihood of Mr. Prentice calling a provincial election in early 2015.

Alberta’s government has heavily depended on revenue from cyclically priced resource commodities for decades. After years of unrestrained growth, no one should be surprised that Alberta’s economy could slow down.

The question is how we respond to actual tough economic times in Alberta. Was NDP Official Opposition Leader Ray Martin correct in 1986 when he said that “they don’t know what to do with tough economic times”?

While some right-wing think tanks call for a return to brutal slash and burn fiscal policies, the implementation of real long-term financial planning would probably be a more mature solution.

Alberta Norway Oil Fund Money Savings

Comparing Alberta’s Heritage Fund and Norway’s Petroleum Savings Fund.

Norway, a country with 5.1 million people, invests oil revenues into the Government Pension Fund Global and contains more than $857 billion. The fund was established in 1990 to smooth out the disruptive effects of highly fluctuating oil prices. Oil-rich jurisdictions like Norway prove that economies can be both economically prosperous and environmentally green.

Alberta Premier Peter Lougheed

Peter Lougheed

Alberta, a province of 3.6 million people, launched the Alberta Heritage Savings Trust Fund in 1976. Under the leadership of Peter Lougheed, the Heritage Fund initially received 30% of government resource revenues and was worth $12.7 billion in 1986. The Heritage Fund is now worth only $17.4 billion.

Facing tough economic times in 1987, the PC government of Don Getty halted all transfers to the Heritage Fund. Zero deposits were made between 1987 and 2004.

This week, PC MLAs passed Bill 11: Savings Management Repeal Act, which repealed the Savings Management Act, which was enthusiastically passed by the same group of PC MLAs in March 2014. The earlier bill would have diverted resource revenue to the newly created Alberta Future Fund, Social Innovation Endowment account and Agriculture and Food Innovation Endowment. The bill passed this week eliminates those new funds.

Kevin Taft Liberal Party MLA Alberta

Kevin Taft

Despite talk of revenue diversification, it is questionable whether the governing PCs would seriously consider increasing resource royalties, reinstating a progressive taxation system or introducing a provincial sales tax.

While many politicians view tax increases as politically unpalatable, a slight tax increase would not destroy the our province’s economy. “If Alberta increased its tax rates by $11 billion our province would still have the lowest tax rate in Canada,” Kevin Taft wrote in his 2012 book, Follow the Money.

Dr. Taft’s book breaks down government spending patterns over the past 30 years and details how corporate profits have skyrocketed in Alberta at the same time the PC Government has struggled with deficit budgets.

As a province with decades worth of dependence on revenues from natural resource royalties, it should not be a shock that we need to be smarter about how we plan and finance our government spending. Maybe our only problem is not our over reliance on cyclical natural resources revenues, but that the Progressive Conservatives are just bad fiscal managers.


Primetime Politics this week…
On this week’s Alberta Primetime politics panel, I joined Rob Breakenridge, Roberto Noce and host Michael Higgins to discuss the Gay-Straight Alliance debate, Moe Amery‘s texting-while-driving-demerits bill, and Bill 2: Alberta Accountability Act.

 

16 thoughts on “Alberta is always in Tough Economic Times

  1. Sam Gunsch

    Since Klein gang took over, AB has been plundered by petro-elite, and the neoliberal attack on gov’t/taxes. Lougheed pushed back against BigOil. No one since. And going to the flat tax compounded gov’ts inability to serve the public good.

    Some foundational commentary here:

    http://thetyee.ca/Opinion/2011/04/13/HarpersBigQuestion/

    Warrack, one of the architects of the iconic Alberta Heritage Fund, told the Tyee earlier this year that the province is being run like a “banana republic” for failing to collect fair rents for non-renewable resources like the oil sands.

    Warrack is a professor emeritus of business economics at the University of Alberta and former minister of lands and forests in then-premier Peter Lougheed’s cabinet in the early 1970s. Warrack then served as utilities minister and on the energy cabinet committee. He also authored a detailed history on the Heritage Savings Trust Fund and was a key player when the province famously revamped the royalty regime and set up the arm’s length oil wealth fund to benefit future generations.

    “Since time immemorial, the use of other people’s property has been on a two thirds, one third split,” said Warrack. “The owner gets a third and the operator gets two thirds… If you interpret that in terms of oil or natural gas or oil sands, there should be a third of the value to the owners and in the case of oil sands that is 100 per cent owned by the public.”
    ============

    Until Alberta reverts to a normal societal resource pooling governance system, i.e. a progressive income tax system and collects an owner’s share of royalties on oil and gas, our ability to provide public services, programs, education, healthcare, seniors care, eliminate food bank use… well… we’ll stay pretty much fucked.

    And PC party (or WRP or some combo) is going to keep us there. They owe their political dominance to catering to the petro-elite.

    History, explanation, analysis:

    Andrew Nikiforuk on contemporary premiers vs Lougheed re control of AB petro-resources
    http://thetyee.ca/Opinion/2014/03/20/Redford-Petro-State/

    Toward the end of Laurie Adkin’s article is a discussion of petro-power in AB, e.g. Redford’s oath of loyalty to BigOil.
    https://albertaviews.ab.ca/2014/05/27/the-end-of-alison-2/

    AB Petro-state? by Ian Urquhart
    Key piece as to why Prentice is BigOil’s salesman:
    Urquhart documents the petro-donations to WRP as response to Stelmach’s royalty review.
    https://albertaviews.ab.ca/2011/10/04/petrostate/

    Klein’s AB is Post-Democracy by Frank Dabbs
    http://www.albertaviews.ab.ca/wp-content/uploads/2012/02/dabbssep2006.pdf

    Nikiforuk on Lougheed’s approach to oil resources in contrast to Klein, Stelmach, Redford, now Prentice.
    http://thetyee.ca/Opinion/2012/09/17/Radical-Peter-Lougheed/

    Sam Gunsch

    Reply
  2. Sam Gunsch

    This blog has also reported key analysis of AB’s revenue and spending. Analysis that was never engaged with seriously or extensively by Alberta’s political and MSM media elite.

    But then what else should we expect given the close relationships in these two communities?

    Seriously raise these issues on an ongoing basis? i.e. Edm Jnl/CalgHerald lead columnists/reporters demand serious responses? Yeah right… risk becoming persona non grata?

    Hasn’t happened. Probably won’t. Xmas/end of year fluff interviews will continue.

    Don Martin+Rod Love type of relations with PC’s and petro-elites set the standard that continues for the most part.

    ===============
    e.g. From this blog and almost never heard from again:

    http://daveberta.ca/2012/01/kevin-taft-goes-rogue/

    excerpt: “The book and the film focus on what Alberta’s reach-for-the-bottom taxation rate really means for our province and the potential that is lost when our government does not even collect its own resource revenue targets.

    excerpt: “Essentially, while corporate profits have skyrocketed in Alberta, the share of wealth that is invested into our public services has shrunk dramatically.”

    When you actually look at the numbers, Alberta does not come anywhere close to having a spending problem, as some politicians on the political right would have us believe. Alberta has a revenue problem.”

    excerpt: “Politics aside, Dr. Taft is doing Albertans a great service by putting these numbers on the table and opening the debate on Alberta’s resource revenue and taxation policy.”

    Reply
  3. daveberta Post author

    Thanks for the comment and those links, Sam. I added a paragraph about Kevin Taft’s Follow the Money book after your comments reminded me.

    – Dave

    Reply
  4. Dylan

    What most people fail to mention when comparing Norway to Alberta, in addition to the obvious difficulties in comparing a sovereign country to a province within a country, is that Norway currently employs a 28 percent income tax. Perhaps those politicians who are so happy to promote Norway as prudent fiscal managers should campaign on 28 percent income tax.
    I would personally be interested in Alberta dipping its toes in the waters of nuclear energy. Along with a proper investment to the University of Alberta to research and develop new technology to store and/or dispose of the waste products, Alberta could produce low carbon energy while avoiding the pitfalls of producing nuclear energy in zones of high seismic activity.

    Reply
  5. AlbertaRusH

    What Dylan fails to mention is that the people of Norway receive first class services and a secure retirement. Will nuclear energy give me that?

    Reply
  6. Sam Gunsch

    re: AB’s flat tax, and a brand new OECD report:
    ==============
    excerpt:
    “With its report this week, the Paris-based OECD has gone farther still, stating unequivocally that its research shows that policies favouring the rich haven’t just failed to create overall economic growth, they have actually “curbed economic growth significantly.”

    http://www.ipolitics.ca/2014/12/10/the-gap-between-rich-and-poor-is-killing-growth/
    ===============

    So neoliberal policies like AB flat tax…helps the already wealthy, e.g. Calgary petro-elite

    Unethical.
    AND a drag on growth. Not even utilitarian.

    AB’s lose-lose formula courtesy PC’s(WRP look-alikes) and rightwing political elites e.g. Mintz/Calgary School/CAPP.

    But hey, of course we know the supposed centrist liberals, Chretien/Martin and even our own Decore Lib’s drank the Hayek/Fraser Institute Kool-aid… ‘brutal cuts’.

    Foodbank use leaped up in the 2008 crash and just keeps hummin’ along in AB’s low tax, corporate investor-friendly political hot tub. Let them eat cake/pizza and all that. The lazy bums should start a business. Maybe buy an oil well.

    Reply
  7. Sam Gunsch

    In today’s non-‘crazy’ carbon tax news at the link below:

    excerpt: “Petroleum production and natural gas extraction pay Norway’s highest rate of almost $72 per tonne”

    http://www.huffingtonpost.ca/2014/12/11/harper-regulating-oil-crazy_n_6304466.html

    Hence, additional evidence for Daveberta’s comment : “Oil-rich jurisdictions like Norway prove that economies can be both economically prosperous and environmentally green.”
    ==========
    ================================

    BTW Alberta’s carbon levy is miniscule and ineffective. Greenwash. That’s all.

    And apparently it’s not even the tax fig-leaf for the PC’s claims to a climate strategy. It’s a regulation.

    Here:
    http://markjaccard.blogspot.ca/2013/04/albertas-non-carbon-tax-and-our.html

    ========

    BTW To those that attempt to discredit the Norway example.
    There are detailed investigations of Norway’s governance methods of its petro-industry on Tyee.ca.

    http://thetyee.ca/News/2012/07/25/Norway-Oil-Wealth/

    Norway has governed for the public good, and kept petro-corporations under democratic control via regulation, intense scrutiny of their finances, and high taxes/royalties due to the owners, to pay for needs of the citizenry.

    And the industry functions just fine.

    They just don’t get to plunder Norway’s non-renewable assets like they do here in AB.

    =============

    The CP piece on Huffington, interviews including AB’s Leach, responding to Harper’s claim (Prentice claim too) that it’s ‘crazy’ to talk regulations or taxes on petro-industry.

    The experts contradict Harper’s(Prentice’s) views on petro-taxes. Taxes: Which AB could implement if it actually had a non-corporate-‘crazy’ governing class in power. i.e. A Lougheed style gov’t approach to royalties/taxes.

    Instead BigOil has again installed their appointed one.

    AB’s always in tough economic times, because it is run under a vested interest governance model or what poli sci types define as corporatist governance serving the needs of groups, not the citizens. PC’s and the powerful industry groups negotiate public policy, behind a democratic veneer. Then PR/propagandize us with self-serving B.S.

    Reply
  8. Stephen

    Love the discussion. We need higher corporate tax, now lower like Harper has done. We need to stop giving subsidies to dirty energy while there are zero incentives for large scale clean energy.
    It’s about time the cons and libs take a seat and let someone actually represent the people instead of corporate interests.

    Reply
  9. Darren

    Stephen, elections are a pretty good way to see who represents the people, just maybe not your people. Dylan is correct about the Norway comparison. We complain when gas prices get too high, saying “why are we paying so much, we produce the damn stuff”. I doubt any government that proposes the kind of tax levels that Norwegians pay would ever get elected in Alberta.
    Alberta should actively pursue nuclear power. There are different options which reduce the amount of waste produced (Thorium reactors). That’s probably the only options available that can produce the amount of reliable on-demand energy that most people simply take for granted.

    Reply
  10. $50, 40,30, 20/bbl??

    Many times Liberal Leader Raj Sherman has been calling on past premiers stelmach, redford and even prentice to reign in spending to bring accountability and stop the pork barrel politics to their rich well heeled friends and to diversify the economy to get off this roller coaster dependence on oil. Mr.Prentice has inherited a dysfunctional, drunkard establishment and narrow a minded electorate incapable of acting in its actual best self interest. Raj was right all along, Dave, he DID have excellent policies and bold ideas. Mr. Prentice is no Ralphie. Ralphie was bold and never waffled.

    Reply
  11. Sam Gunsch

    re: Darren’s view that democracy is elections — excerpt: “Stephen, elections are a pretty good way to see who represents the people, just maybe not your people.”

    Really?
    Klein’s elections… do any of these vote percentages and seat outcomes look representative of Albertan’s ballot choices to you?

    http://en.wikipedia.org/wiki/Alberta_general_election,_1993
    http://en.wikipedia.org/wiki/Alberta_general_election,_1997
    http://en.wikipedia.org/wiki/Alberta_general_election,_2001
    http://en.wikipedia.org/wiki/Alberta_general_election,_2004

    Citizens who support democratic governance don’t consider elections as start, middle and end of democracy. A key element of course that legitimizes some power. But not representative or absolute as you imply. Just an element.

    Elections are not plebisicites that grant governments blank cheques until the next election for them to legislate/implement whatever policy they think the citizenry deserves.

    Although AB PC’s seem to have some version of that mis-impression in their psyche. Harper big-time on this of course.

    Sounds like you might like this formula:
    Elections = legitimacy to govern immune from ongoing participation, critique and demands for reasons/evidence?

    That would be an elected autocracy you’re thinking of. e.g. Harper.

    =================
    re elections as indicators of representing the will of the majority of citizens

    Our first past the post system of elections – simple pluralities – has been panned by Conservatives when they aren’t in power, as being undemocratic.

    As per Klein results.
    Because it isn’t very democratic.

    Until the autocrats obtained power, that is, and then to listen to the Conservatives, they suddenly think it’s fine as a statement on what the citizenry asked for.

    Evidence for my critique e.g. Harper/Reform Cons when Chretien Liberals ruled with minority votes.

    Testimony by HarperCon’s themselves.
    At the link below.

    Behold: the principled Jason Kenney about Chretien Liberals monopolizing political power with a minority vote, and shitting on First-Past-the-Post, speaking in favor of a more representative electoral system being more healthy for democracy.

    Kind of undercuts the claim about elections conferring legitimacy/divine right to rule without evidence/reasons, that can’t be questioned between elections.

    http://www.macleans.ca/politics/lets-debate-proportional-representation-again/

    A. Wherry digs up Con history, just days ago:

    Jason Kenney quotes below:

    excerpt: “Indeed, the math of first-past-the-post was something of a concern back then. Here is Jason Kenney in 2001, hectoring a Liberal MP:

    In the last two elections, respectively, the Liberal party earned 38 per cent and 41 per cent of the popular vote, which was far short of majority. Yet, with roughly 60 per cent of Canadians opposing its program, it managed to completely monopolize political power in the country. Does he think that is in the best interest of democracy?

    Furthermore, does he not think it would be helpful to national unity if the composition of Parliament in some way reflected the diversity and plurality of political views we find in the regions? Would he not think that the 25 per cent of the voters of my province of Alberta who voted for Liberal candidates should have a larger representation in this place than they currently have?

    . . . Does he have any regard at all for the fact that Canada is now the only multi-party advanced democracy in the world that has a system of voting designed in, and for, 16th-century England, when candidates really were non-partisan candidates elected for the purpose of representation

    . . . Would he not concur with me that we should be mindful of the many international precedents in other parliamentary systems, such as sister Commonwealth countries, including Great Britain, which has adopted a form of modified PR for its regional assemblies in Wales, Scotland and Northern Ireland?

    I wonder if the member could address these points. Does he not think that a greater reflection of the plurality of views in different parts of the country would be healthy for democracy? Does he apologize at all for the fact that his government shamelessly exercises completely uncontrolled power, even though it is opposed in elections by 60 per cent of Canadians? Does he think that every other complex multi-party democracy in the world has it wrong and Canada alone has it right?

    Now that we have managed to drive voter turnout down to 60 per cent, does he think that is a record of success and vibrancy in our democracy?”

    Jason Kenney quotes above.

    =============
    So… Democracy is participatory and continues to engage citizens *between* elections actually invites citizen participation and gives authentic consideration to their input… and at least does some polling of public opinion.

    Democracy is not a blank cheque from elections results.

    ===============
    re democracy and Albertan’s views on the Royalty review Stelmach initiated and that review which BigOil beat back with propaganda -SKY WILL FALL:

    Poll: support for Stelmach’s royalty review before BigOil’s propaganda

    http://ken-chapman.blogspot.ca/2007/10/new-poll-asks-if-stelmach-has-met.html

    excerpt: “…Leger poll found 88 percent of Albertans did not think we were getting our fair share of royalty revenues and two-thirds of us wanted the Hunter Review Panels recommendations fully adopted. ”

    So… *not* implementing Stelmach’s review recommendations was somehow democratic because PC’s had a majority?

    Reply
  12. Sam Gunsch

    excerpt: “We’re living in the age of propaganda politics financed by the public between elections; appearance and reality are now separated by light years of marketing BS.”

    Sounds like AB politics.

    http://www.ipolitics.ca/2014/12/11/why-wont-big-media-hold-this-government-to-account/
    …………..

    ================
    excerpt: “Like all marketers, however, Harper doesn’t care about facts — just making the sale. It’s high time the journalism business started feeding this government back its record of deceit and dishonesty — and holding Harper to account.”

    ===================

    re: my (Sam Gunsch) sweeping generalizations in previous posts about “media complicity”

    Harris excerpt: ” It’s high time the journalism business started feeding this government back its record of deceit and dishonesty — and holding Harper to account.”

    OK… I regret a lot and apologize for my tarring in previous comments on this blog that addressed *all* AB media as succumbing to the political power of PC’s and my implied judgement that AB lead reporters/columnists were bowing to and adopting PC messaging.

    Some of you are. Many are not and have never. If it ain’t obvious yet, I’m a bitter S.O.B. prone to angry generalizations.

    My bad. No excuse.
    On me.

    I need to get a grip, slow down and acknowledge realities that AB media are all not just “sell outs” as implied in my comments.

    I’m sorry for the generalizations about media, about journalists and columnists.

    A few of you are suck-ups. I unfairly maligned the rest of you.
    Sorry.

    Sam Gunsch

    Reply
  13. Sam Gunsch

    re: AB revenue problem, economic dysfunction, obseisance to resource corporations

    PCs(WRPs) deference to Calgary’s petro-elite and the other dominant resource sectors, e.g. logging, irrigators, is a classic example supporting the analysis below by Klein.
    Not Ralph. That other one.

    https://zcomm.org/znetarticle/966211/

    Naomi Klein excerpt: “In virtually every country, the political class accepts the premise that it is not the place of government to tell large corporations what they can and cannot do, even when public health and welfare – indeed the habitability of our shared home – are clearly at stake.”

    ===============
    Klein in a sentence explains the dysfunction of Alberta’s economy, why we are unable to fund education, healthcare, seniors care, and prevent industry’s impacts on public lands, forests, waters, wildlife:

    re: tax and royalty rates on tarsands/oil/gas corporations/logging co’s

    re: poisoning of wolves/extinction of caribou/old-growth forest due to oil/gas/logging industry demands

    http://www.edmontonjournal.com/technology/Alberta+wolf+cull+stabilizes+caribou+numbers+just+buys/10406925/story.html

    re poisoning of the Athabaca river and First Nations that rely on it, by tar sands operations

    etc, etc.

    Reply
  14. Chris

    Prentice is nothing more than a corporate lacky. I hope the people of ab grow a set and put a stop to 40 years of corruption . Management and admin has ballooned in the past decade . Prentice is taking a 5 percent roll back. Brilliant 8 percent minus 5 percent is a 3 percent raise. Now these clowns find 400 million they didn’t foresee and we trust them to have fiscal minded programs. All politics no real solution .continuing to make the same mistakes for 40 years and the people of ab will vote them in again??

    Reply

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