The big revenue problem facing Alberta that none of our politicians want to talk about

As the Alberta New Democratic Party passes the half way mark of their first four-year term in office and the United Conservative Party chooses its next leader, a big question that remains unanswered in Alberta politics today is how, in the long-term, the Alberta government plans to deal with the revenue shortfall created by the drop in the international price of oil.

Premier Ralph Klein

Ralph Klein

After decades of rich oil and gas royalties pouring into public coffers, the Alberta government became over-dependent on oil and natural gas royalties to pay for a large portion of the daily operations of government.

The old Progressive Conservative government led by Ralph Klein used those high royalty revenues to subsidize corporate and personal tax cuts, which proved politically popular in the short-term but fiscally irresponsible in the long-term. When the international price of oil dropped in 2014, so did about $10 billion worth of expected government revenue that the PCs were depending on.

After their election in 2015, Rachel Notley‘s NDP took steps to diversify government revenue with moderate increases to corporate and personal taxes. Even after those increases, Albertans still pay some of the lowest taxes in Canada and those increases were nowhere enough to fill the revenue shortfall.

Jason Kenney Calgary Stampede Alberta

Jason Kenney

The positive news is that Alberta’s economy is recovering, but unless the international price of oil recovers, the government will remain in a deficit situation for the foreseeable future.

While I support Notley’s smart choice to continue investing in public services and capital infrastructure projects during the course of the economic recession, it is not clear that the NDP have a real plan to deal with Alberta’s revenue challenges in the long-term.

It is unlikely that the government will revisit Alberta’s comparatively low royalty rates anytime soon, and the NDP appear unwilling to start a discussion about introducing a provincial sales tax, at least until after the next election. A sales tax could help alleviate the government revenue problems and would be smart move for the province in the long-term.

It is an odd sight to read Finance Department documents that both lament a large budget deficit and boast about low taxes. The NDP inherited one big bad habit from the old PC government and have been unable to break from it.

Brian Jean Calgary Stampede AlbertaBut if you think the candidates for the leadership of the new United Conservative Party are coming up with new, bright ideas for Alberta’s long-term future, think again. Political rhetoric about returning to the mythical “Alberta Advantage” and calls for drastic cuts to both government spending and revenue are mostly what Jason Kenney, Brian Jean and Doug Schweitzer have proposed.

It is meat for the party base, but not exactly inspiring plans for Alberta’s future.

I get the impression that while they are playing from different sides of the political spectrum, both the NDP and the UCP’s prospective leaders are praying that oil prices recover enough to avoid having to raise taxes or slash the budget to shreds.

Alberta has a revenue problem. And the sooner someone is willing to “take the tax bull by the horns,” as my colleague David Climenhaga wrote, and begin planning for a more sustainable government revenue stream, the better off future generations of Albertans will be.


Schweitzer wants to lower the minimum wage

Doug Schweitzer Calgary Alberta Conservative

Doug Schweitzer

Doug Schweitzer says he would cut Alberta’s minimum wage from $15 per hour to $12.20 per hour, because it is “right choice for Albertans whose livelihoods count on it the most.”

While he is likely referring to the livelihoods of business owners, it would be the wrong choice for the people impacted the most – the lowest wage working Albertans who would have their wages cut from $15 per hour to $12.20 per hour.

It is safe to say that Schweitzer has earned much, much more than $12.20 per hour at his downtown Calgary job as a partner at Dentons, the world’s largest law firm.

24 thoughts on “The big revenue problem facing Alberta that none of our politicians want to talk about

  1. Dan McAvena

    Politicians in this Province are risk averse to talk about taxes unless they wish to Lower them, in our present environment simple Talk about expanding Alberta’s Tax Revenue is never going to manifest until the Province goes Bankrupt or Insolvent first. I believe if we keep electing NDP who appear are unable to Balance the Equation at the end of the Fiscal year we should find ourselves there within 10 years. Then and only then will the Electorate be in favor of Tax reform in this Province.
    So, I am moving to Sask see you in 15 years Go , Go NDP for the next three elections which should wrap that up …. just learning from Saskatchewan’s experience.

    Reply
    1. Anonymous

      Dan McAvena: It was not an NDP government in Saskatchewan that caused their problems, but the PCs. They made a big mess there. In Alberta, it was the Alberta PCs, for the last three decades that made a mess in Alberta. Never saving any money, doing so many costly scandals, time and time again and making deep cuts that we still are affected by today. I cannot imagine the UCP doing anything positive. Look at how dysfunctional they are.

      Reply
  2. KeVin Billy

    Good point about not much good policy out there..consider matching the basic personal tax exemptions to the living wage amounts.. start at $35/40K..this concept needs to be floated/costed/debated

    Reply
  3. Rick McLeod

    You said Alberta has a revenue problem , no Alberta has a spending problem , it is no different than your personal household spending . If you only make 100 dollars a day you can not spend 200 dollars per day . It’s that simple ! The NDP or any government needs to stop spending money they don’t have , yes energy prices are down less then half of what they were 3 years ago . So what does the NDP do , they just kept spending as if there was no tomorrow . Health and education is 60 % of the Alberta budget , so this would be a good place to start saving money , we as the people of Alberta need to stop asking for so much , stop wasting tax money on things we are abusing , yes we are abusing are health care system , all you need to do is walk in any emergency room , to see the money been wasted , people use it as a walk in clinic . There are millions a day been wasted just in this one example . Waiting for some mythical revenue to come along is just a fantasy , which the NDP is using , to stop the deficit , first stop spending , we as the people also have too stop asking for so much , the private sector took a huge cut in pay in the last 2 years , did the government work Force , take a pay cut , I’m sure they did not , if we don’t start changing what the province spends , nothing will stop the deficit from growing . Alberta is a energy revenue province , you can not change that by just saying , we are diversifying the economy , as the NDP keeps saying , it takes decades to change a economy as large as Alberta’s . You add to its economy , not tear down , as the NDP is doing .

    Reply
    1. Dave Cournoyer Post author

      Hi Rick – Thanks for the comment. Alberta’s economic is already quite diversified, and despite the recession we still have one of the strongest economies in Canada. The issue is that government revenue is not diversified enough to sustain the ups and downs of international oil prices. Making massive cuts to the budget is one painful way to approach the situation, and so is moderately raising taxes or introducing a sales tax, like the ones that already exist in every other province. If we want to “get off the royalty roller coaster,” like Notley and past Conservative Party leaders have said, we need to look at diversifying government revenue – and that likely means increasing taxes.

      Albertans have an excellent quality of life and I’m willing to pay my fair share to fund the excellent public services that we depend on every day.

      Thanks again for the comment.

      Dave

      Reply
      1. Dale Pillar

        Sales tax would only serve to harm low and mid income wage earners. AB provincial income tax is a flat 10% at the lowest end. This tax rate is higher at the lower end than places like BC. Why is the answer always to institute a sales tax? Government revenue is generated from a variety of fees and taxes. With a higher (flat 10% tax) at the low end and a recent increase in the high end, there is no need to introduce yet further burdens on the public. The NDP increased the size and budgets of every department, while introducing growth stiffling policies. That is madness and irrisponsiblity that is NDP.

        Reply
        1. Chris

          The reason to implement a sales tax is that it’s less volatile as a revenue source than either resource revenues and income taxes, which are strongly affected by the boom and bust cycles. The more diverse the set and predictable the amount of revenue streams the government has available, the less there’s a need to either a) run massive surpluses or deficits, depending where in the business cycle we are, or b) slash or expand spending to match revenue in any given year, which leads to inefficiencies in spending, as we’ve seen over the past several decades.

          Second, a sales tax captures revenue from people who work in Alberta but live (and pay income tax) outside Alberta. In the status quo, someone who’s resident elsewhere but flies in to work in the oilfield benefits from Alberta’s public services and infrastructure, but doesn’t pay in to supporting it. With a sales tax, anything they consume while in Alberta would be taxable and help share the load with everyone else.

          A sales tax also has the nice side effect of encouraging savings (and hence, investment) instead of consumption. With respect to burdens, it’s pretty straightforward to provide credits for people with incomes below whatever point you want; that’s what the federal GST credits do.

          Reply
    2. Arthur Beaudette

      Well put Rick. All governments have a spending problem.

      Most Politicians likely have never seen minimum wage nor can most relate to the working class regardless if you are talking about someone in the service industry or a small business owner working 60+ hours per week.

      Unfortunately, until voters demand more from our elected officials, we will continue to get the same. Which is higher taxes and less money in our pockets.

      Also, while on the topic of ALBERTA’S dependance on oil revenue, let’s not forget the billions in transfer payments sent to Ottawa over the years. Alberta could have a Trillion dollar trust fund if that money had stayed in the province.

      Reply
      1. Dave Cournoyer Post author

        “Also, while on the topic of ALBERTA’S dependance on oil revenue, let’s not forget the billions in transfer payments sent to Ottawa over the years. Alberta could have a Trillion dollar trust fund if that money had stayed in the province.”

        Transfer payments are collected through income taxes paid by Albertans to the Government of Canada. They are not transferred from the provincial government to the federal government.

        The Alberta government would only be able to collect these specific funds if the provincial government increased taxes while the federal government decreased taxes at the same time.

        A solution is for the provincial government to raise taxes or introduce a PST and then save any future resource royalty revenues rather than spend them on day-to-day operations of our public services.

        Reply
        1. Anonymous

          Dave Cournoyer Alberta has never sent money to other provinces. Transfer payments have never exsisted. Equalization payments have and no province handles that. Ottawa does. Alberta would have more revenue if the following things happened.
          1) The Alberta PCs used to get proper oil royalty rates. That drastically changed three decades ago. A very large amount of money was lost, that we cannot get back.
          2) Big scandals by the Alberta PCs, happened time and time again, since the mid 1980s. The amount of money wasted is staggering. Multiple billions was lost on devious schemes.
          3) Bad tax policies by the Alberta PCs have been a dismal failure. Corporations have been allowed to get sub par or impractical tax breaks for a very long time. For a very long time, corporations in Alberta were not gone after by the Alberta PCs to pay outstanding taxes that they owed. For individuals and the province, the flat tax was a failure. It decreased provincial tax revenues substantially, after it was forced upon us.
          3) The drastic cutbacks by the Alberta PCs have had long term effects. There has to be a catchup to deal with it. It is very costly to do. More neglect is wht the UCP would most likely do, which is not good.

          Reply
    3. David

      First it actually is different than personal household spending, you can’t go to your boss and say here is legal notice my pay rate has now gone up to cover my expenses. Governments do have the legal power to change tax rates, so they control the revenue side more. I am not advocating that they should, but to point out that they can and that is the difference right there.

      I don’t think any party is eager to raise taxes now and spending cuts sound great in practice, but the problem always arises when someone’s grandmother can’t get a hip replacement because the doctors and nurses whose pay has been cut have moved to greener pastures in the US instead or have had their hours cut back.

      So politicians will do what they do best, kick the can down the road, hope for an improvement in oil prices to partly solve the problem, cut a bit here and there and leave the rest until after the next election for whoever wins to deal with. Many Albertans don’t want tax increases, which would not mythical but very real, however they are also quite used to fairly good levels of public service funded in the past by energy revenues that are no longer there right now and perhaps for quite a while.

      Reply
    4. msedmonton

      Oh no! The household spending analogy rolled out again!!! Along with simple bromides for reducing spending (Cut government positions and salaries!). If we take your analogy farther than “Don’t spend more than you make!”, you’ll need to pour a new front sidewalk every second year. Because people use it so much! That’s part of your infrastructure problem. And your garage needs an upgrade every third year. More infrastructure development (All those schools and hospitals and public buildings we have). Oh, and your lawn catches fire every summer and burns down the fence you share with your neighbour. That needs to be replaced and compensated for. Also that hail in July: it wipes out the garden. You promised those vegetables to the neighbours for canning. Wait! It was a scorcher last summer and nothing grew. Same issue. (Hint: I’m talking a about drought and crop relief for our agricultural communities). i could go on. Why is it when people complain about this they ignore the complexity of moden society and the benefits we all derive? Why is the answer in this facile analogy always to cut expenses? Maybe your expenses are high because you have three kids? Are you going to abandon two out on the side of the highway? That would sure reduce the household budget. Wait! How about looking at making an extra $100 dollars, to meet your expenses? But even that’s a ridiculous notion (doubling your income) because the analogy is ridiculously simple.

      Reply
  4. Daniel Warren

    Alberta unfortunately has been dependant on oil & gas for so long.it has to look outside the box to see what other business or industry it could attract. Unfortunately again the current government (NDP ) have made this province investor unfriendly because of their policies and taxes. As for cutting and slashing as proposed by the UCP –
    Yes some of that may be required, but pending on what one can do with the outside the box possibilities along with dealing with our provincial neighbors (and federal as well) some direction can be set. With min. wage – I would freeze it at this time and allow business to adjust. People have already been impacted by this. Yes it it nice to have the increase. But to do that jobs will also have to be slashed for business to make ends meet.it is a double edged sword. And yes some changes can be made within Alberta but we also need federal changes to make things flow again. Face it.. there is just to much BS and rhetoric with both our federal and provincial governments. They both need an overall.

    Reply
    1. Anonymous

      Daniel Warren What the Alberta PCs did, in the last three decades was not diversification. Rather it was very bad, bungled business decisions that cost Albertans a staggering amount of money. An exponential amound was wasted on so many stupid schemes that did not benefit anyone. Many, many, many billions of dollars were flushed right down the drain. Improper tax breaks were given to businesses. This also was a very costly mistake, by the Alberta PCs.

      Reply
  5. Sharon Swan

    I think a person could take a lesson from Ralph Klein .. as never in my day have I heard of any province being debt free but Klein did it.

    Ralph Klein was a blunt but popular man who fiercely defended the interests of his home province of Alberta. His tenure as premier in four consecutive majority governments helped to reshape the province. Simply put, his impact on Alberta was huge and lasting.

    As mayor of Calgary, he was best known for bringing the 1988 Winter Olympics to the city, while his career in provincial politics was marked by a series of battles with Liberal Ottawa and a decade-long fight to get Alberta spending under control through wild surges of bust and boom.

    In the process, he pushed the provincial Conservative party to a more populist stance and created what was called the low-tax, low-regulation “Alberta advantage,” which culminated in 2005 when the province became the only Canadian government to be entirely debt-free.

    Look at our debt today ..we should be taking a lesson from Mr. Klein and follow in his footsteps to get rid of our debt. We should really take a look at where the money is going and STOP SPENDING AND CUT BACK ON EVERYTHING ..people in government positions getting high paycheques also as when you start increasing taxes then you start spending more. Seniors do not make any more money when they are only on pension, as lots did not work to get company pensions or were able to put money into mutual funds, but the taxes the food the medicine all goes up.

    Reply
    1. David

      Actually Alberta was debt free under Lougheed when oil and gas prices boomed in the 1970’s. They didn’t do so well in the 80’s or early 90’s, but started to recover (especially natural gas) in the mid 1990’s right around when co-incidentally Ralph became premier.

      Klein had good timing. Yes, he made cuts at the beginning, but rising oil and gas prices allowed him to soften the blow of them later and so stay in power and still get to a surplus in part due to rising revenues.

      Reply
    2. Anonymous

      Sharon Swan Ralph Klein never, ever got Alberta out of debt. Like the premier he replaced, Don Getty, he was absorbed in massive corruption that would make the federal government blush. The compenastion for this was major cutbacks, which only pushed costs down the line. Ralph Klein’s tax system also was a failure, draining more from revenue. Ralph Klein did not get Alberta out of debt.

      Reply
  6. Shoop

    The NDP are in a real bind. They want to keep Alberta’s public service the highest paid in the country without being honest to Albertans. The only way to maintain pay and staffing levels of the public service is with massive tax increases.

    Instead of being honest and raising revenue to do so the NDP have simply accumulated debt at a staggering rate.

    The pain felt by average Albertans when the government changes in 2019 is that much more severe as long as the NDP continues to ignore the fiscal imbalance. If the NDP people really feel that Albertans should continue to be more they should raise revenue now. Introduce a sales tax, raise income taxes, raise tax on small business.

    The reason that Alberta is lagging the rest of the province in coming out of the recession is the business and tax environment the NDP has created. Show Albertans exactly how much more they will have to pay to fund current government spending levels. Let voters decide if that is how they want Alberta run in 2019.

    Reply
  7. Sheldon

    Ah the Klein myth. Yes Klein balanced the budget, in part by deferring needed maintenance to schools, hospitals, and other capital. My classroom had pink goo (I still don’t know what that was) leaking from the ceiling when I started teaching in 2004. Maintenance that would have cost thousands became repairs that cost millions because of a decade of neglect.

    Reply
    1. Anonymous

      Sheldon Actually, the cost to upgrade and replace crumbling/neglected infrastructure from the Don Getty/Ralph Klein years of neglect and cuts is in the billions of dollars range. It is not just a couple of billion dollars, but over twelve times that amount.

      Reply

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