Tag: Alberta Advantage

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Alberta Politics

Only in Alberta are huge deficits and low taxes completely irreconcilable

(photography by Chris Schwarz/Government of Alberta)

“When the global price of oil collapsed and the recession hit, we had a choice: Cut or build. We chose to build. In making that choice, we focused on the priorities of regular people and families – creating badly needed jobs, building our province for the future, making life more affordable for people and protecting the schools, hospitals and public services all Albertans rely on.”

It was with this familiar refrain that Finance Minister Joe Ceci began his speech on the floor of the Legislatve Assembly as he introduced the Alberta Government’s 2018/2019 budget. This was Ceci’s fourth budget since the NDP were swept into office in the 2015 provincial election and this is likely the last governing budget from this government before next year’s provincial election is called.

This year’s budget appears to have avoided the “compassionate belt tightening” that Premier Rachel Notley warned about in her 2017 year-end interviews. The NDP has avoided making significant cuts to public services over the past three years, instead opting for stable increases to operations funding and major investment in capital spending.

Titled “A Recovery Built to Last,” the themes of this budget – a path to a balance budget, jobs and diversification, protecting public services – are key to the narrative the NDP hopes to shape between now and next spring’s election.

This budget’s narrative also provides a contrast between the NDP and what many expect would be a much different budget implemented under a government led by United Conservative Party leader Jason Kenney, which might be expected to impose deep cuts to funding for public services, education and health care.

Welcome to pre-election season.

Overall, it was a generally acceptable budget, but it is difficult to get too excited about it.

With government prone to make major changes to budgets over the course of a year, it is hard not to see the Budget Day pomp and ceremony as just an overrated exercise in expectations management.

Ceci said in his speech that the NDP are projected to balance the provincial budget by the 2023/2024 fiscal year, which would coincide with the end of a second NDP term in government.

The current deficit is forecast to be $8.8 billion, which is $1.5 billion less than was initially forecast. The government will be lambasted for taking on more debt, even though significant debt accumulation was already forecast in the media coverage of last year’s budget. Economists will be quick to point out that the Alberta government is still in a fairly strong position when it comes to the net debt to GDP ratio, but that message might be hard to sell to newspaper opinion writers and voters at the doorsteps.

But what is not clear in this budget is how the government plans to deal with its revenue problem.

Only in Alberta could a finance minister calmly deliver a speech about an $8.8 billion budget deficit while also bragging about the lowest taxes in the country. “…Albertans and Alberta businesses pay at least $11.2 billion less in taxes than they would in any other province,” Ceci stated. Maybe if we paid a little bit more taxes, we could have a balanced budget, or at least a lower deficit?

Economists and political staffers might tell me it’s not that easy, and maybe it’s not, but only in Alberta could huge deficits and low taxes be totally reconcilable in reality but completely irreconcilable in politics.

What’s in a budget name?

The titles of Alberta’s budget documents typically present a general theme. Budget names can sometimes be quite silly, but they do provide a snapshot of the political and economic agenda of the government of the day. Here is a look back at titles of Alberta budgets from 1997 to 2018:

  • A Recovery Built to Last (March 22, 2018)
  • Working to Make Life Better (March 16, 2017)
  • Alberta Jobs Plan (April 14, 2016)
  • Supporting Jobs, Supporting Families (October 27, 2015)
  • Budget 2015 (March 26, 2015)
  • The Building Alberta Plan (March 6, 2014)
  • Responsible Change (March 7, 2013)
  • Investing in People (February 9, 2012)
  • Building a Better Alberta (February 24, 2011)
  • Striking the Right Balance (February 9, 2010)
  • Building On Our Strength (April 7, 2009)
  • The Right Plan for Today and Tomorrow (April 22, 2008)
  • Managing Our Growth (April 19, 2007)
  • Strengthening Today, Securing Tomorrow (March 22, 2006)
  • Investing in the Next Alberta (April 13, 2005)
  • On Route, On Course – Heading Toward Alberta’s Second Century (March 24, 2004)
  • Making Alberta Even Better (April 8, 2003)
  • The Right Decisions for Challenging Times (March 19, 2002)
  • The Future … Meeting Priorities, Sharing Benefits (April 24, 2001)
  • New Century. Bold Plans. (February 24, 2000)
  • The Right Balance (March 11, 1999)
  • Agenda for Opportunity (February 12, 1998)
  • Building Alberta Together (February 11, 1997)
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Alberta Politics

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.

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Alberta Politics

Looking ahead to the Throne Speech and Spring Session

Finance Minister Joe Ceci presents the Alberta NDP's first budget.
Premier Rachel Notley applauds Finance Minister Joe Ceci as he presents the Alberta NDP's first budget.

Similar to last week’s third quarter fiscal update delivered by finance minister Joe Ceci, this week’s Speech from the Throne will mostly focus on political messaging and managing public expectations. Along with the pomp and circumstance that will drape the Legislature as Lieutenant Governor Lois Mitchell reads the throne speech on March 2, 2017, the government will present its narrative for the upcoming session of the Assembly.

To give you an idea of what recent throne speeches have included, here is what the NDP government’s throne speech from March 8, 2016 promised to:

  • diversify energy markets.
  • pursue a coherent and effective economic development strategy.
  • invest in a greener, more sustainable economy.
  • pursue a responsible approach to public finance.
  • pursue ongoing democratic reform to ensure public accountability in all of this work.

The spring session will start just as Premier Rachel Notley returns from Washington D.C. and will mark the half-way mark in the New Democratic Party government’s first term in office.

We can expect NDP cabinet ministers to boast about achieving the approval of the Kinder Morgan Trans-Mountain Pipeline expansion and Environment & Parks Minister Shannon Phillips to release further details of the plan to address Climate Change, including government support for communities impacted by the phase out of dirty coal-fired power plants. We can also expect to hear some hint about what type of reforms the government could make to Alberta’s outdated labour laws in this session of the Assembly.

We can also expect the NDP to begin shifting away from its more activist legislative agenda into re-election mode later this year.

Predictions that the Alberta economy is beginning to recover bodes well for the NDP as they prepare to present their next provincial budget. If the economy does recover and the unemployment rate decreases, they should be praised for not making the massive cuts to critical public services advocated for by, Jason Kenney, the Wildrose Party and the Progressive Conservative Party.

(One of the big stories of the upcoming session will be the one-upmanship we can expect to see between Wildrose leader Brian Jean and soon to be anointed PC leader Kenney, but I will save that for a future blog post).

The NDP inherited a financial mess in 2015 from an old PC government that relied too heavily on revenue from resource royalties to fund the daily operations of public services. As we saw starting in 2014, when the international price of oil dropped, the much-lauded Alberta Advantage of using unreliable resource revenues to subsidize short-sighted tax cuts quickly became the Alberta Disadvantage.

I support the NDP government’s decision continue investing in public services and much-needed public infrastructure projects rather than slashing-and-burning, as the opposition conservative would do.

Alberta fell behind on critical infrastructure investment during the years when Ralph Klein was premier, when his government’s singular focus was on deficit and debt reduction. I was pleased to see the PCs move away from that short-sighted approach during their final years in government and that the NDP has continued to invest in building the type of public infrastructure – schools, hospitals, roads and public transit – that Alberta’s growing population will need.

The conservative opposition parties continue to irrationally lambast the NDP for taking on debt to fund capital infrastructure projects, but on this issue I agree with the approach presented by John Kenneth Galbraith in The Good Society:

“There remain those government expenditures which are intended to improve future well-being and economic growth or which so serve. Here, borrowing is not only legitimate but socially and economically desirable. Similar borrowing in the private sector of the economy is both accepted and wholly approved even by the most eloquent, frequently vehement, opponents of the public deficit.”

The last throne speech recognized the key economic and financial challenges facing our province. “We have seen oil price drops before. We will get past this one. And we will draw the right lessons from it, and act on them,” the Throne Speech stated.

But overall, it is still not clear to me what the NDP’s longer-term fiscal plans are, or how they plan to significantly diversify the government’s revenue sources without further increasing taxes (which they should do). Maybe they are praying for another oil boom? That was the old PC government’s plan too.

Maybe we will learn more in this week’s Speech from the Throne?

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Alberta Politics

The origin and real meaning of the “Alberta Advantage”

August 31, 1993 marked the first time the words “Alberta Advantage” were uttered on the floor of Alberta’s Legislative Assembly.

“Unlike some others, my government will not try to buy prosperity through higher taxes. Instead, it will build on Alberta’s existing advantage of low taxes and its free enterprise spirit to develop the most competitive economy in North America. The government will strengthen the Alberta Advantage and sell it aggressively around the globe.” – Speech from the Throne, August 31, 1993.

Premier Ralph Klein
Ralph Klein

“Promoting the Alberta Advantage” was the theme of the Speech from the Throne read by Lieutenant Governor Gordon Towers following Ralph Klein’s victory in the 1993 provincial election, dubbed by Tories as the ‘miracle on the Prairies.’ The Progressive Conservatives had narrowly defeated an insurgent Liberal campaign led by former Edmonton mayor Laurence Decore. Both party leaders campaigned on deep funding cuts and deficit reduction.

The one element, probably the most important element, of the Alberta Advantage that was not mentioned in that year’s throne speech was that the reality of the provincial advantage was based almost entirely on the government receiving royalties from high-priced natural resources, mainly natural gas and oil.

Gordon Towers Alberta
Gordon Towers

For two decades, PC governments were able to subsidize their tax cuts with royalty revenues from natural gas, and then oil. This unfortunately led to government then using those undependable royalties to fund the province’s operations budget. What this meant was that large portions of royalty revenues that should have been saved for future generations, or for a rainy day – like now – were spent on day-to-day operations.

The PC government was once so flush with cash that it sent out $1.4 billion worth of Prosperity Bonuses – known as Ralph Bucks – to every Albertan. It was an embarrassment of riches and a hallmark of PC financial mismanagement.

The Alberta Advantage of low taxes and quality public services stopped being so easy when the international price of natural gas, and later of oil, dropped through the floor. When the PCs began running deficit budgets in the mid-2000s due in part to the drop in natural gas prices, they refused to restore the modest levels of personal income and corporate taxation that had existed before the ‘Alberta Advantage’ became their motto.

The most recent economic decline had many Albertans asking themselves “where did all the money go?” In an off the cuff moment, former premier Jim Prentice told Albertans to “look in the mirror.” But Mr. Prentice’s ‘Hail Mary’ budget of early 2015, which raised some taxes, was not enough to persuade Albertans that the Tories had learned a lesson.

Instead, having despaired of changing the Tories, they opted to change the government and elected the New Democratic Party led by Rachel Notley.

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Alberta Politics

Who will stand up for Alberta’s persecuted billionaire community?

A billionaire is moving away from Calgary and we should all be worried, the newspapers tell us. Postmedia newspapers reported recently that nameless sources are saying oil billionaire and Calgary Flames co-owner Murray Edwards is “switching his residency to the U.K. for tax reasons.”

Postmedia headlines and columns have characterized Mr. Edwards as a “tax-climate refugee” but it does not appear that anyone from the media has actually spoken with him about his move.

Alberta has some of the lowest taxes in Canada and remains the only province without a sales tax. It has been speculated that a billionaire like Mr. Edwards would only pay about 3 percent less tax in the United Kingdom. But the billionaire’s alleged economic refugee status fits nicely into the editorial narrative of the Postmedia newspapers and the political agenda of the Wildrose Party opposition, who immediately blamed Alberta’s New Democratic Party government for Mr. Edward’s relocation.

In May 2015, Albertans elected an NDP government that ran on a platform clearly stating that billionaires should not be in the same tax bracket as average Alberta taxpayers. Even the party that earned the second most votes in last year’s election, the former governing Progressive Conservatives, planned to cancel the 10 percent flat tax and increase taxes for high income earners up to 12 percent if they were re-elected.

Wildrose Party MLA and former Canadian Taxpayers Federation spokesman Derek Fildebrandt appears to be leading the charge in defence of the rights of billionaires to be in a low tax bracket.

One of the first laws the NDP passed after it formed government scrapped the flat tax that the PC government introduced in the early 2000s. Personal income tax rates for high income earners, like billionaires, were increased to 15 percent for annual income above $300,000.

We continue to hear plenty of rhetoric about the decline of the “Alberta Advantage” but the reality is the biggest economic and financial advantage our province has only exists when the international price of oil is high. When oil prices drop and natural resource royalties are low, our artificially low tax rates are unrealistic if we want to sustain the public services that contribute to the high quality of life we enjoy in Alberta.

The government needed to generate revenue and increasing personal income tax rates is a basic way to do that, though it still remains unclear if anyone in government or opposition has a plan to actually get Alberta off the oil roller coaster.

But enough about Alberta. Back to the billionaire.

No offence, Calgary, but it could be that as a billionaire Mr. Edwards wants to live in a large international city like London that is home to a large billionaire community. While being a billionaire in London comes with billionaire-specific problems, I imagine a major European city can offer a lifestyle that a city in western Canada cannot.

There could be private personal motivations for the move. Until the media actually speaks with him about his move, all coverage is just speculation.

If he is indeed relocating, I hope Mr. Edwards enjoys his stay in London. I might even join him there if I one day become a billionaire. And if I do, it probably would have less to do with the taxes and more to do with London being a great city to live in, especially for billionaires.

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