Monday, August 30, 2010

Don't Believe the Buzz About an Early Alberta Election

There is low level buzzing about a possible spring 2011 election in Alberta.  While in politics anything is possible I don’t put much credence in any early election, at least not right now.   There are many reasons why not but here are a few of the main ones. 

The Wildrose has peaked in the polls and while a threat they are stalled.  People have stopped looking to send the PC government a message by shifting “allegiance” to the upstarts.  People are beginning to wonder what the WAP is all about.  Serious questions about what they stand for beyond defeating the Stelmach government and who is in control from behind the scenes are now emerging.

Don’t misunderstand me.  The WAP is a potent political force but it is not a government in waiting...not yet.  It is right wing socially conservative core with a libertarian leader who is schooled in Fraser Institute philosophy that the marketplace privatization of public service is the best public policy option.  They also have no serious credibility in becoming the big tent progressive political party of Peter Lougheed’s day like they say they aspire to be. 

Unless the WAP takes off beyond the support levels they enjoy now, there will be no need to go to an early election.

We are not sure where the economy is headed but it is slowing and the US looks like it is in for a double dip recession.  The federal and provincial government stimulus money has worked to keep things from totally imploding but that effort is over.  Now the open question is will the private sector picked up the slack and investing again?  Will commodity prices and confidence hold enough to induce continuing investment?  What is happening in the US economy is scary and the mouse and elephant metaphor still resonates.  Alberta will be impacted significantly with what happens economically south of the border.   Timing here is against an early election.

There is an emerging debate about if we have a revenue problem or a spending problem and then there is uncertainty about a possible sales tax sometime in Alberta’s future but not on Stelmach’s watch.  My opinion is we have both revenue and spending problems and they are highly integrated issues.    The Premier backed off from reasonable royalty rates seven times since the new royalty regime was announced.   Ties to commodity prices make revenues volatile and that is a planning as well as a revenue problem

We Albertans as owners of our natural resources, have the second lowest total resource revenues in the on plant next to the UK North Sea oil.  We Albertans also have the largest total amount hydrocarbon resources on the planet.  We are second only in terms of exploitable resources behind Saudi Arabia and they have not publicly updated their reserve estimates since the mid 70’s.  They have pulled a lot of oil out of the ground and few new discoveries since then so I would not be surprised if Alberta is the largest total and exploitable oil reserves in the world...thanks to the oil sands

As new technologies come on we will be able to reach even more oil sands over time.   We are next door to the USA, the largest hydrocarbon market on the planet...for now.  And we have all the necessary international agreements and physical infrastructure in place to serve the market.  This along with a stable democracy, a reliable currency, the rule of law with an independent justice system, no threat of state nationalization of assets, and a safe secure society where your employees do not get kidnapped for ransom. So why are we giving the resources away with ridiculously low royalties?  We should be charging a 35% premium for our royalties compared to every other energy provider to the US market, perhaps even including their own domestic supplies.

The problem with revenue volatility has been identified by the Premier’s Council of Economic Strategy in their recent discussion paper when they said:
“Economic volatility also means fluctuating government revenues, which hinders good fiscal planning and destabilizes program delivery. If revenues from “windfall” energy exports get built into program
budgets or subsidies, inevitably something must be cut when the windfall is no longer available. We
must also remember that these revenues come from non‐renewable resources: Spending them on
today’s operating needs can draw down the legacy owed to future generations.”

If we are to sustain a low and flat tax and still not penalize lower income people we need a related consumption tax.  Yes a sales tax.  Or else we can decide to return to a fairer progressive taxation model and perhaps forgo a sales tax.  However a sales tax makes sense because it can help reduce waste and excessive consumption too and make sure the current generation pays for the public services what we use.  

That is the more fundamental principle in play here.  There is a need ensure Albertans pay our way for the public programs we want and need on a current revenue basis.  Instead of providing tax levels sufficient to pay our way we use non-renewable natural resource revenues (as stifled as they are) to subsidize current operational program spending.  Instead of paying our way we steal the natural resources birthright from future generations.  We also decide to run current deficits which are merely tax increases by another name but payable in the future...during someone else’s watch.

We need to tax ourselves at a level that pays for the services we want...and we are not doing that. Instead we are suffocating services from the most vulnerable in our society: children, the disabled and seniors.   WE generate more tax revenue from gambling and lotteries than we do from our energy sector.  There is something seriously wrong with this picture.  We need a fair tax and rent on natural resources but we also need to look at strategic taxes like on carbon to change wasteful behaviours and enable innovation. 

With loose talk of a sales tax expect a push back and nothing to happen until after the next election. Also do not expect an early election if a sales tax emerges as an issue in the public mind.  The mythology around sales tax in Alberta is as misunderstood but as significant as the mythology around the NEP.

The spending issue is a political problem because we get politically sucked into the boom and bust psychology and spend too much in good times and cut too much in tough times.

The 1993 election was all about Alberta’s spending problem.  It was focused on getting rid of our debt and deficit in Alberta.  The election issue between Klein and Decore was between massive cuts or brutal cuts.  Everything else was detail.

What happened is the new Klein government did both massive and brutal cuts - and very rapidly.  Coupled with dramatic commodity price recoveries we took a prudent 25 year debt relief program and fast-tracked every spare and new nickel into debt and deficit and we “solved” it in about 4 years.  That is less than the seven years touted by the Klein government needed to pay off the debt and deficit.  
That Alberta Advantage single minded focus left us with a Billion dollars of unattended and unintended school repairs due to lack of maintenance.  We turned a blind eye to the other infrastructure needs and failed to respond to the population growth we were all touting as part of the Alberta Advantage.  We ended up with serious shortage lack of skilled people like in nurses and other crucial public service areas.

As the economy took off we allowed unrestricted accelerated growth of the oil sands.  Rapid growth became official government policy and the energy sector pulled people away from other economy sectors with much higher wages.  When the political leadership changed and the infrastructure problems were attended to, we taxpayers ended up paying about a 40% premium to deal with the public facilities infrastructure deficit that were ignored.   All the same while we induced human and natural capital deficits by ignoring cumulative environmental impacts and growing social needs.

With a persistent and record level $4.6B projected deficit this fiscal year the question is not if we have a spending or a revenue problem – we have both. That is not something to fight in the next election over either.  So do not expect an early election unless the economy turns around and fixes that fiscal problem before hand.

The political climate in Alberta is beyond grumpy.  Albertans are downright grouchy approaching cantankerous...if they not already there.  Our research shows only 12% of Albertans are seriously on-side about being satisfied with the Stelmach government.  Over half (51%) of us do not think our government listens to us or even cares what we think.  Only 70% of us are committed to improving the future of Alberta while only 48% feel that their personal actions have an impact on making Alberta a better place.   These are not the kind of numbers that indicate a confident, committed engaged citizenry that is part of the tribal myth of Alberta.

There are 45% of us who do not trust any of the current leaders or parties to manage our province’s growth responsibly.  There is a sense that political leadership is lacking and none of the political alternative being offered will be any better.

The MPs in Ottawa are not immune either as we see the Harper government ratchet up for what looks like a federal election.  For example while most Albertans see a need for a federal role in oil sands development, even an increasing role, only 17% Completely Agree or Agree that the Alberta MPs are doing a satisfactory job of representing Alberta’s interest in Ottawa.   Prime Minister Harper is obviously engineering the defeat of his minority government and wants to go to the polls sometime soon.  That means Alberta will want to wait and see what happens federally first and that means an early election in Alberta is less likely.

I do not see a quick provincial election unless the Wildrose Alliance starts to make more political progress beyond its current plateau of support.  The economic times are volatile and the voter is nervous about where the economy is going, here and elsewhere. There are high levels of personal debt and nagging concerns about job security.  The threat of a double dip recession in the States and a very long road to recovery means Alberta has some serious uncertainty ahead.

There is a political leadership void that needs fixing in all the parties, with the exception of the Wildrose and the newly minted leadership of Danielle Smith.  That leadership question will not likely be addressed by any political party until after the next election.  But again, in politics anything can happen and often does.  A caucus revolt over leadership in the PC that would defer any early election call.  I would be very surprised if that happened. Ed Stelmach deserves better than that and should take the party through the next election. 

There is a great sadness amongst many thoughtful Albertans that I speak with on a regular basis over a lack of clear direction and growing political uncertainty in the province.  The sadness is over the obvious squandering of potential and opportunity and emerging possibilities for the Next Alberta.  With all our strengths, opportunities, natural resources and human capital, Alberta can move beyond the boosterism of the best place in the world to becoming the best place for the world. 

If you want a progressive political culture in the Next Alberta register now for RebootAlberta 3.0 at