Reboot Alberta

Monday, February 28, 2011

Making Sense of the Alberta Budget

David Berry writes another perspective in the National Post about the underlying philosophy of the fiscal management of Alberta and the recent budget and the issues of our royalty rates in the energy sector.

It makes me wonder if we have a more serious revenue problem in that we are not paying our way for the actual costs of necessary public services. We are using one-time non-renewable resource revenues for current public service operations.  The Alberta Advantage idea of having the lowest taxes is part of the cultural DNA of this place.  However how much lower do our taxes have to be from those of our competitors?  That is the unasked question.  The recent Budget showed that Alberta tax revenue spread is $11B less than the next lowest province.  Do we need to be $11B lower  to be competitive?

By not paying our way on a current basis we end up using capital funds from non-renewable resource revenues to pay for current expenses.  This is not right.  Albertans are proud people who believe everyone should pay their own way but we don't translate that value into paying the cost of necessary public services from taxes and user fees.  We use capital funds from non-renewable resources instead. Isn't this approach just taking away from future generations? What is the legacy we intend to leave them as a result?

There needs to be a clearing of the air on the capital side of the recent budget too.  The Sustainability Fund is  being misrepresented in the political commentary around the Budget as a "rainy-day" or a "savings" fund.  It is neither - and never was.  It was the prudent taking of resource based surpluses and banking them for future investment in infrastructure. They are earmarked funds to be used for meeting the necessary infrastructure demands like schools and hospitals.  The Stability Fund enabled capital projects to be paid for in total, without borrowing, and at a time after the boom so we could get better prices, not compete with the private sector and generate jobs to lessen the blow of the recession.  It is a win-win-win deal.

It is not creating a fiscal deficit. It is fixing an infrastructure deficit. That infrastructure deficit was created by the policy of neglect in the Klein era when there was not enough maintenance of our schools and other public facilities. Debt and deficit reduction got carried away and was done way too rapidly. It left problems of facility neglect and deferral of other facilities we needed  like schools and hospitals to respond to the rapid population growth in Alberta from people moving here in the last boom.

We bragged that we paid off the debt in about 7 years, and I believe it was done even faster than that. Debt and deficit reduction was designed as a 25 year prudent program by the then Finance Minister, Jim Dinning.  We can't just blame the Klein government for this infrastructure deficit and late response to growth pressures.  We Albertans encouraged our politicians to pursue the hyper-rapid debt pay down. We also ignored the more prudent longer range planning that was in place to smooth out the boom and bust cycles and lessen the fiscal excesses that hurt us in both parts of the boom and bust cycles.

So don't be fooled by talk of the deficit being created in this last budget - from any of the current political parties, including the PCs strangely enough.  Why have they used deficit language to describe the conversion of the Stability Fund from cash to physical capital?  The Stability Fund is being used precisely for the purposes intended and at a "bust" time when we can get better value for the taxpayer's money.

Lets also look at the Alberta Advantage of low taxes and see if we have gone too far in tax reductions.  We are at the point current Albertans are not paying our way.  We are misappropriating non-renewable resource money from future generations to be spent on us now.  We were motivated in  1993 election to to pay down the debt and deficit in large part because we felt we could not leave that burden to our children.  I wonder if we appreciate that we are spending their natural resource birthright now because we are failing, refusing or neglecting to pay our own way today.

That is just one of the adult conversations that has to be held amongst Albertans going into the next election.  I wonder if Albertans in 2011 will feel the same way we did in 1993 about our duty and obligation to future generations...or is our sense of entitlement so strong that we just don't care about the legacy we are leaving our children, socially, environmentally or economically.

5 comments:

  1. @JuleNecheff - Julia Necheff11:52 am

    Hello Ken,

    Thank you for addressing this topic. I have been feeling very strongly for a long time that the Alta govt hasn't done us any favours over the long-term by keeping taxes too low.

    We really do need to bring some balance back to the revenue side by looking at our taxation system.

    Too many people want a lot in the way of quality public services but don't want to pay for them. We need to have an adult conversation about all of us paying our fair share through a progressive income tax system - not through unfair, regressive revenue-generators like user fees.

    I want quality public services, and darn it, I am willing to pay for them through a fairer income tax system - and if that means my tax bill goes up, so be it! I want fast access to a quality health care system when I and my loved ones need it, and not just me and mine - everyone. I want everyone's kids to be able to afford to go to university - not just my kids.

    I'm so sick of talk of cutting deficits by cutting our spending. We do not have a spending problem, people, we have a revenue problem. Health care takes the biggest chunk of our budget but this province does not spend too much on health care - and the facts support that.

    And don't even get me started on royalty rates. Plus the fact this govt is so negligent that it hasn't even collected the royalties that we're owed. This is unconscionable.

    So hear me, government, don't even think of cutting our cherished public services until you do a better job of bringing in revenues.

    SHOW ME THE MONEY!

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  2. Carlos Beca12:47 pm

    Nice article Ken. Very well said Julia. The race to the bottom is real in this province and it got to the point where we now have the poor subsidizing the rich health care and use of public services. This flat tax is an horror show and has taken us this far. According to our experts, whit the progressive system we would have 5 billion more in our coffers, which would be more than enough to cover the 4 billion deficit. Gosh it is urgent to get rid of these guys. As far as royalties I will leave it for another time as I do not want to throw up on my lunch time.

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  3. This is so true Ken, and David Berry's article resonates truth too. We are borowwing from the future and using a limited resource to fund our current lifestyle. Remember this attitude collapsed the US housing market (how many times can one re-mortgage a property?) and eventually push their whole economy into a tailspin.

    I have always wondered where the money was going and why the heritage trust fund wasn't growing like any other investment fund (QPP, Ont Teachers Pension Fund, etc...) Is it any wonder the ATA wants their pension money accounted for?. One needs to look at the accounting of the hertiage trust fund too to see what liquid assets and non-liquid assets are being counted. At one time even the Walter C Mac Health Centre was on the books as an investment.

    The budget process has eveolved from reporting what we are going to spend and what is the income within the budget year to a statement of income, hoped for income (depending on the price of resources), what we are going to spend this year, what we are committed to spend in future years, what we are carrying forward from previous years and maybe some adjustments to taxes for the next budget year - who can keep track of that? Except we know enough to see that they keep announcing the same projects year after year. Any company that budgetted this way would be out of business in short order.

    The problem with the message is that it hits the ears of all the baby boomers with their entitlement attitude and all the people who moved to Alberta because it was such a good deal (what no sales tax??). The next generation may have a different attitude, but do you think they will continue to let the old baby boomers soak up all the resources?

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  4. Christopher Bowal7:42 pm

    Hi Ken!

    I'm Chris, and I'm a huge reader of your blog. Just wanted to let you know I love your writing! Keep it up!

    I'm a student at the University of Calgary, and just recently along with two other fellow students I created a video about our idea to make our University a greener place. Here's a quick summary:

    "Revitalize sustainability measures, increase fitness and lessen the negative environmental impact of elevators by promoting existing stairway infrastructure through auditory/visual enhancements, nature themes, educational eco-facts and sustainability-focused features."

    We would be honored if you could help us reach our goal of getting the most votes - the team that wins earns their university $100,000 to implement the environmental solution!!!

    If you could, please feature this story and help us build awareness to combat this growing dilemma. You can find our video at http://www.tdgogreenchallenge.com/video/id/18/playid/18.

    Thank you so much!!!

    Christopher Bowal
    Student at the University of Calgary

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  5. Anonymous8:01 pm

    Great dialogue. Like a number of your readers, I'm very concerned about the "now you see it, now you don't" process for non-renewable resource revenue. The funds come in as royalties (if they're collected at all) and then go right back out again as a stimulus plan or an incentive. It's so slick that even the industry has trouble following it.

    When the government announced its deal with North West and CNRL to build a bitumen upgrader, the Canadian Association of Petroleum Producers (CAPP) said that it looked like the province was providing an incentive to get the upgrader built but it wasn't clear so CAPP would keep digging.

    If CAPP can't figure it out it's time to get a forensic accountant, or maybe we should just replace this government with one that values straight talk and transparency.

    ReplyDelete

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