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.