Tuesday, March 10, 2015

Alberta's Looking Glass

Last week Premier Jim Prentice (PCAA - Calgary-Foothills) found himself in trouble for saying the following when asked about the provincial deficit:

"In terms of who is responsible, we all need only look in the mirror, right. Basically all of us have had the best of everything and have not had to pay for what it costs."

Mr. Prentice's political opponents have used this statement to great effect and it also triggered a dramatic response on social media. 

The backlash is understandable for sure. Alberta's budget woes has nothing to do with spending problems, as far as I can tell. It is common to hear progressives to say tax levels are insufficient, but in the case of Alberta that is quite true. Alberta has no sales tax and the lowest corporate tax in the country. Alberta has used its natural resource wealth to subsidize its entire government. Now and previously in 2008, and several times before, a sudden drop in the price of oil threatens the province's books.

Conservative or right-wing governments respond to these crises by slashing public spending as a solution to the deficit. However anyone with basic knowledge of the province's history can tell you that Alberta suffers from instability in revenues not instability in spending. Analysts have frequently called for Alberta to adopt a Norwegian model to manage its natural resources and to divert royalties from natural resources to accumulate wealth for the entire province for generations to come. Instead Alberta uses its wealth to top up revenue.

Politicians have proposed in Alberta at many different points in the past that the introduction of a sales tax would help level out the economy and stabilize revenue. Even if you do not agree that sales taxes should be instated in Alberta the question of which revenues to raise will inevitably come up. In a sense this is what Jim Prentice was right about. If Albertans want to blame someone for the current financial situation they have to at least acknowledge that their own political culture has played a significant role. The sales tax and tax increases in general have been the third rail of Alberta politics for a long time. That isn't just made up by politicians but it is shaped by the opinion of the public at large. The public ultimately holds government to account, if some want to place the Progressive Conservatives' mismanagement then some blame belongs to the people who have kept them in power for over forty years.

Given the boom-bust nature of resource revenues it would only make sense to my mind for provincial (and national) governments to set their budgets to balance without accounting for any money from them. Let those revenues accumulate in heritage funds to be reinvested into projects with long-term benefits, or take the interest for government spending.

Budget and service cuts often fall on the most vulnerable, it seems unconscionable in a wealthy place like Alberta that they should bear the brunt of the pain when the Alberta economy could easily handle higher taxes. The question is whether or not Albertans want to make a change for longer term fiscal stability, or continue with their low tax unpredictability.

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