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.

Canada After Natural Resources

It has been a busy day in Canadian politics. It seemed big stories trumped each other one after another. The Alberta local elections, the suspension of the Senators, and then Senator Mike Duffy’s speech in the Senate this afternoon which kicked up a new firestorm. It made for a distracting day, that’s for sure.

It’s my policy not to discuss really recent news if I can resist. The scandals that continue to rock the Senate are too fresh for me to offer any meaningful insight. I do have a topic I want to write on though.

I had a conversation today with someone about the federal parties. I shared my preference and he shared his, and offered an explanation as to why. He cited the comments Tom Mulcair (NDP – Outremont, QC) made about the oil sands and proper pricing to include the pollution costs. The “Dutch disease” controversy, such as it was, gave this citizen a negative view of the NDP and he defended the West’s right to develop natural resources. Sadly for Ontario and Quebec he had the facts on his side that the natural resource sector was driving the Canadian economy.

The last point I couldn’t argue with. I have no intrinsic problem with the natural resources sector. Canada and her people should get whatever value we can out of our natural abundance. This is a particularly salient point here in the Northwest Territories. The entire economy of the NWT, as far as I can tell, is dependent upon the public sector and the natural resources industries. The shockingly obvious question is what happens to Canada when the market changes and these goods are no longer in such high demand, or, we run out. It’s as though our entire economy is predicated on very slow growing bubbles that no matter what we do are destined to pop.

It’s not as though we have not seen it before. Canada is littered with dead industry towns. The mine closed. The forestry moved on. The fishing quotas were imposed. The wells ran dry. I find it inexcusable that our entire economy should be driven towards industries that will ultimately cease to exist. I hate to sound like this type of lefty, but look at Europe, look at Japan. Japan has virtually no natural resources but has one of the world’s largest economies. Most of the European countries are also resource poor. Through a combination of manufacturing, and high services their economies are able to produce a very high standard of living. There is an asterisk there though, Norway has massive natural resource wealth from North Sea development.

I have not seen any obvious solutions. I am confident if there were any we would have heard them clearly articulated by now. It seems to me the big cities of Alberta have recognized that while the natural resources sector is very profitable it too may be fleeting. Therefore they have elected mayors who have promised to invest in their cities to improve the quality of life and turn natural resource wealth into a sustainable service and knowledge economy when it fades away.

In closing, I support the careful development of natural resources and stewarding them for the benefit of Canadians, but I would like to see some long-term thinking about what our country might look like when these resources are extinguished. Trying to predict and plan the economy is fraught with disaster, but more consideration for our ultimate destination is required at this juncture. We’re lucky that while our leaders in Ottawa preside over disaster some promising civic leaders are showing what can be.