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Alberta's perpetual fiscal crisis will never be fixed without revenue reform -- so get used to it

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Alberta Minister of Finance Travis Toews and Premier Jason Kenney. Image: Premier of Alberta/Flickr

Even real conservatives, if such a species exists anymore, know something's gone awry with Alberta's fiscal setup and that part of the solution's on the revenue side.

The fact we've not faced up to this is why Alberta is so vulnerable to the unavoidable volatility of the fossil fuel market. Now our new United Conservative Party government is hell-bent on making things worse.

But first the backstory:

Progressive Conservative premier Ed Stelmach certainly understood this. To his credit, he even tried to do something about it. But he failed to introduce modest increases in resource royalties when the Wildrose Party succeeded at the mission it was given when it was bankrolled by the oil-and-gas drilling sector.

After Stelmach came Alison Redford, who campaigned as if she understood and governed as if she didn't. This was a disappointment but not much of a surprise. Dave Hancock, who succeeded Redford as a caretaker for the PC dynasty, certainly did, but didn't do anything. In his defence, he had other fish to fry.

His successor, Jim Prentice, did too. He announced he would kill Ralph Klein's 10 per cent flat tax and implement a modestly progressive tax system. It might not have been sufficient to solve the problem, but it was a toe in the water.

Weeks later, though, Prentice lost the election he called a year too soon. In 2015, the New Democrats led by Rachel Notley rode into power with a strong mandate for social democratic reform and a comfortable majority. In its first budget, the NDP introduced a progressive income tax increase similar to the one planned by Prentice, and added 2 per cent to business taxes.

Soon after, though, the NDP introduced a carbon tax that economists, environmentalists and the biggest oil companies liked, but ordinary Albertans hated even though it wasn't onerous enough to accomplish very much.

Alas, the carbon tax gave cynical conservatives -- who, after all, came up with the idea -- an effective stick with which to beat the NDP out of office.

The tragedy is that the NDP, which had a mandate to act, was so timid about making the fixes to tax policy Alberta needed to get off the proverbial perpetual petroleum price rollercoaster.

Now we're not only still stuck on the rollercoaster, but we are governed by an extremist party (for all practical purposes, Wildrose 2.0) led by Jason Kenney, who appears determined to use the province's vastly exaggerated financial crisis as an excuse to privatize health care, education and other public services, attack workers' rights, and to cater to the anti-LGBTQ and anti-women's-rights instincts of his party's Bible Belt base.

Like the NDP in 2015, the UCP has a strong mandate to implement its program. Unlike the NDP, however, it appears to have the intestinal fortitude to do so. This will not be good for Alberta.

To gin up the sense we're in the midst of a potentially apocalyptic financial crisis, the UCP created a "blue-ribbon" panel, led by Janice MacKinnon, a disgruntled former NDP finance minister from Saskatchewan with thwarted leadership ambitions. She and the other panel members were handpicked to deliver the justification for the UCP's neoliberal agenda, parts of which are bound to be wildly unpopular. A week ago, the panel did just that.  

Now, the Edmonton-based Parkland Institute has published what it calls an "alternative blue-ribbon report." The Parkland report, released yesterday, "shows that Alberta's economy remains strong," its summary says. "Real GDP and GDP per capita growth remain positive. Labour force participation rates, employment rates, and wages remain above the Canadian average."

Ergo, there is no immediate crisis resulting from public spending.

"Alberta's real difficulty in balancing the books lies in its anaemic tax effort," the Parkland report states. "Alberta's coffers fall consistently short of what is necessary to pay for important public services which Albertans value and expect. In past decades, the revenue hole was filled by non-renewable resource revenues, primarily bitumen, oil, and gas. But those days are gone, and unlikely to return."

Of course, the Parkland Institute examined the province's full fiscal situation and then offered the obvious recommendations, whereas the panel led by MacKinnon was instructed to ignore the entire revenue side of the province's fiscal situation, which no matter how hard you believe Alberta has only a spending problem, makes no sense.

But while the Parkland Institute certainly offers a more balanced look at Alberta's true fiscal picture than the MacKinnon panel did, as well as proposing solutions that are more sensible, even from a truly conservative perspective, it sure has the sound of a barn door slamming shut after the horse has run away.

The Parkland report's conclusion: long-term fiscal stability in the province simply cannot be achieved without addressing Alberta's long-standing revenue problem. "Our recommendation, echoed by many economists and policymakers over several years, is that Alberta adopt a provincial sales tax," its three authors state.

By now, of course, everyone in Alberta who has been paying attention knows this is true -- even Finance Minister Travis Toews and his boss Kenney, I'd wager. Indeed, MacKinnon herself seemed to recognize this, judging by how she couldn't keep herself from yakking about the revenue side in the report and subsequent news coverage.

The UCP will do nothing of the sort, of course, because it has another agenda, which will be assisted by the intentional fiscal crisis the government is creating by cutting $4.5 billion out of tax revenues and allowing no consideration of any way to deal with that other than making painful cuts.

Indeed, if there were a regulatory college for professional economists, a couple of members of the panel could be charged with misconduct for even participating in such an sham! MacKinnon, of course, would be off the hook. She's a historian, not an economist.  

So the Parkland study revealed -- unsurprisingly, since it is so obvious -- that Alberta is not in a "critical financial situation" requiring deep cuts to spending on public programs.

Said Parkland director and study co-author Trevor Harrison, a Lethbridge University sociology professor, in the news release that accompanied the study: "Most of the issues of concern revolve around over-dependence on a single commodity … that has contributed for years to rollercoaster budgeting."

On the expenditure side, the situation isn't nearly as dire as the MacKinnon panel makes it out to be. "The data show that the size of the public service in Alberta relative to total employment is smaller than the Canadian average, smaller than both Ontario and Quebec, and only slightly larger than in British Columbia," said co-author Richard Mueller, a U of L economics professor.

Let's give the last word to the study's third co-author, Robert Ascah, a fellow of the Institute for Public Economics at the University of Alberta: "The causes of Alberta's failure to face up to its fiscal problems are many, but chief among them is a failure of political leadership," he said.

"Albertans simply can't keep pretending the revenue side doesn't exist," he said. "If resource revenue is excluded, Alberta hasn't run a surplus in any fiscal year since 1965, so it is incumbent that Alberta governments look at other sources of revenue to tap as the long-term future of fossil fuel extraction grows dimmer."

It's impossible to argue with Ascah's observation. Sadly, it's also impossible to believe anything will change.

David Climenhaga, author of the Alberta Diary blog, is a journalist, author, journalism teacher, poet and trade union communicator who has worked in senior writing and editing positions with The Globe and Mail and the Calgary Herald. This post also appears on David Climenhaga's blog, AlbertaPolitics.ca

Image: Premier of Alberta/Flickr

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