Mar. 02, 2011 - Issue #802 : Education 2011
Issues
Confused business model
The Alberta government misses the revenue analysis yet again
Every year at budget time Alberta's conservative politicians trot out the same mantra: responsible fiscal management means that government finances should be run pragmatically, like you would run a business.
It's hard to argue with this sentiment, until you look at how they implement the mantra.
In every budget commentary I've seen thus far from these folks, including the government's own defense of the budget, their exclusive focus is on how much the government is spending and on what. The government boasts that spending has been maintained, and the right wing opposition argues that spending is out of control.
Yes, there has to be much attention paid to what government is spending, as this is what determines what types of services, programs and infrastructure we will have available to us. But to what business does "responsible fiscal management" mean dealing only with the expenditure side of the financial statement and ignoring revenues?
Here's what it looks like in Alberta. We're one of the wealthiest jurisdictions in North America. The price of oil, our primary resource, has skyrocketed over the last year and is currently pushing the $100 mark again. Albertans enjoy the highest average weekly earnings in the country, and oil companies are generating record profits. With all of these advantages, you would think that Albertans would be enjoying gold-plated public services, world-class infrastructure, and a hefty provincial savings account.
The sad truth, of course, is quite different. We are instead looking at a $3.4 billion deficit, a savings account that's all but gone, public services that yield middle-of-the-pack results compared to other provinces, and real dollar cuts to the budgets of those same public services.
You would think that, in light of this situation, all those self-proclaimed responsible fiscal managers on the right would be questioning why we're starving our public services in the midst of so much wealth, but they're not. The only solutions they are proposing are those which would further cut funding to public services and infrastructure, and not generate one extra penny in revenues.
Would any CEO really focus only on a struggling company's expenses without once stopping to consider that there might be a problem with the company's revenue stream? When the price of oil goes up, gas stations adjust prices at the pump immediately because they need the extra revenue to cover their expenses. When the price of building materials and labour go up, construction companies increase their prices to ensure they can still build quality structures while being able to cover expenses. But when the cost of providing public services goes up, these folks advocate cutting services, running deficits and burning through savings instead of adjusting revenues to cover those increased costs.
The really irresponsible part is that even a cursory analysis is enough to demonstrate that there is ample room to adjust revenues and remain competitive. When it comes to taxes, for example, the government itself likes to boast that tax revenues in Alberta are some $10 billion lower than they would be under the tax system of the next lowest province. In other words, we could raise anywhere up to $10 billion more every year in taxes and still be the lowest tax jurisdiction in the country.
In business terms this would be equivalent to BMW deciding to sell all their new cars for $10 000 a piece and losing millions, when the market would bear a price four to 10 times higher. Wouldn't someone who advocated running government like a business take this into consideration?
A similar situation exists in terms of oil royalties. With the price of oil going through the roof, and oil companies making record profits, the government has decided to make permanent an incentive program which cost us $1.6 billion in the 2010-2011 fiscal year alone. If you're keeping track, that's almost half of the deficit projected in the new budget. In other words, despite the fact that we already had some of the lowest royalties in the world, and despite the fact that there was no shortage of investment in Alberta's oil patch, the government decided that it would be prudent to give these incredibly profitable companies an extra $1.6 billion of our money—money that could have gone into savings, or toward eliminating the deficit, or toward properly funding health care and education, or some combination of the three. Instead, we will actually be generating less revenue from crude oil royalties in this budget than we will from gambling and liquor—way to use those natural resources for the good of province.
Once again, in business terms, we're selling off our most valuable asset at fire-sale prices despite growing demand and increasing value. How does that make good business sense or equate to responsible fiscal management? Don't ask the Wildrose Alliance—their entire existence is premised on the supposed need to avoid maximizing the return we get from our most valuable resource.
Yes, responsible fiscal management means working to maximize outcomes and minimize costs, but that's not all it means. It also means maximizing the returns you get from your assets and ensuring that your revenues are sufficient to at least cover your expenses. The fact that the Tories, Alliance and, increasingly, the Liberals don't seem to get this puts the lie to their pragmatism and shows that what they're really about is an ideological campaign to maximize corporate profits while the public interest and Alberta's future sustainability suffer. V
Ricardo Acuña is the executive director of the Parkland Institute, a non-partisan not-for-profit housed at the University of Alberta.
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