Issues

There’s a bust coming to Alberta, but are we ready for it?

Ricardo Acu�a / http://parklandinstitute.ca

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As the bottom begins to fall out of the US economy, and indicators are showing that the Canadian economy is not far behind, we are reminded again that booms don’t last forever.

Those of us who lived in Alberta in the early ‘80s know that all too well, and we are no longer asking whether there will be a bust, but rather when will the crash come, and how bad it will be.

As the folks responsible for the overall well-being of our economy and province, one would expect that the provincial government would also be aware of this, and exploring whether they have done everything possible to extend our current prosperity as long as possible and to minimize the negative effects that the inevitable bust will bring with it.

Unfortunately, however, all indications are that the provincial government is woefully unprepared on both these fronts, and unwilling to take the necessary steps.

In terms of extending the good times as long as possible, the government’s refusal to get involved in the economy in any way almost guarantees a shorter boom than we would have otherwise.

The all-out drive to get our bituminous sands out of the ground and south of the border as quickly as possible has resulted in an overwhelming concentration of investment in one sector over a short period of time. Beyond the stresses that this puts on our province’s infrastructure, government services and housing, it also drives up inflation and makes the costs of the individual projects that much higher. This says nothing of the horrific environmental costs that comes with this pace of investment.

A moratorium on new projects until our economy, infrastructure and environment have a chance to catch up, followed by a very clear one-project-at-a-time policy after that would do wonders for the longevity of our boom.

This intense concentration of investment has been almost exclusively construction-related and in the energy sector. This is what is causing the worker shortages that the province has been facing for the last three years.

The province’s refusal to insist that Alberta bitumen must be upgraded and refined in Alberta has meant that instead of long-term value-added jobs being created in Alberta as a result of this oil boom, they are being created in the United States. The obvious question is, if we’re not creating long-term jobs, what will happen to all the people currently employed in construction-related projects when those projects are finished being built?

Demanding that Alberta bitumen be upgraded and refined in Alberta, as Mr Stelmach promised to do during the Conservative party leadership race that brought him to power, would not only help extend the life of the boom beyond the current construction phase, it would also help ensure that there are at least some jobs in Alberta once the economy does slow down.

And it is inevitable that the economy will slow down. One of the ways that visionary governments manage the boom-and-bust cycle is through counter-cyclical spending. This means that when economic times are bad, the government invests in infrastructure and public works projects to help spur growth. Then when the economy is strong, government pulls out of the economy entirely to avoid overheating it entirely.

Alberta’s obsession with deficits and debt, however, meant that when our economy slowed down in the early ‘90s, the government made it worse by not investing in infrastructure and decimating health care, education and government services. Now that the economy is going great guns, the government is adding to inflation and worker shortages by investing in major infrastructure projects.

By holding off on all but critical infrastructure until after the boom, the provincial government would help ensure, again, that there are still well-paying jobs available even after the economy slows down and we start moving towards a bust.

As we approach provincial budget day, it is also important that the government consider how to get its own financial house in order. Today, over 30 per cent of the government’s revenue comes from non-renewable resource revenue. As we know from recent history, these revenues are volatile and unpredictable, and dependent entirely on the fickle whims of an international marketplace. If people decide they don’t want our dirty oil any more, or the bottom falls out of prices, then the government stands to lose almost a third of its revenue. This is not a healthy prospect.

Any government’s most stable and reliable source of income is from its tax base, both corporate and individual. Just returning to the tax structures and levels that existed in Alberta in 2001 would bring in over two billion dollars more a year in stable and predictable funding. A government interested in shielding its finances from an eventual downturn would take immediate steps to reform the province’s structure.

The government would also then be free to stop spending our natural resource money as it comes in, and could instead save it for the future. By putting our natural resource revenues in the Heritage Savings Trust Fund and investing it wisely, the interest generated would eventually provide the government with an additional secure and predictable source of income which would, at the very least, help cushion the effects of the impending bust.

None of these policies are in the realm of rocket science, and none of them are particularly radical. In recent months, many of them have actually been endorsed by right-wing and left-wing pundits alike. But the window of opportunity to put them into place before the economy begins a downward trajectory is quickly shrinking.

If the government does not begin taking action on these fronts in the near future, then our current boom will be over much sooner than it needs to be, and our imminent crash will be much harsher than necessary. Albertans understand this, and now, as the government prepares its provincial budget, is the time for you to call your new MLA and let them know that they have tools at their disposal to ensure our long-term well-being. And that ultimately, that is what their job is all about. V

Issues

There’s a bust coming to Alberta, but are we ready for it?

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