Dec. 15, 2010 - Issue #791: NYE Guide 2010
Issues
The other side of the equation
Fiscal update reveals a refusal to talk about changing provincial revenues
Last month, while the province was caught up in controversy and daily news stories around health care in Alberta, the government very quietly released its second quarter fiscal update. Because of the focus on cookies, firings, health superboard resignations and legislature filibusters, the update went largely unnoticed by the media. Unfortunate, as the financial numbers—and the government's explanation of them—reveal much about this government's priorities, and the likelihood that all of its grand visioning in areas like health care and education will actually lead to any positive change on the ground.
The bottom line in the fiscal update is a jump in the projected deficit for the year from the $4.75 billion anticipated in the budget to $5 billion—an increase of $250 million.
In his attempts to explain the growing deficit to the media, Finance Minister Ted Morton focused on two things: unforeseen spending on disasters and emergencies, and an unreliable revenue stream.
In the first instance, what Mr Morton is referring to is a projected increase of $534 million for disaster and emergency assistance for municipal flooding, wildfires, the agricultural sector and mountain pine beetle. Although it's true that this is the largest variation from the budget on the government's expense sheet, and that the government has no control over the line item, it's somewhat disingenuous for the finance minister to single this line item out as a key reason for the growing deficit.
The reason for this is that there's an increased expense that's even more significant than this one buried on the revenue sheet. This is where the government places the cost of what it calls "drilling stimulus initiatives"—royalty breaks to the rest of us. The second quarter fiscal update projects that these royalty breaks will cost us $788 million more this year than originally budgeted. That's an increase of more than 100 percent from the budget released earlier this year, bringing the total cost of royalty breaks to a whopping $1.5 billion. Funny that we're giving away $1.5 billion of royalty money to the oil and gas sector, yet the government points to spending one third of that on emergencies and disasters as the only problem with the province's expenses.
The other interesting part of Mr Morton's explanation of the deficit is his acknowledgment that there is a problem with the province's revenue stream. Personal income taxes are now projected to bring in $1.1 billion less than originally budgeted and, despite more than doubling the cost of drilling incentives, natural gas and conventional oil royalties are still projected to bring in almost $300 million less than budgeted. There's no question that there is a serious problem with the province's revenue stream.
What makes Morton's recognition of this problem interesting, however, is his absolute refusal to do anything about it. The press release that accompanied the fiscal update quotes the finance minister as saying, "We will continue to control what we can and we are resolved to getting back in the black in 2012 – '13." But this statement is also misleading.
What he means is that the province will continue to control what it can on the expense side of the financial statement. "We're keeping a cap on expenditures," he told the media, but made no mention of taking any action on the other side of the financial statements: the province's revenues.
The implication is that the government has no control over anything on the revenues statement, but nothing could be farther from the truth. We're one of the only jurisdictions with a flat tax structure, which a recent Parkland report showed is costing us in excess of $5 billion per year. Another recent Parkland study showed that the government's failure to meet even its own modest targets for revenue collection from the oil patch is costing us between $5 and $10 billion annually. That's in addition to the $1.5 billion in current royalty breaks. Yet somehow, Mr Morton continues to insist that the government has no control over either our provincial tax rates or our royalty rates.
The government's refusal to do anything about the province's revenue issues can only mean one of two things: either the government does not realize that it actually has more control over the province's revenue than it does over expenses, or it's being led exclusively by blind ideology to ignore revenues and starve public services. Either way, it is hard to fathom how anyone who can so fully ignore one side of a balance sheet can claim to be fiscally responsible. And either way, the attitude towards the province's finances makes clear that all the government's grand statements about improving health care and education in the province are simply not true, as it has no intention of raising the money necessary to make those things happen. Isn't it time we got a government in there that is not blinded by ideology and truly understands how to manage our finances in the public interest? V
Ricardo Acuña is the executive director of the Parkland Institute, a non-partisan public policy research institute housed at the University of Alberta.
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