Alberta’s broken tax system needs work before the economy can truly get back on track
After weeks of the United Conservative Party (UCP) leadership candidate asserting that he would not be making any actual policy proposals during the leadership race, he appeared to change his mind during a social media town hall last week, when he provided some insight into what fiscal policy might look like under Kenney-led UCP government. That short bit of policy discussion, however, still resulted in a complete lack of clarity around what exactly he was proposing.
For those that missed it, Kenney responded to a town hall participant by asserting that, if he were to win the next provincial election, expected in 2019, he would balance the provincial budget in three years. When asked how we would accomplish that, Kenney stated that his formula included “sustained restraint in spending” and getting us “down more or less to British Columbia per-capita spending over time.”
Although both of these options sound fairly consistent with each other, and both would definitely mean Albertans receiving significantly less in terms of public services and infrastructure over time, there is actually a significant difference between how the two would play out.
The first half of the equation would see a Kenney-led government balance the province’s books by 2022/2023. To put that into context, Alberta Finance Minister Joe Ceci stated when presenting this year’s provincial budget that the NDP government would return the province to balance in 2023/2024. Both Kenney’s proposal and the government’s proposal rely on some degree of spending restraint and on some hope that royalty revenues will recover. The big difference comes in how much spending restraint would take place under each scenario.
Kenney’s proposal appears to rely on a complete spending freeze after 2019. Given inflation and Alberta’s expected population growth, this level of restraint would put serious stress on our health system, our education system, and our infrastructure. Results would likely be similar or worse to what Albertans experienced during the Klein years: overcrowded classrooms and emergency rooms, crumbling hospitals, roads, and schools, and absolutely no available jobs for new social workers, teachers, nurses, or doctors. According to U of C economist Trevor Tombe, the combination of this kind of freeze with about five percent growth in revenue after 2019 (which he calls not unreasonable), could definitely result in a balanced budget by 2023. The real question is at what cost.
Ceci’s proposal, on the other hand, would not involve a complete spending freeze, although spending would definitely not keep pace with population growth and inflation. It also relies on much more rosy projections for revenue growth, especially in non-renewable resources, between now and then. Public services and infrastructure would largely be protected, but reaching balance by 2024 would depend almost entirely on significant growth in royalty revenues.
It is interesting, and disappointing, that neither Kenney’s nor Ceci’s proposal for eliminating the deficit includes ensuring a proper revenue stream by working to get our taxes right.
The part that is truly concerning about Kenney’s statements of last week, however, is his parroting of the Canadian Taxpayers’ Federation (CTF) talking point that if Alberta spent at British Columbia per capita levels all our fiscal woes would disappear. Curr, ntly the difference between per capita spending in BC and Alberta is about 20 percent, or $2,700 per person in the province—exactly enough to balance Alberta’s books this year if we were spending at B.C. levels. The problem is that to get there would actually require eliminating about $10 billion worth of expenses. To put that into context, that’s about $2.5 billion more than the entire Alberta k-12 education budget is this year, and about as much as our advanced education, agriculture and forestry, children’s services, and community and social services budgets combined.
Closing that gap in spending would require far more than freezing spending in the province for three years. In fact, professor Tombe calculates that a three year spending freeze would barely cut the gap between our spending and B.C.’s by 50 percent. So if it truly is Kenney’s plan to get us down to B.C. levels of spending within three years, then Albertans can expect far more drastic impacts than anything we have ever seen before, including under Klein.
The other problem with the B.C. comparison is that it ignores some of the key factors behind the spending gap, like Alberta’s higher GDP, higher wages in both the private and public sectors, and higher number of school-age children. It also conveniently ignores the revenue side of B.C.’s budget, and the fact that if the Alberta government taxed at the level that B.C. does (including health premiums and an HST) we would collect some $8.5 billion this year alone.
Ultimately, whichever plan actually reflects what Kenney would do as Premier will mean significant impacts for the quality of our public services and infrastructure. It should also be crystal clear by now, however, that unless someone tackles our broken tax system, all plans to bring us back to balance are based on wishful thinking about the future of oil prices, and we’ve seen how well that has worked for us so far.