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Cutting Through the Blue Ribbon

A Balanced Look at Alberta's Finances

Cutting Through the Blue Ribbon

The release of the Janice MacKinnon-chaired Blue Ribbon Panel report by the Kenney government confirms concerns that the panel’s limited mandate—to provide advice on balancing the budget, but concentrating only on expenditures, and with no increased taxes—would prohibit a full examination of bigger issues of balance or long-term fiscal sustainability. Due to its intentionally limited scope, the MacKinnon report falls short of providing the government and Albertans with the information necessary to make sound financial decisions about the province’s current situation or to plan for the future.

Countering much contained in the MacKinnon report, this report lays out for Albertans a more balanced assessment of the province’s finances.

The report shows that Alberta’s economy remains strong. Real GDP and GDP per capita growth remain positive. Labour force participation rates, employment rates, and wages remain above the Canadian average. In the long-term, Alberta’s economy will likely regress to the Canadian average, resulting from a decline in the price of non-renewable resources, upon which the Alberta economy for too long has been over-reliant. Nearly every concern facing Alberta’s finances flows from this dependency.

Alberta does not face a “critical financial situation” resulting from public expenditures. Though caution is warranted, Alberta currently has a manageable debt. This report shows that, compared to Canada and its three largest provinces—Quebec, Ontario, and British Columbia—Alberta’s expenditures are not out of line. Public sector wages are commensurate over time with those found in these other jurisdictions for educational services, health care and social assistance, and public administration—the three industries that hold the vast majority of public employees and the ones that are likely to come under the most scrutiny in any cost-saving exercise.

Alberta’s real difficulty in balancing the books lies in its anemic tax effort. 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. The hole can only be filled through a mix of various tax measures. Fortunately, Alberta has enormous tax room to meet this need, while still being able to boast a multibillion dollar tax advantage over other Canadian jurisdictions.

There are two ways to balance the books and thus eliminate debt: either through cuts to expenditures or through increases in revenues—or, of course, a balance of both.

The report suggests two remedies for Alberta’s fiscal ailments. First, a gradual weaning of Alberta politicians and the public away from resource revenues to fund ongoing expenses through a combination of tax increases to foster revenue stability. Second, in order to fill the revenue void, the adoption specifically of a provincial sales tax, preferably harmonized with the federal GST.

The time is long overdue for a rational, balanced, and fact-based discussion with Albertans about the province’s financial circumstances, wrapped neither in celebratory nor “blue” funereal ribbons, just hard truths. Through good fortune, Alberta is a wealthy and much-blessed province, but we can do better. The time is now.

ISBN: 978-1-894949-67-5

Trevor Harrison

Dr. Trevor Harrison is director of Parkland Institute. He is a professor of sociology in the Faculty of Arts and Science at the University of Lethbridge, and associate director and research affiliate of the Prentice Institute for Global Population and Economy.

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Richard Mueller

Richard E. Mueller is professor in the Department of Economics at the University of Lethbridge, academic director of the Lethbridge Branch of the Prairie Regional Research Data Centre, and associate director of the Educational Policy Research Initiative at the University of Ottawa. Dr. Mueller holds a BA (Honours) and an MA from the University of Calgary, and a PhD from the University of Texas at Austin. He taught at the University of Maine before joining the University of Lethbridge in 2000, and was seconded to Statistics Canada from 2009 through 2011.

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Bob Ascah

Robert L. (Bob) Ascah holds degrees in Commerce and Public Administration (M.A) from Carleton University. He began his working career in 1976 in the Office of the Auditor General of Canada. He moved to Edmonton in 1979 and completed his doctorate in political science at the University of Alberta in 1984. He joined the Alberta public service in 1984 (Federal and Intergovernmental Affairs) and moved to Alberta Treasury in 1986. At Treasury he was responsible for financial sector policy, foreign borrowing, and liaison with credit rating agencies. In 1996, he joined Alberta Treasury Branches and was responsible for government relations, strategic planning, and economic research. In 2009, he retired from ATB. In August of 2009, he was appointed director of the Institute for Public Economics at the University of Alberta, where he served for four years. In 1999, Ascah's Ph.D. dissertation, Politics and Public Debt—The Dominion, the Banks and Alberta's Social Credit was published by the University of Alberta Press.

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