This op-ed by Parkland Institute director Trevor Harrison appeared in the Lethbridge Herald on May 15, 2019.
The announcement by the newly elected UCP government of a “blue ribbon” panel to examine Alberta’s finances was totally expected. Likewise, the panel’s mandate to focus on expenditures and not revenues (or both) comes as no surprise. The panel’s chair, Janice MacKinnon, a former Saskatchewan NDP finance minister (1993-97), has said that, in tackling that province’s finances at the time, she “laid the facts before the people.” One may hope, if vainly, that such will be the case in Alberta.
The panel’s mandate has already tied one hand – the revenue hand – behind its back, leaving only the expenditure hand with which to deal with what Premier Kenney has said is Alberta’s “deep fiscal hole.” But the depth of this hole is unclear. An analysis of Alberta’s finances conducted by economist Mel MacMillan last fall suggests the province’s economic situation is not dire. While he points to some warning signs – notably that oilsands investment, upon which the provinces has too heavily relied, is declining – MacMillan contends that Alberta’s economy will continue to experience moderate but slower growth in future.
Contra the driving theme of the government’s panel, MacMillan contends that Alberta has “mostly a revenue problem.” MacMillan shows that, in real dollars, per capita program expenditures in Alberta were the roughly same in 2018-19 as in 2008-09 (about $12,000). In fact, program expenditures as a percentage of household income have not risen since 2000, and are low relative to other provinces. Despite MacKinnon’s claim that, “Relative to the rest of Canada, this [Alberta] is a big-spending province in virtually every area,” MacMillan shows that since 2000 Alberta’s per capita expenditures have essentially been equal to the average spending levels of the 10 provinces.
Figures from the Royal Bank of Canada bear out MacMillan’s analysis. RBC data show that for 2018-19 Alberta has the lowest net debt-to-GDP ratio in Canada, eight per cet versus British Columbia, the next highest, at 14.8 per cent. Alberta’s expenditures relative to the other provinces are not “eye-popping” as stated by MacKinnon in her first comments after the panel was announced. Measured as a percentage of GDP – which reflects spending relative to the size of the economy – the RBC data shows that Alberta’s expenditures are in fact the lowest in Canada, 16.1 per cent for 2018-19 versus Saskatchewan, the next highest, at 17.9 per cent.
Again, as MacMillan argues the evidence suggests that the major factor bedeviling Alberta’s fiscal situation is revenues. For 2018-19, Alberta collected 14.1 per cent relative to GDP compared to the next highest province, Saskatchewan, at 17.4 per cent – the biggest difference in the case of MacKinnon’s old stomping grounds being that province’s 11 per cent harmonized sales tax. In fact, Alberta collects roughly $11 billion less in taxes than Canada’s next highest taxing provinces, British Columbia and Saskatchewan.
As MacMillan shows, and as similarly argued by Ron Kneebone and other economists, Alberta’s fiscal difficulties reflect a continued over-reliance upon resource royalties to fund necessary programs, with the result that the economy’s boom and bust is mirrored by a pattern of boom and bust on public expenditures. It’s a problem that the NDP, like governments before it, failed to address.
This pattern is not accidental, however. It is the result of bad policy choices made by past Alberta governments to keep taxes low – thereby to maintain a chimerical “Alberta advantage” – while paying for public services with royalties from non-renewable resources.
A famous Zen koan asks, “What is the sound of one hand clapping?” The panel’s mandated approach of tackling Alberta’s fiscal picture with one hand tied behind its back provides in the case of Alberta an answer: It is the sound of severe – and unnecessary – cuts to education, health, social services and other programs.