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Spending cuts and oil aren't a long-term fiscal plan

This op-ed by Bob Ascah, Trevor Harrison, and Richard Mueller appeared in the Edmonton Journal on October 11, 2019.

The recent column by Ben Eisen and Steve Lafleur contributes to an evolving debate on Alberta’s public finances. Unfortunately, discussions about public finances are about as popular as going to the dentist. The upcoming Oct. 24 budget will likely be as appetizing to most Albertans as that visit to the dentist.

But all Albertans have an interest in public finance as taxpayers, students, seniors, business owners, nurses or drilling-rig operators. We know “it” is coming — the budget. Premier Kenney has stated “just watch me” as he signals a harsh, austere budget. But will the bark be bigger than the bite? Rumours abound of 15-25-per-cent cuts. Dark days are forecast

As commentators who have suggested the provincial government must also examine its revenue structure, the opinion piece by Eisen and Lafleur was somewhat surprising. They state there is “a reasonable argument for the HST in Alberta.” Coming from the Fraser Institute, this admission is striking. However, the writers tied acceptability of the tax to making the HST “revenue-neutral” and not directed to deficit reduction.

The latter idea about revenue-neutrality is a common political tactic designed to make a new tax, or increases on existing taxes, acceptable. This concept was employed — apparently successfully — by B.C.’s Gordon Campbell government in 2008 when it introduced the country’s first retail carbon tax. The logic was to change consumer behaviour (higher gas prices) while lowering personal income taxes but not increasing total tax revenue. In Alberta, the Notley government defined “revenue-neutrality” differently. This meant more revenue coming into government coffers with some of the money redistributed to low-income people with the rest earmarked for renewable energy projects.

In our recent Parkland report, we argued that Alberta needs to improve its tax effort. We recommended the introduction of the harmonized sales tax (HST) at a level lower than neighbouring provinces, thereby not eliminating entirely Alberta’s vaunted tax advantage.

We also suggest that the extra revenues should provide some tax relief for those at the lowest incomes. This could be accomplished by raising the personal exemption, potentially eliminating tens of thousands from the tax rolls. This, in turn, would reduce financial pressures for those living on low incomes.

As an important side benefit, because those living on low incomes have a much higher propensity to spend their incomes on basic necessities such as food, accommodation, and transportation. Alberta’s retailers would also see a boost. Further, our paper suggests that to offset the cost of the GST for low-income households the federal GST tax credit be instituted when an HST is introduced.

We do not anticipate a sudden conversion by Premier Kenney or Minister Toews to a broader consideration of Alberta’s fiscal circumstances. As we laid out in the report, Albertans have been lulled into believing they were paying the full cost of their public services. Unbeknownst to most Albertans, it was the sale of non-renewable resources that was paying 10 to 40 per cent of the cost of public services since the 1980s.

In fact, data going as far back as 1965 show that were it not for Alberta resource revenue, the Alberta government never has run a budget surplus. Thus, past Alberta governments have always looked to the next boom to repay Canadian and foreign bondholders they borrowed from when oil and gas prices were depressed.

While Alberta’s economy is hardly a basket case, the difficulty is our planet either transitions in a just way from fossil fuels relatively soon or our species will become extinct. Unfortunately for Alberta there are no more oil, natural gas or bitumen rabbits to pull out of the hat. An energy war room is not a long-term strategy and neither is pretending we must only cut spending to bring back balanced or surplus budgets.

We hope that through engaging in public debate, (public consultation was sorely missing in the Blue Ribbon report), members of the public will speak up and learn that perhaps a “trip to the dentist” can be less expensive in the long term than waiting for the pain to go away.

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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