What Was She Thinking?

The most in-depth glimpse into Premier Smith’s thinking on a range of critical public policy issues is contained in a 20-page paper entitled “Alberta’s Key Challenges and Opportunities.”  Smith’s paper was published in June 2021, before oil and gas prices rose and substantially changed the province’s fiscal outlook. What is surprising about the paper is the absence of a discussion of a sovereignty act and confronting a supposed federal overreach, which was central to her winning the UCP leadership.

In this blog, I outline and analyze her fiscal policy ideas and health-care proposals.

Fiscal Policy

Smith insists that Alberta does not have a spending or revenue problem. She identifies the problem as “not a lack of diversification in industry, the problem is a lack of diversification in the provincial government’s source of revenues, and a lack of innovation in the public service as a whole.”   Furthermore, she adds that “Alberta has built its operational spending for the vital services everyone needs — health, education, post secondary, social services — on volatile and unstable sources of funding.”

She goes on:

This is the fundamental conundrum of Alberta. We want gold-plated services and we don’t want to pay more taxes for them. Politicians are to blame for maintaining the fiction that this was sustainable. Anyone who proposes an alternative to raise taxes — the sales tax is the most obvious source of long-term revenue the province could adopt to solve this structural shortfall  — it is instantly shot down by politicians fearing they won’t be re-elected (p. 6. Emphasis added).

She concludes that Alberta can’t balance the budget on resource revenue or tax increases alone. In a sharp departure from Kenney-Toews’ fiscal policy, Smith believed revenue increases of roughly $8 billion a year and spending cuts of $4 billion would bring the structural deficit to heel.

A key ingredient to fiscal sustainability, according to Smith, is managing resource revenues more effectively (pp. 7–11). Alberta must bite the bullet and accept advice delivered to past Conservative governments (Financial Management Commission, 2002; Premier’s Council on Economic Strategy, 2011) to transfer only a small portion of royalties in operating budgets while seeding a revitalized sovereign wealth fund (i.e., the Heritage Fund). She also wants the province to be in a position to generate $4 billion in investment income from a new wealth fund.

Smith back tests her idea. Starting with data from 2008-09, she uses her proposed budgeting rule limiting annual royalty transfers to the operating budget to $2 billion a year, with the excess split 50-50 between capital investment and long-term savings. She estimates that had her rule been followed, the new fund would have reached $65 billion in fiscal year 2024. She observes that compound interest “is deadly when you are in debt and it is working against you. Compound interest is a miracle when you have savings and it is working in your favour.”

Analysis

Smith is correct in her diagnosis that the deeper problems in Alberta’s finances are the government’s over-reliance on volatile resource revenue, the failure of past Conservative governments to stick with a savings plan, and the need for Albertans to pay more in taxes.

During the UCP leadership campaign, Smith was attacked by her opponents for proposing a sales tax. She dismissed her Postmedia article (entitled “Alberta is a financial disgrace. We need to hit the reset button”) as past musings, accusing her opponents of a smear tactic. Now as premier, she has a responsibility to take on those cautious politicians in her party and convince Albertans that her 2021 policy paper was not just musings but what she actually thinks. Perhaps the current windfall of oil sands royalty revenue changes everything. On the other hand, the great reliance on the Big Four oil sands producers underlines Smith’s very point — Alberta must get off the fiscal rollercoaster and a sales tax is the obvious choice.

I was rather surprised to find Smith’s fiscal policy analysis and recommendations to be eerily similar to arguments found in A Sales Tax for Alberta- Why and How, a volume I recently edited. The fiscal conundrum Smith speaks of is addressed in chapter 3 of the sales tax book. This conundrum is deeply rooted in the province’s political and economic history. From the creation of the province, a type of Alberta exceptionalism arose which was a myth about unbridled opportunities, risk-taking, and the belief that the future would look after itself. This meant that public services which Albertans wanted right now such as roads, irrigation canals, railroads, and telephones were largely financed by borrowing. The tendency to borrow was mainly due to Albertans’ deep hostility to taxes. For example, when the newly elected Social Credit government introduced a sales tax in March 1936, business opposition soon mounted and the government backed off within a year and a half of its introduction. This time period corresponded to when Alberta defaulted on its public debt. Alberta’s fiscal history stands out among Canadian provinces for two reasons: Alberta is the only province to default on its debt and the only province that currently does not have a sales tax.

Time will tell if this will hold true, but now that Smith has been elected as the leader of the UCP (and thus the premier of Alberta), it appears that her thoughts on fiscal policy may have changed from those in her June 2021 paper. She may now fall into the class of “politicians fearing they won’t be re-elected.” With the fall session of the Alberta legislature having just opened and a spring budget only a few months away, Albertans won’t have to wait long to see how Premier Smith directs the province’s finances.

Health-Care Policy

Smith’s disavowal of her June 2021 writings on fiscal policy differs from her political pursuit of radical health-care delivery reform. She frames her arguments in terms of bringing in user fees and reengineering the delivery of service. She recommends a Health Spending Account, which featured prominently in her campaign for the UCP leadership.

She begins her analysis by saying the province’s goal should be establishing a “patient-centric” system. As outlined in her campaign, she believes a health spending account would unlock innovation in the system. Smith’s argument is that patients choosing where to allocate their health-care dollars will result in less demand on the hospital system and better chronic-care management, and thus the province’s health-care costs would be reduced (p. 7).  

Smith recommends that the government match individual and employer contributions with a $375 per year Health Spending Account. She asserts that once Albertans “get used to the concept of paying out of pocket for more things” the conversation on health care will change from “what services the government will delist ...to what services are paid by government and what are paid out of your Health Spending Account.” Smith believes it is better for individuals to make their own decisions about what health providers to use.

Smith also wishes to redefine the notion of universality: “Universality must mean that no one is denied care when they need it and no one should face bankruptcy because of medical bills. Full stop. It does not mean that we must maintain a system of arbitrary rules for what you must pay for out of your own pocket and what government must pay for exclusively on your behalf” (p. 13). According to Smith, once the Health Spending Account is accepted, “then we can also establish co-payments.” Co-payment, presumably for publicly-funded services, “doesn’t need to be onerous, say $500.” With all this in place, Smith guarantees “business and non-profits will step up.”

Smith further claims that bureaucracies are “terrible at finding efficiencies.” Her solution to cut public spending is to promote “charter hospitals” which are publicly funded but privately delivered. Smith imagines her charter hospitals will usher in a golden age of medical care where expertise and entrepreneurialism translate into a “world of opportunity.”

She relies on Janice MacKinnon’s advice that Saskatchewan’s experiment with privately-run surgical centres has reduced waiting times. Smith believes that employees in privately-run surgical centres and hospitals will have better work experiences because they will have more choices of employers. As she puts it — “if you don’t like your work, the only option is to leave the profession. Having multiple service providers allows for the creation of multiple creative environments that will be better for patients and staff alike.” 

Analysis

There is a certain naivete to Smith’s musings on health care and the promise it holds for taxpayers, employees, and health entrepreneurs. Old shibboleths like “bureaucracies are never good at finding efficiencies” are of course applicable to large private corporations or not-for-profits as well. Her willingness to experiment is courageous but it will stir up problems in a complex system beset by under-staffing, poor pay and working conditions, and low morale.

Smith will face what she will undoubtedly label “entrenched interests” such as health-care unions, physicians, and public health advocacy groups. The recent appointment of Dr. John Cowell, an experienced health-care septuagenarian, means Smith is indeed serious about reform. Conservative thinkers tend to believe that less politics is better than “political interference” in health-care administration. However, Smith has done more to politicize the health system in the past two months than most premiers do in four years. There are now three people that count in Alberta’s health-care strategy and two of them are politicians (Premier Smith and Minister Copping).

Smith’s ideas were immediately attacked by the opposition.  But as the NDP’s previous health minister Sarah Hoffman declared when she took the health portfolio, policy decisions over health care delivery are inherently political. Politicians never escape the wrath of constituents when problems, particularly systemic problems, emerge.  Elected politicians are ultimately accountable, not boards or administrators.

Private delivery of public health services, such as laboratory services, is problematic. As Rebecca Graff-McRae argued in a recent Parkland study, claims that private delivery of provincial laboratory services is less expensive are contradicted by AHS’s own internal analysis. Furthermore, the UCP plan may negatively impact residents in rural areas who may be forced to drive further for tests.

Many Albertans may recognize that more money is not going to solve the health-care crisis. The country faces epidemics of obesity, opioid use, poor health care for First Nations, an ongoing pandemic, and ideological warfare over health care. Smith may want to break the real or perceived doctors’ monopoly in controlling access to the health system. Her policy prescriptions will also confront public-sector unions fearful of job loss and privatization of more services.

Oddly, as we enter the red zone before the May 2023 election, the UCP is championing itself as the party of disruption, while the NDP represents the party of stability. Buckle up!

 

- This blog is based on a post from Ascah’s Abpolecon.ca of November 12, 2022.

- Photo on top banner and homepage slider from Government of Alberta’s Flickr page, licensed under Creative Commons (image cropped and background removed on slider).