Alison Redford call with supporters ruled out income tax increase but little else
By Bruce A Stewart
The fiscal noose is tightening around Alison Redford and the Alberta government, and with the March 7 budget looming on the horizon it’s getting to be time to start putting rumours to bed (while floating a few trial balloons).
Last night’s mass phone call for supporters of the Progressive Conservative Association of Alberta gave Redford her opportunity to do just that.
Thirty per cent of the revenue side of the Alberta provincial budget is from royalties, the vast majority of which comes from oil. No other Canadian province has as much of its budget tied up in a source held hostage to the price the market actually pays for something on a day to day basis.
Prudence would dictate planning for a low price and running surpluses when you do better.
Prudence and politics seldom go hand in hand. Indeed, political needs often punt prudence to the back to the closet, buried under a pile of work boots, never to be seen again.
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Alison Redford blames falling oil prices
In a year where the world (Brent) price of oil has averaged above $100 per barrel, Alberta’s been getting average prices well below that. The WTI benchmark used in the US and Canadian domestic market hasn’t been averaging above $100, or even the $97 used in last year’s Alberta budget.
More like a running average of $64 now, and still falling, as the oil lake in the clearing house at Cushing, OK, continues to build up.
At the same time, Alison Redford is dealing with an infrastructure — schools, medical facilities, transport — deficit from the lean years of $10 oil a decade ago (and the wrestling to the ground of Alberta’s deficits from the Getty years and the accumulated debt), in a province that has added 35 per cent to its population in the last fifteen years alone.
In the call, Alison Redford ruled out raising income tax rates. More important, although she suggested it was a last resort, not a first resort, she didn’t rule out creating a provincial sales tax (Alberta being the only province in Canada without one).
The political price for a sales tax would be huge, but it is the move needed to regulate Alberta’s budget woes. (If Redford was smart, she’d take the pain for implementing it now, when she has three years until the next election, she’d harmonize it with the GST, to collect on services as well as goods and give Alberta small business input tax credits as tax relief, and she’d require that the Alberta HST be included in prices, so that “what you see is what you pay” at the till. Don’t expect any of that to happen.)
What Redford also said was that until her government showed Albertans it had taken as much waste and overspending out on its own, it couldn’t ask for more in taxes.
Politicians love to point to “waste”. Much like “productivity in the office”, capturing it in a meaningful way is hard to do. (Example: six people work in a government office in a small town. We find a way to save fifteen per cent — which is a lot, far more than can usually be found. But that’s still not enough to go from six people to five, which is the only way to realistically capture it.)
Alison Redford did point to doctors — some $3.4 billion of the province’s health care expenditures, currently in negotiation over future rates, and already the country’s highest-paid — as a place to draw a line in the sand. She also mentioned civil service layoffs.
Provincial sales tax not ruled out
But, like it or not, taxes need to be raised to solve Alberta’s fiscal woes, until Alberta can reach global export markets with its resources. (It is in neither the interests of the big privately-owned oil companies and processors, nor the United States, to do thing one about relieving the bottleneck in Cushing that suppresses what is paid for Alberta oil today.)
Redford is already increasing taxes, of course. It goes by the name of debt.
Governments using debt to build infrastructure is fine, especially if that infrastructure helps build the economy beyond what would have happened in turn. (Debt accumulated to pay operating costs, or to build things that don’t improve the economy, on the other hand, is exactly equivalent to maxing out the credit card for a holiday — fun at the time, a drag on the year to follow.)
Deficit spending accumulates debt. Bonds issued explicitly to finance initiatives accumulate debt. The budget, in turn, accumulates a line item called “interest payments” (and in a prudent government, “capital repayment”, although you may remember prudence is in the back of the closet these days).
Future tax revenues, in other words, are diverted to debt service, rather than paying for programs, services and infrastructure expansion and maintenance.
So borrowing (or failing to balance the books) is a form of deferred taxation. Albertans, your taxes are going up, whether you like it or not. (Might as well suck it up and get something that works for you rather than against you out of it, eh?)
It’ll be dead easy for Opposition Leader Danielle Smith and her Wildrose Alliance colleagues to point the finger over this. It’ll also be disingenuous (they, too, keep prudence locked in the back of the closet).
Alberta’s problem isn’t (as Alison Redford said) a lower than expected price for oil. It’s being so dependent upon it to the exclusion of obvious measures to regulate public finances.
Until Alberta’s politicians tackle the real problem, this “crisis” will continue to savage Alberta’s growth.