The United Conservative Party (UCP) launched a review of Alberta’s fiscal situation by appointing a panel of experts. The Panel is to come up with a plan to balance the budget by fixing a deficit of 7 billion dollars. And Panel has been given tough marching orders! It must not propose tax increases. It is to “find ways to eliminate waste, duplication and non-essential spending to fund government’s key priorities.”
So, as to waste and duplication… the Chair of the Panel is Janice Mackinnon, she brings some cost cutting chops from her days – 25 years ago – in Saskatchewan. In a 2017 publication she laid out her recipe to address Alberta’s budget deficit:
- Establish spending targets benchmarked to other provinces.
- Constrain wage and salary costs of the public service.
- Restructure programs, particularly health care.
- Grow the economy through corporate tax reform.
The UCP platform contains a healthy dose of ‘supply side’ economic theory. That theory holds that lower taxes and deregulation will increase the supply of capital, jobs, and wealth creation.
So on the revenue side…. Bev Dalby, panel member from the University of Calgary believes high taxes stifle government revenue generation. There is a concept called the the “Laffer Curve”. This curve notionally identifies an optimal corporate tax level that stimulates growth and optimal tax revenue. But if taxes go higher, growth is inhibited. Because low taxes allow companies to grow and high taxes causes under-investment or a move to a more competitive jurisdiction.
The UCP will reduce corporate taxes over four years or sooner.
At the same time they commit to maintain the health care budget and capital plan. But no new taxes and no carbon tax revenue.
This isn’t going to be easy!!!
- While it is helpful to benchmark spending in other jurisdictions; Alberta’s cost of living, and average wages are higher. Per capita government spending in Alberta is about $3,200 higher than Canada’s large provinces. ($800 -1,000 is health care). But health care savings are out of bounds.
- Thus the Panel could plan to bring the remaining 50% to an average of with other provinces. ($1,600 per capita or $6.9 billion) – that would magically eliminate the deficit! But wait! That means a reduction of the budget by 14% over the 3 years, with impacts to Education, Advanced Education and social programs. When you add in inflation and population growth, the reductions are deeper.
- For reference, the Klein era cuts which decimated public services were about 20% over a similar time frame.
- Constraining public sector costs won’t be any picnic either!
- The NDP pushed negotiations for major public sector unions out beyond the election, leaving a cost pressure pending. Here is what the UCP are up against:
- 7,000 non-union employees had salaries frozen since 2015.
- 23,000 provincial union workers wages were frozen to 2019.
- 10,000 physicians had fees frozen until March 2020.
- 28,000 nurses had wages frozen to March 2020.
- 19,000 health workers are frozen to 2019.
- 46,000 teachers have frozen wages frozen to 2019
Part of the solution the panel will seek is growing the revenue side
- The UCP platform proposed a reduction of corporate taxes as a stimulus for economic growth. There will be a short-term budget hit of about $400 million in 2020-21. And maybe the overall cost will be $1 billion.
- The hope is that corporate revenue will grow by an overall $1.2 billion by 2024. The UCP estimate 55,000 jobs will be created and $13 billion in GDP will be generated.
- But there is risk here. Of the roughly $60 billion in corporate capital investments annually, almost half ($27 billion) comes from the energy sector. If Canadian energy policy continues to scare away investment, the rosy estimations might not happen.
Severely Normal Albertans should commend the new government for establishing the Panel to help it take a hard look at the Alberta budget. But the UCP’s promises of tax cuts and commitments to maintain health care make the Panel’s work borderline impossible. It seems inevitable that large cuts in the public sector and services must be part of proposed solution. And on the revenue side, we should cross our fingers for the TransMountain pipeline, improved royalties and speedy economic growth.
But even if we can find more loaves and fishes through these measures; Alberta still relies on oil royalties to fund basic operations.
Solving that problem will have to wait for the next Panel!