Don’t cry for me, Alberta. It could be a musical, or a tragedy.
Here’s the country’s wealthiest province, with incredibly smart people and a deep sense of provincial pride. It does some collective enterprises sensationally well, and it has a dynamic business sector. It just can’t govern itself properly.
One paragraph in Thursday’s budget tells a long story. For nine of 10 years – from 2002 to 2011 – the operating expenses of the government grew faster than population growth and inflation. In most of those years, the gap was very large.
Health alone grew by 9 per cent a year for a decade, meaning a doubling of the health-care budget that now gobbles 45 per cent of all spending. (This budget proposes a shuddering halt: a 3-per-cent increase for health care and zero for operating expenses overall.)
How did this happen? Conservative governments prevailed, after all, during the later Ralph Klein years and under Ed Stelmach and now Alison Redford. Isn’t Alberta supposed to be the land of the Reform Party, of red-blooded conservatism, of free enterprise, of market ruling über alles? Wrong, then and now.
Satya Das, a shrewd commentator from Cambridge Strategies in Edmonton, observes in a postbudget commentary: “Do Albertans really feel entitled to the best of everything, without reckoning we need to fund the cost of all the societal benefits we receive? Until citizens are ready to pay for our needs and wants out of our earnings, we shouldn’t blame politicians for selling off the resources that are our children’s birthright in order to indulge our lifestyle.” Yes, Mr. Das, but who’s listening?
Year after year, Albertans counted on the least reliable source of revenues – fossil fuel production – to give themselves low taxes and munificent public services. By doing so, they resisted each year putting aside chunks of those revenues from fossil fuels in the Heritage Fund. As a consequence, they kept little aside for tomorrow’s uncertainties, and spent extensively today – while keeping taxes low.
They rejected a sales tax, the most reliable source of government revenue. They drove down corporate taxes. They gave the oil and gas sector the lowest royalty rates around, according to the consulting firm Wood Mackenzie. They gave themselves a low flat tax personal income tax system. And when times were really good, their premier – Ralph Klein in those days – cut them each $200 cheques to share in the good fortune.
So like good conservative people, they kept taxes low, lower and lowest. But they spent in the past decade unlike faithful conservatives – beyond population growth and inflation year after year, presuming that the fossil fuel boom would continue to cover the gap between how they were willing to tax themselves and what they wanted from government.
It’s said that those who ignore history are consigned to repeat its mistakes – which might apply to Alberta governments, since if there’s one lesson from their province’s history, it’s that natural resource revenues of all kinds are volatile. The boom-and-bust cycle is an exaggeration to describe fossil fuel revenues these days, but the cycle of ups and downs is not.
The problem with spending versus revenues over time is one of cycles. Spending, once locked in for health care, education, highway repair, social welfare and all the others things Albertans want the state to do, is very hard to switch off, or even to cut. Mr. Klein did so when first elected, but that was it for other premiers.
It’s easier to talk about cutting spending than curtail it. Revenues, as Alberta has structured its tax system, go up and down depending on resource revenues, so gaps emerge and remain, filled only when resource revenues recover. The chatter about filling the gap with freezing civil servants’ pay, cutting elected officials’ stipends and curtailing travel is just that – idle talk in the face of difficult facts.
Alberta, therefore, has governed itself on false premises – which is another way of saying it hadn’t told itself the truth about what’s required to stabilize the province’s finances, today and tomorrow.