For months, Alberta Premier Jim Prentice has been signalling that he was about to deliver a transformative budget. In press conferences, speeches, and Tuesday's rare televised address to the province, Mr. Prentice was saying that due to the precipitous drop in oil prices since August, 2014, and the decades-long overreliance on resource revenue, that a fundamental change to government finances was necessary.
Mr. Prentice promised to present a budget that would be so transformative that he required an electoral mandate (a year ahead of the fixed-election legislation date of March-May 2016) with which to proceed.
On Thursday, Finance Minister Robin Campbell delivered the budget. And, in two major ways, it was transformative.
First, it scrapped the flat tax that was introduced by Ralph Klein and Stockwell Day in 1999. The flat tax had been seen as one of the major pillars of the Alberta Advantage. It is true that, in quantitative terms, the new progressive income tax is not that much different from the old flat tax. In the future, those making less than $100,000 a year will still pay 10 per cent income tax, but those making more than $100,000 will pay 10.5 per cent (rising to 11.5 per cent) and those making more than $250,000 will pay 11 per cent (rising to 12 per cent). But, the principle of a progressive income tax system has been reintroduced. The new Health Care Contribution Levy, which ranges from $200 to $1,000 a year, is also based on a progressive principle.
Second, for the first time since 1994, the government cut health-care spending. The amount is relatively small at $160-million (out of an $18.9-billion health care budget). This is only a 0.8-per-cent cut. But it is still extremely rare for any government to make an absolute cut to the sacred cow of health care (as opposed to reducing the rate of increase or not adjusting for inflation and population growth).
But was it transformative enough? Not really. Mr. Prentice had also been signalling for months that the expected $7-billion hole in the budget caused by a drop in oil prices would be addressed in a relatively balanced way: a third in tax and fee increases; a third in spending cuts; and a third in a deficit. However, Thursday's budget numbers were wildly different. The budget had $1.5-billion in tax and fee increases (22 per cent of the $7-billion), $323-million in spending cuts (7 per cent), and a $5-billion deficit (72 per cent) financed through the existing contingency fund.
The biggest discrepancy between what was being promised and what was delivered is the shift between spending cuts and deficit financing. When Mr. Prentice and Mr. Campbell held a joint press conference on Feb. 11, they warned of 5-per-cent across-the-board spending cuts. This would have meant a 9-per-cent cut when inflation and population growth were accounted for. Yet, instead, overall program spending was a marginal drop of $48.8-billion to $48.4-billion (only a 0.8 per cent cut). The inability to receive wage concessions from public-sector workers, many of whom had recently signed contracts, likely caused the government to back away from the 5-per-cent cuts. In addition, the government feared that pulling that much money out of the economy at the same time as the oil sector was shedding jobs would have likely caused Alberta to go into a full economic recession.
So, Albertans will now be going to the polls to ratify a budget that is transformative in qualitative terms, but not in quantitative terms. Mr. Prentice is helped by the fact that the opposition parties have been weakened by floor crossings and retirements, but this budget gives them room to go after the government. Expect Wildrose to set its sights on the largest deficit in Alberta history and the biggest tax increases since the late 1980s. Meanwhile, the NDP will target the health-care cuts and the new health-care levy that NDP leader Rachel Notley has already coined "the waiting room tax."
Duane Bratt is professor in the Department of Policy Studies at Mount Royal University.