Trevor Tombe is an associate professor of economics at the University of Calgary and a research fellow at its School of Public Policy.
The election is over. Now comes the really hard part.
The environment, health care, education, social issues, climate change, public debt – there is no shortage of critical matters facing Alberta’s next government – but for most voters there was nothing more pressing than “Jobs. Economy. Pipelines.” This was the focus of the United Conservative Party campaign and the main reason Jason Kenney will be the province’s 18th premier. It’s easy to see why.
Alberta’s recession was long and deep; the recovery, disappointing. Although growth was strong in 2017, it slowed dramatically in 2018 and stalled completely as we entered 2019. The Trans Mountain pipeline expansion was halted, Alberta’s oil-price discount rose, oil production was curtailed and the unemployment rate crept up. The government’s own Alberta Activity Index – a broad monthly proxy of economic activity – turned negative for December. And business sentiment fell off a cliff.
But neither a change of government nor policy alone will return the boom times to Alberta. Policy matters, yes, but we should temper our expectations and get ready for some difficult decisions ahead.
In the short term, there’s only so much the government can do. The carbon tax may shave a few tenths of a point off GDP, while a corporate tax cut may add a few. Even pipelines, while incredibly important for Alberta’s economy and finances, will take some time to come online. The government can’t turn the province’s economy on a dime.
To be clear, policy can – and should – help workers trapped in deep pockets of pain. The average unemployed Albertan has been without work for almost six months, with more than 20,000 unemployed for more than a year. The challenge facing young people is particularly difficult. Improved skills training, education and support programs to help displaced workers today, and better prepare Alberta for the next (inevitable) recession, should be a priority.
The province’s precarious finances also need a much stronger footing.
To balance the books and fund its promised corporate and carbon-tax cuts, the UCP government will freeze spending. Good move or bad, it certainly won’t be easy in a growing province such as Alberta. Population growth plus inflation means the freeze is equivalent to a 14-per-cent reduction in the real per-person level of government spending by 2022. How this will be achieved is not yet clear.
Meanwhile, we aren’t getting any younger.
By the mid-2040s, one in five Albertans will be older than 65, and health-care costs are set to rise significantly. In recently published work on the province’s long-term fiscal future, I estimate that Alberta is on track to spend half its budget on health care – and revenues won’t keep pace. Simply put, our finances are not sustainable, and the province’s debt will approach 50 per cent of GDP by 2040.
A spending freeze helps, but much of our long-term fiscal challenge remains.
Of course, mere numbers on a spreadsheet – however informative – do little more than outline the scale of the challenge before us. Thousands of decisions, spanning years and multiple governments, lie ahead.
There are many options: The province could use resource revenues to repay debt; reform tax rates and structures to boost growth and stabilize revenue; change health-care and social programs to lower costs and improve outcomes; negotiate larger federal transfers as health-care costs increase here and elsewhere. All are easier said than done.
A panel to explore these options in detail – which the UCP proposed – could help unpack these options. Some might make sense, others might not. Some will have broad support, others won’t. But all will require compromise, analysis and, above all, honesty – from all sides. To quote former premier Ralph Klein, speaking in 1992 before taking office, “If any discussion about deficit reduction is to be taken seriously, then governments have to be honest with their constituents, and the constituents, the people, have to be honest with their governments."
Although our challenges are different than those of 1993, the need for open and honest conversation remains. Government must provide transparency and detail to citizens – and focus on what it can control. Citizens must provide government with the space to have these difficult conversations – and accept that some problems can’t be easily solved.
With the election over, the hard part to come will involve us all.
The Canadian Press