The audience at the Alberta Budget Post-Mortem on April 21 enjoyed a lively debate moderated by IPE Fellow Bob Ascah. A panel of experts provided their insights into the policy choices made in the recent budget. Professor Emeritus Mel McMillan set the stage by noting the province was experiencing "tough times." He observed that by 2018 Alberta would run deficits on both fiscal ($6.8b) and capital ($5.6b) components. He also noted that per capita government expenditures are far higher than those of British Columbia.
Grant Robertson (Former Deputy Minister, Treasury Board) noted that the Alberta experience is unique since provincial revenues from combined personal income tax ($11.3b) and corporate income tax ($4.3b) were insufficient to cover even the provincial health expenditures of $20.3b. Rather than trying to determine whether the problems are structural or systemic, Mr. Robertson questioned the wisdom of past revenue giveaways, including health care premiums, farm fuel, and others. He noted a tenfold increase in the cost of debt servicing (from $200m to $2b per year in 2018) is expected. A long term solution lies in applying global budget standards. He lamented that previous financial practices had left the province with no fiscal anchor, and there seems to be no way to cap program spending increases.
Continuing in the same vein, Carman McNary (Dentons Canada, and former Chair of the Alberta Chambers of Commerce) declared that policymakers had to disabuse themselves of the notion that the economy is in part of a cycle - rather, he argued resource revenues are simply not coming back.
John Kolkman, the Research Coordinator for the Edmonton Social Planning Council, lauded the budget's support of low-income families, and he noted that the provisions of the Alberta Child Credit will allow up to 235,000 children to receive benefits. Jonathan Teghtmeyer from the Alberta Teacher's Association acknowledged the budgetary provisions under the infrastructure section that would finance new or expanded education facilities. However, he pointed out that the provincial education system is experiencing levels of K-12 enrollment growth that threaten to outstrip the growth in the number of teachers in the system.
The Alberta division of the Canadian Taxpayers Federation representative Paige McPherson targeted the lack of commitment to get off the "royalty roller-coaster." The problem, she maintained, is debt and the government had failed to realistically assess where interest rates are going in three years, while amassing $58b of debt. She argued that rather than address the spending problem, the government had taken the outrageous and irresponsible step of raising the provincial debt ceiling.
Edmonton Journal columnist Graham Thomson said the budget was presented as the Alberta Jobs Plan, but it contained few specifics on how it might create, or contribute to, the creation of jobs. He speculated that by the next election an awareness will emerge that the current level of consumption of government services cannot be enjoyed indefinitely by continuing to take on debt. This may lead to an increased appetite for a provincial sales tax. According to Mr. Thomson, today about 33% of Albertans look somewhat favourably on the idea of a sales tax.
The first question from the audience was about the likelihood and impact of a future provincial sales tax. Ms. McPherson noted that it would require a level in the range of 14% to have any real impact on the deficit. Mr. McNary noted the combined federal and provincial personal income tax rates have pushed the marginal tax rate to about 48% for those earning more than $300,000, and introducing a sales tax would add to the political and economic uncertainty surrounding business decisions.
Panel members' suggestions for alternatives to a sales tax included:
• There must be, after over three decades of PC rule, lots of slack and inefficiencies that allow for considerable reductions in government spending.
• Make the carbon tax non-neutral. Take the revenues and eliminate the portion assigned to the "green program" since much of that money will end up benefitting foreign manufacturers and contractors.
• Cut "corporate welfare" which has failed to demonstrate an appreciable return in terms of revenue or jobs, and base future corporate support on targeted incentives.
• Avoid the "social deficit" associated with cuts to the education system in the 1990s and look to exploiting efficiencies such as amalgamating school boards, for instance.
• Seriously revisit the notion of $8b in capital spending. What are the realistic expected benefits, and where does a program like that end?
• Bring public service salaries in Alberta, currently the highest in Canada, in line with other provinces.
• The province must address long term issues. Specifically, it must deal with rising and out-of-control health care costs.