Alberta: What Should Happen 

May 1st, 2015 | R. Rados 

Cutting the size of government is the best idea, no matter which province you live in. However, even the most conservative economists would agree that massive cuts during a decline in economic fortunes is not the correct approach. Alberta's government should have been downsized while the going was good. During the past decade, instead of cutting salaries and incrementally skimming away government fat, the Progressive Conservatives have done the opposite. The more they earned, the more they spent. Those were the days of Ed Stelmach and Alison Redford, not Jim Prentice. During Alberta's golden years, little was done to save or invest in diversification and make Alberta less dependent on oil. The golden days aren't over, but they've been paused. This pause isn't the right time for radical cuts.

For decades, Alberta has had superior public services and infrastructure. What makes this strange is the fact that Alberta has the lowest tax rates in Canada, while other provinces with higher taxes struggle to maintain the same level of service. Albertans have been paying less taxes but they've been getting better services. As you peel away the layers, this starts to look less strange. Underneath Alberta's strange surface we see a massive and wealthy public sector that has been propped up by oil revenues – between five and ten billion dollars annually.

After the price of oil sank and stayed down, sane Albertans started to ask what the long term implications might be. Is this what Alberta is destined for? If we implement radical cuts and invest nothing in diversification during a time when big oil isn't hiring, the answer to that question will be “yes”. We can expect a future of unstable ups and downs – until we eventually end up staying down when oil finally goes out of style and corporations pack up, liquidate and ship out forever. Those days are far away, but they will come.

So how do we change things? You don't need to be an economist to find a reasonable answer.

Incremental, Careful Cuts And Investments While We Have Money

Oil will rebound. Alberta will be back in the green one day, there are few economists who would doubt that. It's during this rebound that we'll need to make the incremental cuts that should have started over a decade ago.

Most successful businesses and corporations prepare for the future by investing and diversifying while they have healthy profits. They can't invest in new ideas when they're on the verge of bankruptcy. By then, it's too late and borrowing is too risky. This is true for government as well. The only problem in comparing government to business, however, is that governments aren't businesses. Politicians often like to say they'll run the province like a business, but they eventually realize that it isn't that simple. Like corporations, when governments cut salaries and jobs during a downturn, it affects the entire economy. The big difference is that governments don't have the luxury of sending thousands into the world of unemployment and automatically experiencing increased savings.

When a government fires 3000 people, they also subtract 3000 taxpayers from the equation. That's 3000 people who won't be paying their mortgages, buying things and putting their dollars back into government coffers. When a corporation fires 3000 people, the government experiences much of the same, but the corporation doesn't. The corporation sometimes benefits, but the government always loses. Even when some corporations cut jobs, the entire economy feels it.

We then have to ask why a government would cut salaries and jobs at a time when the private market isn't fully capable of picking up the pieces. When a province's major industries are booming and hiring, they can easily soak up unemployment. Unlike most provinces, Alberta has one major industry and it isn't hiring.

Alberta's oil patch is expected to add more to the province's unemployment rate and according to the Nanos consumer confidence index, 34% of Albertans (compared to only 16% of Canadians) anticipate experiencing a negative financial impact.

Meanwhile, just 16% of those polled around the country expect any negative impact on their finances from a likely weaker overall economic performance. On the other hand, in Alberta – the province most dependent on energy products to power growth – 34% of households anticipate a negative impact on their bottom line.” – Gordon Isfeld, Financial Post

Cuts need to happen while it's safe and doesn't risk harming an already fragile economy. Alberta has high living costs due to constant migration, making cuts to salaries more dangerous for people whose mortgages were approved based on their salaries. When people can't pay their mortgages or sell their houses in a dampened market, the economy suffers. The government shouldn't be adding to the negative numbers.

An Investment Isn't Always A Handout

When a bureaucrat tells a conservative he wants to invest in diversification and industry, the conservative always assumes it means handing special interests and industries free money or creating jobs by increasing government. If the bureaucrat is a New Democrat or Liberal, the conservative is probably right. If the bureaucrat is a fellow conservative, the conservative taxpayer should have a bit more faith.

Jim Prentice is a conservative. You can argue circles around it if you disagree, but you'd still be wrong. Redford was not a conservative. In fact, we've all heard stories about big L liberals voting for her in 2012 to stop the Wildrose.

Investments can mean that we have to pay a bit more to maintain our superior services. When we talk about investing in diversification, it doesn't mean handouts to certain industries or building a government owned manufacturing plant and selling it later. An investment in diversification could mean offering discounts and implementing temporary subsidies while we can afford it. Manufacturers and industries could open up shop in Alberta and pay zero taxes for two years and then pay incrementally higher taxes afterward until they reach the already low standard rate in Alberta. There are several options for a government that go beyond increasing government and doling out actual dollars to corporations.

An interesting idea for eventual diversification could be found in another oil dependent country. To make Alberta even more competitive, a fiscal policy similar to Dubai might attract new business and industry. Although the percentages are high, the only businesses that pay corporate taxes in Dubai are banks and oil companies.

There are different ways to fix Alberta that go beyond massive tax hikes or quick, radical cuts. Alberta conservatives just need to be patient and rational.

The “Alberta Advantage” Isn't Gone

Jim Prentice raised income taxes by 1% for people who make over $100,000 annually. The NDP complained that his increases weren't progressive enough. Despite the tax increases, Alberta still has the lowest income taxes in all of Canada. To make it “worse”, user fees, traffic fines and registry fees have increased. This only affects people who choose to participate in certain things. On a daily basis, these fee hikes don't affect everyone.

Alberta still has Canada's lowest tax rates. Any complaints are merely political. On the far right, the hikes are too much. On the far left, they aren't high enough. If most Albertans were in Jim Prentice's position, with the economy teetering on the brink of recession and layoffs plaguing Alberta's only big industry, they would likely be forced to choose the middle.