Alberta’s problem is revenue, not spending

Province must raise more money to maintain services, says Gil McGowan.

The problem with luck is that after 40 years, it stops feeling like luck and starts feeling like the norm.

Such is the case with Alberta.

For most of the past four decades, conservative governments have gambled on the price of oil, relying heavily on non-renewal resource revenue to fund our provincial operating budget.

We’ve maintained panCanadian standards on public services while conservative governments recklessly slashed taxes on wealthy people and corporations, betting on the unprecedented good luck of high oil and gas royalties to make up the difference.

This Ralph Klein-era strategy of gambling on longterm, high-priced oil to fund stable public services for our children and grandchildren was the height of irresponsibility. And a closer look shows that Klein’s so-called Alberta Advantage of low taxes and high-quality services was a mirage — a sleight of hand that only worked as long as oil prices stayed high and royalties kept rolling in.

In fact, between 2005-06 and the end of the boom in 2014-15, resources accounted for a staggering 21 to 41 per cent of total revenue, averaging 27 per cent. That’s between one- and two-fifths of all government revenue from non-renewable resources. But since the global price of oil has plummeted, current budget projections show resources contributing only 9.3 per cent of provincial revenue.

Clearly, this strategy can’t continue.

We can’t expect the hole in Alberta’s budget created by the 2014 collapse in oil prices to be filled by a rebound in fossil fuel prices. With all the smart money on fossil-fuel prices remaining “lower for longer,” this isn’t the time for a risky long-odds bet on high global oil prices.

And with U.S. shale oil production creating supply gluts for as far as the eye can see, many experts, including the CEO of Shell, have concluded that prices are not just going to be “lower for longer,” but lower forever.

With natural resource revenue drying up, Albertans have to face the reality that we’re going to need to start paying something closer to Canadian mainstream taxes if we want to have Canadian mainstream services.

This isn’t a spending problem. On the contrary — as a share of our economy, Alberta pays far less than any other province for our public services. In 2016, our consolidated expense share accounted for less than 18 per cent of our gross domestic product: a full two percentage points below our closest competitor in British Columbia, and nearly five percentage points below Saskatchewan.

Instead of high-stakes gambling, Alberta needs to face a new low-oil-price reality.

This means our province has three choices: ongoing deficits and mounting debt; devastating cuts to public services such as education and health care, to the point that we’d have the lowest quality services in the country; or revenue reforms that bring Alberta closer to the Canadian mainstream.

If we raised revenue like any other province, our deficits would be replaced by surpluses.

By adopting British Columbia’s revenue model, we’d raise our revenue base by $15 billion. Under the model of much-touted conservative Saskatchewan, we’d raise an additional $11 billion each year.

Even the pre-flat tax Kleinera regime would nearly balance the books, bringing in an additional $7.4 billion annually.

The answer to this complex question of revenue reform isn’t necessarily a sales tax. But the first step in addressing the problem is admitting the emperor has no clothes. Klein’s legacy saddled the province with a profound and unsustainable structural revenue problem, and we need to begin the tough conversation about how to fix it.

Denial that the problem exists is no longer an option.

With Alberta now set to lead Canada-wide growth in 2018, now is the time to address the elephant in the room: we can’t keep betting on high oil and gas prices to fund essential public services such as education and health care.

Because the other problem with 40 years of luck? Like skyrocketing oil prices, it won’t last forever.