Voodoo economics and budgets make for a toxic combination

The implausibility of the documents from both Edmonton and Ottawa erodes trust

When finance ministers table their budgets, they are asking citizens to trust they will spend our money prudently.

Both federal Finance Minister Bill Morneau and Alberta Finance Minister Joe Ceci have said their budgets are realistic, but they have provided no evidence that they are even plausible. This is a serious blunder, because lack of plausibility undermines trust, a major problem in both Ottawa and Edmonton.

Plausibility outweighs truth, facts and economic theory because it appeals to the imagination and to common sense. To establish a fact, you need evidence; truth requires a persuasive context. To establish plausibility, you just need to tell a good story.

The federal Liberals promised a small debt. Somehow, that proved impossible, so they changed the metric for fiscal success. Common sense and the bond-rating agencies measure solvency by movement, however tentative, toward a balanced budget.

Ottawa, now practising voodoo economics 2.0, says fiscal success is measured by a stable debt-toGDP ratio. The great advantage of this innovation is that it suddenly produced an additional $20 billion to spend on innovation.

This explains why Ottawa is again in the venture capital business, casting about for sure winners to boost through grants and share purchases. Heading the list are so-called clean technologies and smart cities, along with “advanced” manufacturing and agri-food enterprises to be sowed in world-class, value-chained superclusters.

These “meaningless buzzwords,” as Postmedia columnist Andrew Coyne called them, are symptomatic of magical thinking. The proposals are inherently implausible, and so are bound to undermine trust. Worse, they promise greater dependence of citizens on government.

The provincial finance minister received a message last week at a breakfast meeting of the Calgary Chamber of Commerce. No one in this polite audience clapped at his expression of magical thinking. His words were so implausible that no one could trust them.

As is true of the federal government as well, everyone knows that Alberta’s future is filled with debt and that no plan to lower it exists.

Does anyone anywhere accept Ceci’s word that the NDP has to “keep in mind” per capita costs of services when public-sector unions and associated bureaucrats cost each Albertan over $12,000 a year, some $2,500 more than in profligate B. C.? This year, an additional 2,000 positions were added to the public sector, which already accounts for more than half of government expenditures.

New contracts with publicsector unions are going to be negotiated later in the year. Can anyone be surprised that by 2020, Alberta will enjoy a debt somewhere north of $71 billion?

What makes this performance so annoying and further erodes whatever residual trust the NDP had, are front-page pictures of Ceci and Premier Rachel Notley grinning like Cheshire Cats at how clever they are to have created a structural, not just a situational, debt. Their successors will face a massive problem. Is this deliberate?

In Ottawa, the government ignored the impact of the Trump administration’s de-demonizing of carbon and the Americans’ proposal to reform taxation. In Edmonton, the government hopes for higher oil prices and more pipelines. They can influence the advent of neither one and have said nothing about the consequences of a victory, perhaps a month and bit away, by their socialist cousins in B.C.

Worse, the Alberta carbon tax and Ottawa’s changes to taxation of exploration and development expenditures will inevitably discourage the capital investment needed to fill those national pipelines with oil.

The Alberta and federal finance ministers seem oblivious to the political consequences: implausible budgets reduce citizens’ trust in their governments.