The energy roller-coaster still rules Alberta

We need to end dependence on unreliable resources, writes Ron Kneebone.

Alberta is in a tough spot. As of last Monday, it no longer has representation in the federal governing party. Of the 338 seats in the federal Parliament, 217 are filled with representatives of political parties arguably hostile to Alberta’s energy industry. Even optimists don’t see the Trans Mountain expansion pipeline opening until 2022, while pessimists wonder if it will ever be built. The unemployment rate remains well above the national average and the number of households reliant on social assistance continues to grow.

The provincial government’s finances are in a tough spot, too. The budget deficit at the end of fiscal year 2018-19 was $6.7 billion. That was equal to 12 per cent of government program spending in that year. By way of comparison, the government of Ontario ran a deficit equal to just eight per cent of program spending, while the federal government used borrowed money to pay for less than five per cent of its program spending. Last year’s $6.7-billion deficit was piled on top of the $23.3 billion of net debt previously accumulated.

I have always advocated that when budgeting governments adopt a version of the Hippocratic oath, a version sometimes summarized as swearing to “do no harm.” When it comes to government budgeting, my version of the oath would say “take no unnecessary risks with taxpayers’ dollars.” Taking this oath seriously would mean being cautious in revenue forecasts and planning for modest budget imbalances. Should the unexpected happen — a recession or an unexpected disruption to trade agreements — this strategy would mean the resulting budget deficit would not be so large as to have a negative impact on the economy and would not require asking taxpayers to pay more in taxes or accept less by way of government services.

Simply put, the government would not take gambles.

In practical terms, this approach would mean choosing tax rates and designing spending programs that under conservative assumptions about the state of the economy would yield a modest budget imbalance. It would involve setting a budget that minimizes relying on sources of revenue that are inherently unreliable and it would involve the government making sure that it would never be the source of abrupt disruption to the economy. Simply put, the government would not take gambles.

This is not the approach that Alberta’s governments have typically taken. Instead, they have employed what I have in the past called a high-risk budgeting strategy, a strategy that relies on energy revenues that are inherently volatile and unpredictable because they are driven by events beyond our borders.

With this budget, the government is responding to the consequences of previous governments, both Conservative and New Democrat, having in the past adopted the high-risk budgeting strategy. And now we pay the price. Significant cuts are being demanded of some government ministries and Albertans will be required to pay more out of pocket from many services. While some adjustments seem rather innocuous, they are not.

For example, the decision to “pause” indexation of tax brackets and social assistance payments will bite with time. The buying power of social assistance income will likely fall by nearly 10 per cent over the next four years and the average family will pay roughly $500 more in income tax.

All of these adjustments are intended to reset the budget so it more closely balances spending with tax revenue. But hoped-for increases in energy royalties are still being relied upon to take us to budget balance and so we have not stepped off the energy roller-coaster. I am hopeful that by the end of its current mandate the government will be ready to take the next step of ending our reliance on uncertain energy revenues and in so doing ensure Albertans never again need to deal with the sorts of disruptions to their after-tax incomes and levels of services they will need to absorb over the next four years.

Prof. Ron Kneebone is scientific director, social policy and health at the School of Public Policy at the University of Calgary.