The Alberta NDP’s dim prospects

Now that it has become obvious that Alberta’s NDP government has decided to implement its whole loopy election platform, discarding promises to proceed cautiously in the middle of an economic slump, let’s place these policies in the context of the big picture of what is going on in Wild Rose country.

The impact of the collapse in oil prices has been surprisingly muted for most Albertans. Employment so far has levelled off but not actually receded. There has been a slight substitution of part-time for full-time jobs. While job losses have been notable in those industries most affected (natural resources, manufacturing and the business services industry centred in Calgary), this has allowed other industries to hire more workers, notably in transportation and the public sector.

However, combined with Alberta’s young and growing population, the flattening out of job growth has raised the unemployment rate from 4.4 per cent to 5.8 per cent. All of this is almost an exact replay of the impact of the 1998 oil bust in Alberta, when employment stalled but did not contract and unemployment rose moderately.

So while it might feel painful compared with the boom that preceded the bust, Alberta households have been spared the worst, especially compared with recessions in Ontario which invariably suffers the most during downturns due to the dependence of its factories on U.S. markets. In fact, the uniformity of Ontario’s losses in the last three recessions (employment typically falls almost five per cent while unemployment surges about five percentage points) raises the question why its provincial governments are always caught completely off-guard with no fiscal cushion or backup plan to cope with its inevitable recessions. Even more than Alberta, you would think Ontario eventually would learn its lesson and plan ahead, and you would be forever wrong.

With oil prices cut in half and households hanging on to most of their jobs, what has absorbed the shock? In short, business profits and balance sheets, which have been squeezed by the steep drop in revenues as prices nosedived while keeping most workers on payroll. This means costs cannot fall anyway near as fast as revenues, putting a vice grip on profits, forcing firms to unload assets at fire sale prices, take on more debt or face going bust.

With stable household finances but businesses taking it on the chin, what does Alberta’s new NDP government propose to do? Naturally, raise the cost of doing business in Alberta as rapidly as possible, further squeezing what lit- tle profits remain. The most obvious example is this week’s announcement that minimum wages will rise nearly 50 per cent to $15 an hour by 2018. Right now, Ontario has the highest minimum wage of any province at $11 an hour, which helps explain why it has the largest gap between youth and adult unemployment in Canada as the high minimum wage priced youths out of the labour market. One feels sorry for all the youths in Alberta who won’t be able to get that first job which allows them to demonstrate to prospective future employers they deserve a closer look.

Higher labour costs are just one of many cost increases the NDP government is imposing on firms in Alberta. Notley recently confirmed plans to raise corporate income taxes across the board. It started a royalty review for the energy sector, as if the latter is not suffering enough. The energy sector also was singled out for a higher carbon tax which, along with corporate tax hike, will cost the industry $800 million in just the next two years, according to the Canadian Association of Petroleum Producers. Meanwhile, the government is also exploring ways to force more refining in the province.

Ontarians can empathize with what Alberta is going through. Like Albertans facing the crash in oil prices just as the 2015 election approached, Ontarians were scared witless (literally judging by the election result) by the onset of recession in 1990, with memories still fresh of the 1982 downturn when unemployment doubled to 12 per cent. Ontarians surprised everyone including themselves by voting in a government that naively promised to spare people from the ravages of the global forces that drive Ontario’s periodic recessions. Of course, it didn’t work out, and Ontario’s economy splattered like a bug on your windshield, with the NDP’s brave talk of “fighting the recession and not the deficit” leaving only a legacy of high debt. Notley’s promise to shift the financial pain from households to firms will only worsen the retrenchment of business spending in Alberta, which inevitably will be passed on to working households.

Despite the pain of recession and the burden left by high debt, there was one lasting benefit from Ontario’s brief flirtation with an NDP government. The NDP brand has not recovered in Ontario, never finishing higher than third place in any election at either the provincial or the federal level until the Liberal vote collapsed in the last federal election. So as Albertans ponder the prospect of several years of ill-considered policies and sub-par economic conditions, they can take comfort that they may not have to live through Greek-style government by inexperienced amateurs and ideologues for at least a generation.

The NDP brand has not recovered in Ontario, never finishing higher than third place