The false choice in Alberta’s budget
To govern is to choose. In its latest budget, Newfoundland and Labrador’s new government last week chose dramatic tax increases to help address its truly massive fiscal challenges. That same day, Alberta, starting from a much stronger position, chose a different route with its budget: increase spending and hope oil prices eventually rise.
While that’s a defensible position, Finance Minister Joe Ceci suggested in his budget speech that it’s the only alternative to “making reckless and extreme cuts to public services, firing thousands of teachers and nurses, cutting supports for seniors, and abandoning the most vulnerable.”
This is a false choice. The government frames the debate as a choice between two extremes: increased spending or slash- and- burn cuts. There are many alternatives in between.
It is also false to frame the budget as the only way to economic recovery. The government’s primary policy focus for riding out Alberta’s difficulties is to “create jobs” and foster diversification. The first line says it all: “Budget 2016 is the Alberta Jobs Plan.”
How many jobs will the budget create? To quote Ceci again, it will “create the environment for 100,000 jobs over three years.” A bold claim. Does it hold up?
The budget forecasts employment growth of 112,000 jobs between now and 2019. That’s a sensible estimate, but due more to a normal and gradual economic recovery than any specific budget measure. Mere population growth accounts for roughly one-quarter of that increase.
Beyond the total number of jobs, the government is also concerned about the type of jobs. The economy, it says, is too reliant on the oil and gas sector. But relative to what? By many measures ( employment in particular), Alberta is already as diverse as other provinces.
To be sure, Alberta’s income sources — corporate profits, wages, government revenues, and so on — are more concentrated in oil and gas. The solution to this diversification challenge, though, is to save in the good times to smooth out the bad, something this province is particularly bad at.
The government’s plan is to provide $ 85 million for “regional economic develop- ment,” apprenticeship training, funds to subsidize clean technology companies, and other such initiatives. The biggest items — accounting for another $ 165 million — are two temporary “investment tax credits” narrowly focussed on non- traditional sectors.
What might be better? Broadly lowering corporate tax rates. Two Alberta economists — Bev Dahlby and Ergete Ferede — estimate that the overall economic costs of corporate taxation on Alberta’s economy are $ 2.91 for each $ 1 raised by the government. Raising corporate taxes from 10 per cent to 12 per cent last year was precisely the wrong thing economically, despite its success politically.
In any case, the budget doesn’t address the diversi f i cation challenge t hat really matters: government revenues that rely on volatile resource royalties. The government plans spending increases of 4.3 per cent over the next three years and cannot hope to balance the books anytime soon unless oil prices rise. The math just doesn’t work.
And this matters for Alberta’s economy. Uncertainty in fiscal policy can, for example, depress private in- vestment. Why would new businesses rush into a province when future tax and spending policies are unclear? A credible path to balance, without relying on royalty revenues, could plausibly help boost the economy (at least a bit).
How to get there, though, is the tough question. University of Calgary economist Jack Mintz, for example, recently wrote in these pages that spending reductions are in order. He also notes that new revenue should be on the table — including an HST. Fear that bad economic conditions make new taxes unwise shouldn’t stop a clear commitment to making tax and spending reforms in the future, if not today.
To increase spending, rule out new revenue sources, and hope for oil prices to rise again is to punt on the tough decisions. Albertans need their government and their opposition to have a reasoned, thorough debate on how best to solve the province’s fiscal challenges. There should be no more false choices, only tough ones.