Alberta needs new medicine

There was some good news for Albertans in the provincial NDP government’s recent fiscal update. The official deficit (which ignores capital spending in excess of depreciation) is expected to be $6.9 billion for 2018-19 — which is $1.4 billion lower than forecasted by the 2018 budget. This is because of improving resource revenues and personal tax revenue. With 44,000 jobs added in the province last year, the economic prospects might even look like they’re brightening.

Digging behind numbers, though, it’s clear the province is not out of the woods. Provincial debt will climb to $96 billion after running deficits for so many years. Financial debt net of assets is piling up rapidly — $8.8 billion, or a 40-per-cent increase this year alone. Debt-servicing costs are expected to total $1.9 billion in 2018-19, more than the operating expenditures of most individual government departments including Justice, Children Services, Seniors and Housing. And the picture gets grimmer with interest expenses doubling over the next four years, when the NDP expects it will balance the budget in 2023.

This piling on of debt and interest expenses is worrying. The government plans to eliminate the deficit mostly on growing natural resource revenues, which seems like more of a hope than a plan. And the resource roller coaster continues, as the province sells assets in the ground to fund higher levels of public spending. Ralph Klein must be rolling in his grave.

Alberta’s finance minister, Joe Ceci, projects resource revenue growing from $5.5 billion in the current fiscal year to more than $12 billion in 2023–24, but he doesn’t explain why. With burgeoning U.S. production, it seems more reasonable to expect oil prices to stay relatively flat, or worse, if there is, as expected, a slowdown in the world economy in the next few years. And shipping regulations to reduce sulphur content in bunker fuel are bound to suppress bitu- men prices, much more so than expected in 2020.

Corporate income tax revenues continue to disappoint, despite the 20-percent increase in the Alberta corporate rate in 2015. Alberta today is collecting about a third less corporate tax revenue than in 2014–15. Given the almost 40-per-cent decline in investment and companies moving profits out of a province that was once a competitive tax refuge, that’s no surprise.

Which brings us to the issue of the actual strength of Alberta’s economy. Yes, employment went up this past year, but that was due to an expanding public sector not private employment.

The picture is much bleaker than the government lets on. Ignoring public administration, health, education and social services, employment from May 2018 had actually declined by 4,500 jobs by January 2019.

And there has been no recovery at all since May 2015 when the NDP was elected. Net private sector employment has declined by 39,700 jobs since May 2015.

The government has more than offset that with increases in public sector hires. The Alberta NDP added 58,600 jobs in the broad public sector — paid by taxes on the private sector.

This imbalanced growth is clearly not sustainable. Without private-sector growth in investment and employment, a future Alberta government will have little choice than to cut spending far more harshly than should have been necessary. Since 2015, policies from the provincial and federal governments have piled on to an already economically challenged private sector — with new carbon taxes, personal and corporate tax hikes, minimum wage increases, and, worst of all, heavier regulatory burdens.

More bad news is coming as foreign companies bail out of the oilpatch worsening an already appalling economic environment (Devon Energy is just the latest in a string, announcing last month it wants to sell all its Alberta assets and get out). Things would be less terrible if activity picked up strongly in other sectors to make up for the energy downturn, but that hasn’t happened. Since May 2015, employment has actually fallen in agriculture, construction, manufacturing, transportation and other services.

So the big question is how to spur economic growth in the tax-paying private sector. The NDP was obviously banking on Keynesian growth in the public sector as a stimulant. That strategy has demonstrably failed; the only thing it led to was a mountain of public debt. Nor have the NDP’S subsidies for renewable energy, upgraders and petrochemicals done anything for economic growth. (And I suspect Premier Rachel Notley’s plan to “invest” in 4,400 leased rail cars will end up as much of an expensive, unsuccessful government gambit as former Newfoundland premier Brian Peckford’s cucumber greenhouses).

There are smart entrepreneurs all over Alberta’s economy, not just in energy. A much more broad-based approach is needed to create conditions for animal spirits to take hold and get the economy to adapt, transform and grow. Throwing money at politically favoured sectors is no way to spur that; broad-based tax reductions and regulatory reforms are the growth serum the province needs. Jason Kenney’s United Conservative Party’s announcement Monday that, if elected, it will reduce Alberta’s corporate income tax rate by four per cent is a step in the right direction. It has the added benefit of countering U.S. tax reform that has hurt Alberta’s competitiveness for investment and profits.

The upcoming Alberta election should be about more than who can and can’t balance the books better. It should also be about how to grow the private sector. If the government is going to avoid deep cuts to health, education and other social services, it needs to plant the seeds for growth in the private sector. That is not happening now.

THROWING MONEY AT POLITICALLY FAVOURED SECTORS IS NOT SPURRING GROWTH.

AL CHAREST / POSTMEDIA NEWS Alberta United Conservative leader Jason Kenney says his party would reduce corporate income tax.