Tuesday, September 1, 2020

The Great Fiscal Reckoning (... that has been occurring for over a decade...)

Premier Kenney rightfully acknowledged that what is happening in Alberta is a "great fiscal reckoning." With the fiscal update showing that the province will run a projected deficit of $24.5 billion, his statement "this is… the biggest deficit in the history of Alberta by a country mile" is correct.

Bluntly, the bottom has fallen out of the province’s budget.

There are many reasons for this deficit: the dramatic decline of oil prices, the drop in overall employment, and the shuttering of businesses. And then Covid happened.

But, is this really anything new?

Clearly not. In fact, this problem has existed for decades. This time we need to address our fiscal challenges and not by praying to the proverbial gods of oil revenues to bail us out because this time they won’t. It is time to take control of our destiny, right the fiscal structure that has been broken in this province for generations... and implement a sales tax.

I could go back even further and document the boom and bust cycles of the Alberta economy, but I’ll concentrate on recent history. For the last 12 years this province has run a deficit. Even prior to the cratering of oil prices in 2014, we were not able to balance our budgets. The governments of the day had numerous excuses not to act. They preferred to tell us a story that oil prices would return to their former glory, natural gas revenues would firm up, pipelines would be built and the government of the day was going to perfect how to turn lead to gold.

If all of these things happened -- or even one of these things happened -- we could continue to be the lowest taxed province by a country mile and the highest spending government by the same country mile.

At some point in time this jenga tower of a fiscal strategy was doomed to failure. It’s been on life support for years, but now it’s ime to give it a decent burial.

So why did it continue for so long? The reason is simple: there was always another election to win. The conventional wisdom was that you couldn’t bring in a PST and maintain power.. Although implementing a sales tax would have been good public policy... good public policy does not always equate to electoral success.

But in my view, the governments of Prentice, Notley, and possibly a future Kenney government, lost because they ran out of money. With no conceivable plan to bring in a solid fiscal structure that citizens could look at, say that makes sense, and build towards a better future, the writing was/is on the wall.

The so-called “Alberta Advantage,” codeword for ridiculously low taxes subsidized by the oil revenues, was a bedtime story we told ourselves but it was never actually true. It led to us not having sustainable funding to help diversify our economy, build infrastructure, develop arts and culture hubs, the list goes on. This was never an advantage, it was our Achilles’ heel.

So here is what I’m suggesting. Instead of being the lowest taxed jurisdiction by a country mile… let’s be tied for the lowest taxed province. Would this be so bad? To emphasize the point, if we adopted Ontario’s tax code we would bring in an extra $14.4-billion. In my view, it would not. It would allow us in good times to run a surplus and in normal times balance the budget. In periods of desperation like we are facing now, it would give us firm footing to help those that struggle and build a resilient path forward.