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Editorial: Alberta needs a budget reno

April 10, 2018 Jonathan Teghtmeyer, ATA News Editor-in-chief

$96 billion. When last month’s provincial budget landed, the thud you heard was the size of the anticipated debt that would accumulate by the time the budget is projected to balance in 2023–24.

Budget 2018, which highlighted the government’s plan to bring revenue and expenses into balance over the next five years, was titled “A recovery built to last.” It emphasised the government’s efforts to diversify the economy while protecting public services, but I’m concerned the government missed a real opportunity to rebuild Alberta’s fiscal foundation in a way that would truly last.

Government finances have been highly reliant on oil and gas revenue. In 2013–14, the government generated $9.6 billion in resource revenue — accounting for 19.4 per cent of all revenue. The most significant reason Alberta’s debt has grown in recent years has been a collapse in that revenue stream. As average global oil prices fell from $99 per barrel to $45 per barrel over the following two years, resource revenue dropped to just $2.8 billion — making up only 6.5 per cent of revenue.

This meant the deficit grew and so did Alberta’s debt.

From bottomed out oil and gas revenue moving forward into economic recovery, the timing was perfect to put the budget on a new fiscal footing that would remove the dependence on oil and gas. Done correctly, future resource earnings would not need to be used for general revenue, but could instead be devoted to longer term financial prosperity through investing in capital projects, paying off debt or increasing savings, via the Heritage Trust Fund, for example.

However, in order to do that and balance the budget, government revenue would need to be supplemented in other ways. Fortunately, there is room to do that.

Alberta has by far the lowest provincial taxes in the country. Estimates contained within the budget’s own documents state that Alberta would raise an additional $11.2 billion in revenue while still maintaining the lowest taxes in Canada if it adopted the tax rates used in British Columbia. The budget documents frame this as an “advantage,” but it is actually a disadvantage.

Our irrational obsession with having the lowest possible taxes ensures that we will never have enough revenue from reliable sources to pay for core government programs and services. Keeping taxes so low ensures we will always rely on natural resources to supplement general revenue. Which consequently means that the security of education funding will also follow the volatility of oil prices.

Some will argue that out-of-control spending is actually why Alberta has large deficits and ballooning debt. However, reports from the Parkland Institute have shown that per capita expenses in Alberta tend to be middle-of-the-road compared to other provinces. And when spending is viewed relative to GDP (which corrects for higher costs and greater affordability of public services), Alberta is consistently the lowest spending jurisdiction in Canada.

Growth in spending is hardly out of control either. In the past four years, government spending has largely tracked the rates of population growth plus inflation.

In education, funding has increased to keep up with rapid student population growth over the past seven years, but the actual per-student grant rates have not kept up with inflation. Large instructional grants have received only one increase since 2011–12. This is equivalent to an 8.4 per cent cut in real per pupil funding over seven years.

It is no wonder, then, that class size reduction efforts have been essentially abandoned and supports for special needs are rapidly evaporating. This needs to change.

I am always amazed at how debt is often considered to be unfairly harming future generations, but the rapid sell-off of finite natural resources in order to sustain low taxes today is not. And neither apparently is the underfunding of education.

I wish that Alberta would truly make this a recovery built to last by rebuilding our budget with a fiscal foundation that’s also built to last. However, to do that it needs to take a serious look at its irresponsibly low taxation levels.

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