Editorial: Think like owners again

September 25, 2012
Jonathan Teghtmeyer

While teachers were busy preparing for the start of the new school year, Doug Horner, Alberta’s finance minister, delivered a message to doctors and teachers who are negotiating new collective agreements: “The message is that the government will hold the line on spending, there’s no new money in the operating budget.”

Horner made his statement August 30 at a press conference announcing the government’s first-quarter fiscal update for 2012/13. The update revealed that as a result of lower-than-expected bitumen royalties, government revenues were $400 million below expectations for the quarter. Horner concluded that should low revenues continue, the provincial government could face a deficit of between $2.3 and $3 billion for the year.

The message was clear: the 1 per cent, 2 per cent and 2 per cent budget increases put forward by the government for education over the next three years would remain unchanged.

The subtext was less clear: education funding will continue to be hampered by volatile oil prices. This should surprise no one. Revenue generated for public finances in Alberta has for 20 years been consistently dependent on the price of oil and natural gas.

In the first-quarter fiscal update in 2008/09, oil was forecast at $119.25 per barrel and the resulting surplus was pegged at $8.5 billion. When the first-quarter update was released a year later, oil was expected to earn $61 per barrel and the year-end balance would amount to a $6.9 billion deficit. In 2011/12 alone, the oil forecasts jumped from $90 to $100 per barrel, then down to $90 and back up to $100 across the four quarters. And at the same time, the deficit estimate fluctuated between $1.3 and $3.4 billion.

Given that much government revenue is generated by selling off our non-renewable resources, volatility and uncertainty have become the norm in Alberta. For every dollar decrease in the annual average price of oil, the government loses $223 million in revenue. So when the anticipated price of oil see-sawed through a $20 per barrel range over the past two years, the bank account value fluctuated by $4.5 billion.

Teachers, parents, school trustees and the public are tired of riding this volatile cycle, and we’ve asked for stable funding based on stable funding sources, not predictably low grant rate increases, like 1–2–2.

Alberta has a structural operating deficit. University of Calgary economist Ron Kneebone says the gap between government spending and revenue amounts to $3,700 per person when resource revenue is removed.

Former premier Peter Lougheed famously urged Albertans to think like owners when managing the province’s oil and gas resources. Instead of heeding his advice and maintaining assets or wealth for future generations, we’re selling off our assets as fast as we can at a discount price to pay our bills. Certainly, situations exist where this strategy makes sense. But when the government is leaving at least $11 billion in tax revenue on the table each year, the strategy is simply knuckleheaded and selfish.

Alberta loses out on billions of dollars each year because we have no provincial sales tax, a low corporate income tax rate and a personal income flat tax structure that collects much less from high-income ­earners than traditional alternatives in place in the other provinces. Simply put, if Alberta changed the tax rates, we could raise $11 billion more in revenue and still maintain our advantage of being the province with the lowest taxes in Canada.

Fortunately, Minister Horner wants to hear from Albertans about the government’s fiscal planning. The province has launched Dollars and Sense, a public consultation on priorities for spending, saving and ­funding infrastructure. The consultation includes an online survey
(www.dollarsandsense.alberta.ca), several invitation-only meetings and a series of public sessions. Unfortunately, the survey has no questions on taxation policy, and the invitation meetings will likely not include people who believe that the tax and/or oil royalty structures should be reformed.

Albertans need to send our government a clear message that we want stable public services funded by stable funding sources. By attending the public consultation sessions and providing a thoughtful response to the one open-ended question in the online survey, we might just be able to convince the government to think and act like owners again.

I welcome your comments—contact me at jonathan.teghtmeyer@ata.ab.ca.