Alberta’s first quarter update, released at the end of August, painted a fairly grim picture of our province’s finances.
At the beginning of 2020 all indicators showed Alberta was on track in terms of economic growth, job creation, and responsible use of tax-payer dollars. In fact, Alberta’s Annual Report concluded that government expenditures were down $300 million from Budget 2019 projections.
With the Triple Black Swan event combining a global economic downturn not seen since the 1930s, a precipitous energy price crash, and the most serious world-wide health crisis in over 100 years, Alberta’s books are deep in the red.
Budget 2020 estimated a deficit of $6.8 billion and the Q1 update shows an historic deficit of $24.2 billion. A decline in revenues of over $11 billion is mainly attributable to decreases in income tax, gaming, and resource revenues. The loss from personal income tax collection alone accounts for 17% of total revenue decline.
Alberta is experiencing the highest unemployment rate in the country – the likes of which has not been seen since the early 1980s. A significant contributing factor is, of course, the pandemic but this is only a temporary factor. Before our province was shut down due to health measures, our province’s unemployment rate was at its highest level since 1994. This was a result of a 5-year market decline made worse by misguided economic policies curtesy of the previous NDP government.
The opposition’s answer to the unemployment figures was, and still is, to increase taxes and hire more public sector employees under the guise of job creation and economic stimulus. Over four years, the NDP ‘created’ approximately 35,000 public sector positions. This was a policy doomed for failure from the start. It’s important to keep in mind that it takes, on average, nine private sector employees to cover the wage of one public sector employee. And that’s just straight wages.
When the private sector suffers, as it has over the last five years shedding nearly 200,000 jobs, how is the public purse to be supported? As Margaret Thatcher aptly pointed out (to the chagrin of NDP MLA Marlin Schmidt), “The problem with socialism is that eventually you run out of other people’s money.”
Over the same period, our province experienced some of the largest deficits since the 1990s. Economic stagnation and decline due to abysmal policy failures that placed grueling burdens on job creators not only led to drastic rises in bankruptcy rates but also chased billions of investment dollars out of our province. Alberta’s debt servicing costs were hovering at around the $2 billion per year mark before the pandemic. To put that in perspective, that’s the same amount it costs to fund 35,000 long-term care beds. Per year.
So where does that leave our province?
Some strongly believe that we are leaving tax dollars on the table and should either raise taxes and fees or create new ones. Those belonging to the tax-happy bandwagon also believe that we can spend our way out of this mess and use our low debt-to-GDP ratio, declining credit rating, and low interest rates to bolster their argument.
Imposing new or higher taxes on hard-working Albertans will only serve to further constrain their ability to participate in the economy. The middle class will bear the brunt of these new expenses leaving them little to no disposable income and will certainly have a negative effect on overall quality of life.
Out of control spending will only saddle future generations with crushing debt and a loss of essential programs and services. At some point the debt load becomes too great and the risk too high for lenders to consider backing more loans.
Economists agree that the most sustainable way to recover from this triple Black Swan Event is to grow the economy. This can be accomplished by demonstrating fiscal prudence and creating a business-friendly environment both of which will, in turn, attract investors.
Across all departments, it is incumbent upon government to ensure that tax-payer dollars are pushed to the front lines so that they can get to those who need it the most. This includes patients, students, seniors, and our most vulnerable. It is the responsibility of government to design policies that have the flexibility required for seamless adjustments when economic conditions and demand for programs and services fluctuate. It is equally important that those who administer publicly funded programs and services do so with the mindset that they, too, are just as accountable to tax-payers as is government.
Alberta’s government has already taken steps to ensure our province fosters a business-friendly environment. Our first order of business was to axe the carbon tax that suffocated industry and families alike. Accelerating the job creation tax cut will allow job creators to grow their businesses and give Alberta the advantage over most jurisdictions in North America.
Attracting investment is key to the fiscal health of our province and, in turn, sustaining our quality of life and standard of living. As the economy grows and we pay down our debt, Alberta’s tax dollars can go directly toward programs and services rather than debt service.