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Albertans to Politicians: Spend less before you ask for more

Posted January 24th, 2013 in Alberta Politics, Alberta Provincial Budget, Calgary Herald, News and tagged by admin

About 6 or 7 months ago, on this very page, I said the Government of Alberta had a budget problem – well, actually 3 problems:


1)   Energy royalties would be well short of budget projections;

2)   The Provincial Budget had no spending “cushion”, i.e. every nickel of revenue was slated for spending, along with $900 million drawn from savings, and;

3)   Setting/managing budget expectations in the face of a strong economy.

And here we are January 2013…sure enough, Alberta has big budget troubles.  We’re looking at a 2012-13 deficit of $3 Billion (maybe more), and a budget next year that will likely not balance, will likely consume remaining Sustainability Fund savings and take the province into debt for infrastructure.


For most of the latter half of 2012, the Provincial Government was casting a “stay calm, don’t panic” message in relation to the budget, but has recently abandoned that talking point.  Just this week, Finance Minister Doug Horner signaled that the March 7th budget “won’t be pretty”.


In addressing the problem, Albertans have some clear preferences according to a ThinkHQ Public Affairs survey of 1310 adult Albertans in mid-December.  Fully 42% of Albertans would prefer the budget be balanced through spending and program cuts, while 16% each favor increasing taxes or using the remaining money in the Sustainability Fund, 8% say go into debt, and 17% aren’t really sure how to solve the budget problem.


Horner’s recent comments seem to be very much in keeping with where most Albertans are at – specifically, no new taxes and government belt-tightening.


But given public views on the budget, it’s interesting to note a growing chorus of voices calling for a review of provincial revenue streams, and specifically “discussing” new taxes.  It’s not especially surprising to hear these suggestions coming from Liberal and NDP MLAs or from some academics (economists love the certainty and efficiency of consumption taxes), but politically it is a bit novel hearing these same refrains coming from former cabinet ministers like Ron Liepert and Mel Knight, and from the Premier’s Principal Secretary Lee Richardson.


So is the public ready for a “discussion” about new tax sources like a sales tax?  Probably not, and Finance Minister Horner’s folksy response to a similar question pretty much sums it up, “The first thing we do is look to our own house before I start digging into the pockets of those in your house.”


For any government to win grudging public support for new taxation, they need to convincingly make the case that they a) don’t have a spending problem, and; b) do have a revenue problem.


Until these two conditions are satisfied the discussion about new taxes is at best pre-mature and at worst a solution in search of a problem.


A snapshot comparison of Alberta’s budget vs. other comparable provinces suggests that we have both a spending problem and a revenue challenge.


Some quick budget math: Compare the four biggest provinces in Canada – Ontario, Quebec, British Columbia and Alberta – on their 2012-13 budgetary expenditures and revenues per capita.


On the revenue side, Alberta is the biggest earner: the current budget calls for government revenue equivalent to $10,475 for every man, women and child in the province.  Then we have B.C. at $9,356 per capita, Quebec at $8,581 and Ontario with $8,328.  Alberta’s projected revenues for 2012-13 are more than $1,200 per capita higher than the average of the 4 largest provinces.


But wait, the Province has already said our revenue projections will probably be off by $2.5 – 3 Billion.  Three Billion dollars less would put Alberta’s projected revenue at about $9,600 per capita – still ahead of 2nd place B.C. by about $250 per person.  In fact, revenues could drop by $5 Billion and the province would still be bringing in between $500 – $770 more per capita than Quebec and Ontario.


Let’s look at the expenditure side.  Alberta’s spending in the 2012-13 Provincial Budget is $41.1 Billion – that’s $10,683 per person.  Compared to the three other biggest provinces, we spend the most.


B.C. is slated to spend $9,530 per capita this year, followed by Ontario at $9,382, and finally Quebec with government budgeted expenditures of only $8,828 per capita.  Alberta’s 2012-13 spending is budgeted to be a full $1000 per person higher than the average of the 4 largest provinces, and $1,800 more per capita than government expenditures in Quebec.


On the spending side of the balance sheet, most other province’s make ends meet with considerably less than Alberta – all of the other big provinces spend less than we do.


On the revenue side, most provinces would give their eyeteeth to have Alberta’s revenue challenges.


It’s true that Alberta relies more heavily on energy revenues than any other province.  It’s true that energy revenues are prone to massive market fluctuations.  But these things are really only a problem if you completely bank on strong energy prices to fund your operations.  If you’ve built a budget that requires record energy revenues every single year, you’re building a house of cards.


There is a lot easier way to plan for big fluctuations in energy revenues than implementing a provincial sales tax, but it requires spending discipline – specifically, discount energy price forecasts when it comes to expected revenues and spending.


In the years when volatile markets work against you, there will be budget cushion to protect program spending.  In the years when volatile markets work in your favour, there will be windfall for savings.



Marc Henry is president of ThinkHQ Public Affairs Inc., an Alberta-based government and public relations strategy and public opinion research firm. 


Link to December 2012 Budget Graphs