I little industry news this morning to share with you. Now, think about it critically, and avoid the rather partisan result of the tables in judging a six month government inheriting a time of extreme fiscal crisis and simply look at the graphs without the colouring. What do you see that’s odd?
I see a few. One, the current graph is basically exactly the inverse of oil prices. That would say for a province where only 25% of our GDP is tied directly or indirectly to oil, the vast bulk of the public services are funded by energy royalties. That’s not a stretch. The shortfall is very much a result of decreased royalties alone. Thus, no heritage fund, we were spending the variable income on our operational day-to-day costs. All so we had lower taxes. Our oil paid for our schools and health care.
Now, it can’t. so either we have to pay right now, go without them, or shift the operational costs, and find another way forward, or a mix.
Another item. Lougheed ran a pretty even keel. He had a net negative debt contribution, was in power for a very long time though some of the hardest times, and created what was once a huge heritage trust fund with our oil and gas royalties. That is what Notley plans to do with any additional royalties resulting from the current (and overdue) review. We are shifting, under the current government, some of our operational expenses back onto the tax base directly, and off the royalty base. That’s more sustainable, and more even keel over the long term. More what Lougheed was doing.
Further, Klein is absolutely lionized by the fiscal hawks in Alberta. The graph further lionizes him at a glance and demonizes Notley. But Klein absolutely hammered down the spending back then because, as is happening, our debt rating was downgraded. There is merit to getting it under control and having a plan, but Klein also gutted our services that we pay for and rely on as citizens of this amazing province. It wasn’t all wine and roses. If you were in the queue for health care, it was a long suffering mess. But why did he have to cut so extremely deep when Lougheed only had a net NEGATIVE effect on the debt for the many years previous to him? And why are we lionizing the PCs when their last run of Premiers were in power only slightly longer than our latest new government and ran the debt up proportionally at a time of the highest oil prices in history? Keynesian economics says you pay DOWN the debt in GOOD times and spend on stimulus and responsibly in the slow times as a government. Both to even out the cycle and kickstart the next growth phase. We are inherently poor at doing the former, only Finance Minister and PM Martin being one I recall doing so successfully and in a balanced manner.
I’m not one to give public services a free pass. We need to help them and incentivize them to find ways to be better, and more efficient, whilst delivering higher quality services year over year. That’s how a company runs, and is geared to run. But it serves the people. Not the economic cycle. It needs to be there for everyone in good times and bad, not just when the oil prices are up. That was what I consider to be a fatal flaw (in retrospect, unfortunately) of the thinking that has been prevalent in our province for the last few decades. Short-term, immediate-gratification thinking. I want lower taxes when times are good. Don’t bother we with your “what happens if….?” questions. It’s my money. I want all of it. Tax somebody else for my schools and roads and health care and….
Look at it another way. We all want lower taxes. Most of us have realistic views that a civilized and advanced society such as we live in has a significant infrastructure and operational foundation that needs to be funded, and isn’t really a money maker. It’s an enabler for all of us for our business, pleasure, and lifestyles. So we know there has to be some taxes there to have all this. Otherwise everything just gears only to the wealthy, and society stratifies and stagnates. It’s a common good. So we pay, but we complain, and we watch to try to keep an eye on it when we can, and pressure the government on it.
Then we fall victim to populism, in that a government can “play the system” and give us what we want (Klein) as we love him, but we have painted ourselves into a corner. The debt is there to be paid on our infrastructure, and we had to pay it in all the post-Klein years. And we still don’t have a really efficient public services model. The hyper-reorganization of the Alberta Health Board has been a fiscal and organizational disaster from the first one, and they just kept coming under the later conservatives. There was no goal other than “consolidate”. I always found that odd, as businesses have branch offices and divisions to more efficiently manage larger organizations, not a concentration of functions across groups in all cases. There’s a balance, but these reorgs have been top-down bureaucratic disasters spawned, it seems, from management consultants with little vision, unclear goals and no parameters.
So, we want services, and we let the populist governments, the neoliberal governments, pay for it all via royalties and lower taxes. First for everyone to a flat tax, then primarily on businesses over the last little while, expecting more…. what? Jobs? We had the lowest unemployment rate in the country by almost a factor of two. So why were we going after jobs? The surplus, if there was one (there wasn’t, according to the graph) should have gone into the Trust Fund. The royalties should be going into a trust fund. We should be paying for our services and working to make them better, and cheaper per person, learning from the best public health systems in the world and then applying Alberta know-how to get even better. To lead. But instead it’s all about taxes, and royalties, and investment, and jobs.
What about fiscal sustainability? Do you get the impression we left that by the wayside when Peter Lougheed stepped down? Klein brought in chequebook sustainability, but that was small-town economics. Not three million people economics with a diversified economy. It wasn’t a growth for the future. It was a fiscal minimalism. It has appeal, don’t get me wrong. Small government can be a good thing. In many ways we want them to provide public services, and only incentivize or deincentivize otherwise. Protect the public and common good. Provide the services for everyone, and put the fiscal parameters around the rest so industry can solve and come up with the best solutions. Remembering the industry has a goal of profit only. Not whatever the people or government may have in mind. To make the profit align with the results we want as a society as much as possible. And let them build the solution.
Now, I think our new government is scrambling a bit. The oil price has fallen twice as far as even our flash premier Prentice had forecast in his doom-and-gloom disastrous early election. I don’t care WHO was in power right now, Klein, Lougheed, Notley, Prentice, or the best financial or managerial wizard you could conceive of. This is going to be a very hard situation to work through and improve. If we can get past the blame and inference, and learn from the simple facts that are there in history, maybe we can get out of this partisan, nonsensical bickering, and get back to building a great province for everyone.
Some food for thought. Remember, comments are moderated, but if you post something meaningful, not spam, you will get whitelisted. Otherwise we would all be reading trackback spam for the next great online business opportunity marketing viagra funded from Nigerian inheritances and government interact refunds.
It is food for thought, thank you. I get impatient with pundits who start from the assumption that only less government is good, even if it fails to meet our requirements.