Governing for the short term?

By Lethbridge Herald Opinon on April 1, 2015.

Province needs stable revenue, not repeat of same old formula

Bryson Brown, John Vokey and James Byrne


Premier Jim Prentice told Albertans to “look in the mirror” if they wanted to see who is responsible for Alberta’s sudden financial embarrassment. He himself is the leader of our perpetual party of government, with a long record that he seems bent on continuing: periodic surges of spending when times are good, followed by desperate, crude spending cuts whenever revenues decline.

Making cuts across the board gives an impression of toughness, but it hides the real problem: this government has no idea of how to prioritize and focus spending for Alberta’s future, and no will to build a stable revenue base that could support the planning we need to do.

It may not be what people want to hear, but Alberta’s biggest problem is with revenues. The flat income tax has mostly benefitted high-income Albertans. Adding a tiny bit of progressivity makes little difference – and some of that will soon disappear: the government has promised the extra 0.5 per cent of income tax Albertans earning over $250,000 will pay for the next few years will drop to the same level as the tax on income over $100,000 by 2019. The new “health-care fee” is just a surtax on income; it goes into general revenues, and reaches its highest level at an income of $130,000. And these increases are far from enough to put the budget on steady path. The obvious proof of this is that the government’s projection of future balanced budgets still depends on assuming oil revenues will rebound. Low taxes and low royalties for corporations remain, while higher taxes on individual Albertans and damaging cuts to basic services we all rely on leave most of the deficit in place.

Apparently, the government is also considering removing the cap on university tuition fees, making it even harder for children from lower-income families to pursue a university or other post-secondary education; Alberta already has the lowest rate of PSE participation of all the provinces. Of course, Alberta will also continue to have the highest school fees in Canada.

Alberta has already given up other sources of stable revenue: the electric power generation and the power grid for the entire province (Trans Alta), the telephone system (Alberta Government Telephones, AGT) and all the liquor stores. The first two of these also ensured that even the most remote Alberta citizen would have both electricity and a telephone line; the costs of extending these lines to remote locations were picked up collectively by the people of Alberta. These investments laid the groundwork for broader prosperity across Alberta. But they’ve been sold off, and the proceeds spent – worse, the new electrical system transformed Alberta from one of the lowest-cost regions for electrical power in North America to one of the highest; it was subsidized with $2.3 billion in public money to lower the spike in consumer costs.

Alberta has lots of room to raise income taxes and corporate taxes while remaining the lowest taxed jurisdiction in Canada. But rather than a gradual plan to fill the revenue gap, Mr. Prentice is imposing drastic cuts in the public sector. He told us that public-sector salaries there are far too high compared with the rest of Canada, when the difference between salaries in Alberta and the rest of Canada is even higher in the private sector. Worse, cutting peoples’ salaries will only amplify the recession that’s already taking hold here.

Underlying this mess is a simple fact: governments cannot plan and spend efficiently when revenues are unstable. Big cuts in lean times leave a mark: lost positions, tired buildings, deferred maintenance and missed opportunities. We try to catch up in the good times, but they don’t last long enough for our services and infrastructure to recover from the last round of cuts. And wild swings back and forth make it easy to argue for a new round of cuts; just start the clock when spending began to increase in the last recovery, and it looks as if spending is growing way too fast. But that’s an illusion (or a deception); teachers have gone through three years of zero increase in their pay scales, universities were cut by over seven per cent in the March 2013 budget and grants to the universities were cut again in 2014, with cuts of 1.4 per cent this year and 2.7 per cent next still to come.

Tragically, the government has no long-term plan beyond waiting for another boom – a boom which may never come, since the bitumen we produce is some of the most expensive and polluting oil in the world, and the threat of global warming means we can’t afford to burn all the fossil fuel reserves we already have. In the competition to decide whose reserves will remain in the ground, Alberta starts with a big handicap.

We need a new direction in this province, not a repetition of the same old story. With stable, balanced revenues Alberta could begin to plan for a future beyond oil – a future based on a wealth of renewable energy, strong agriculture and a creative, well-educated population. Without them, we’ll settle for a diminished future for our children, where once there was so much promise.

Bryson Brown, John Vokey and James Byrne are University of Lethbridge professors in the departments of philosophy, psychology and geography respectively. They were writing on behalf of 18 other U of L faculty members who are signatories to the column. The full list of signatories can be found at