Excerpt from forthcoming book of essays about an Alberta sales tax.
Alberta’s fiscal dilemma, which has vexed provincial politicians since 1905, is the public’s expectation that governments will provide a high level of services and maintain low taxes. Services in the early years were basic education, roads, railways, telephones, relief, public buildings, and irrigation canals. Today government services include health care and a variety of programs for corporations such as small business, farmers, oil and gas investment incentives, and special-needs Albertans. Other functions critical to the modern state involve regulation of marketplace behaviour, electricity markets, food, the environment, financial services, labour relations, and building public infrastructure like university laboratories. This desire for constantly expanding and improving public services is evident in many budget speeches since the 1950s.
But there is only so much that government’s can do to effect the quantity of revenue they work with.
While the fiscal dilemma is a political problem at heart, government policies and messaging tend to obscure what is controllable financially and economically. The distinction between what is, and is not, controllable is pertinent to political narratives and public discourse. Most politicians believe Job Number One is to create jobs for their constituents (the SNC Lavalin affair is a great example). As we saw under Don Getty’s Tories and Rachel Notley’s New Democrats, this task was approached in an activist manner. Under Ralph Klein this goal was pursued by creating a climate conducive to lure investment capital through low taxes, generous royalty policies, and limited regulation. Both approaches shared the belief that by creating short-term incentives or carrots, the province’s fiscal capacity would ultimately be enhanced. What was, and is, misguided in both approaches is the danger of reinforcing the dominance of resource extraction in the economy.
Governments are rightly seen in Canada as being drivers of economic development. The building of the CPR was literally a nation-building project. Similarly, TransCanada pipelines and the St. Lawrence Seaway projects have been enterprises enjoying tacit government support or direct public investments. That said, in today’s global investment world, governments must be vigilant they are not competing against each other as global corporations play one jurisdiction off against another. The recent example of Amazon “tendering” its second head office to the highest bidder is the most recent example.
As the following table shows, there are many significant areas completely outside the control of the Alberta government. If one places these factors into clear perspective, one might feel quite helpless – what’s the point? How can government create a climate hospitable for capital investment? Instead of acknowledging their helplessness around so many factors out of their control, for instance, the price of oil, political leaders must appear to be strong. Strength is seen in blaming external actors rather than concentrating on factors and levers within the control or influence of government.
The following table is not an exhaustive list but
gives an indication of the tools the Alberta government possesses to influence
the economy and powers within its jurisdiction.
| Outside Government Control | Within Government Control |
| Oil, Natural gas prices | Revenue (PIT, CIT, carbon taxes, gambling, alcohol, cannabis fees) Medi-care premiums |
| Canadian dollar exchange rate | Royalty rates-pace and scale of oilsands development |
| Interest rates | Operating and capital spending |
| Financial market returns | Public sector salary and benefits |
| Regulation of pipelines, banks, bankruptcy, railways, telecommunications | Appointment of senior officials, agency boards |
| Regulation of securities markets, labour relations, energy and environment, occupational health and safety | |
| Other: ATB Financial, debt management policy, investment management policies |
The above list should not be interpreted to mean the Alberta government can’t influence policy outcomes where its voice would legitimately be considered (e.g. Trans Mountain pipeline). There remains a great deal that the provincial government can control on both its revenue and expenditure side. Clarity on what the government can be held accountable for is a first step in public education about the Province’s fiscal circumstances.
Political will, political capital, and political leadership must focus on managing the key levers within the government’s policy tool box: namely, controlling operating and capital spending, maximizing returns to the province from resource development (subject to strict environmental accountabilities), and setting appropriate revenue policy. Without an open discussion of the trade-offs between the citizenry’s demand for public services and the public’s capacity and willingness to pay for these services, elected politicians will choose borrowing until that safety valve is no longer available.
[1] A prime example is L’affaire SNC-Lavalin.