After the National Energy Program was announced, Alberta was about to enter a period of recession that would shape fiscal policy for over the next four decades. As this excerpt from a January 1981 memorandum from Deputy Provincial Treasurer A.F. (Chip) Collins reveals, the province’s budget-makers faced a climate of great uncertainty. Over the coming months, Abpolecon.ca will be reporting the internal discussions, at the highest levels of the Alberta government, respecting economic activity and proposed budgetary measures. This tumultuous period offers interesting parallels to what Treasury Board and Finance budget-makers are dealing with.
As this excerpt from Provincial Treasurer Lou Hyndman’s files illustrates, 1981 was turning into annus horribilis. As the Treasury department prepared the 1981-82 budget- tabled on Tuesday 14 April, the department cautioned the Treasurer on the desirability of waiting for more information.
Of note is the comment: “Governments have to be aware of the effects of their forecasts. That is, by affecting the psychological atmosphere of decision-making or, indeed, the information on which decisions are based, government can lead economic activity.” This comment is very telling as the current government must be debating the content, and especially, the tone and amount of information it wishes to place in the hands of the public, the NDP Opposition, and rating agencies. Other provinces have begin to provide updates and given the oil price drop from Budget forecasts, Alberta will probably be one of the last provinces to expose its numbers and expectations.
Certainly the government does not want to push the panic button. In later reports that we will publish, the Lougheed government sought reports from the Treasury Branches concerning what they are seeing through their extensive branch and corporate relationship networks.
In addition to the difficulties of placing new projections forward is the issue of signalling to grant funded agencies like universities and school boards, what these agencies might expect going forward. Premier Kenney keeps talking about a “fiscal reckoning” even while his government announces new initiatives like the new Invest Alberta Corporation, which will consume more scarce tax dollars, rather than less.
Alberta Treasury MEMORANDUM
FROM: Deputy Provincial Treasurer OUR FILE REFERENCE: FE-4570-5
TO: Hon. Lou Hyndman DATE: 16-Jan-81
SUBJECT: Budget- Related Action Requests – Your Memorandum of 22-Dec- 80
This memorandum responds to the directions and request for comments contained in your memorandum of the above date titled “Wage and Salary Guidelines.”
A. Date of Release of Guidelines
We would have no difficulty with an early December release.
B. Economic Forecast Press Release
You note that the “Premier committed to our considering an early February ‘Economic Outlook’ news release.” Our, small, “c” conservative advice would be that we refrain as long as possible from making an official government forecast.
There are several factors relevant in our recommendation.
- The hard data that would be available prior to the budget will not substantiate an economic downturn. As we have discussed before, we do not expect a significant downturn in economic activity to be evident until after the first quarter. In any event, even fourth quarter 1980 National Accounts data (e.g., level and growth of GDP, consumer expenditures, investment, etc.) will not be available until mid-to-late Mar-81. The 1981 Survey of Public and Private Investment Intentions will not be available until the end of Mar-81 either.
- What we are trying to predict here is the timing and extent of a possibly significant downturn in economic activity. Forecasting turning points is always difficult and this one is more so because of the extraordinary nature of events (i.e., cannot rely on historical experience), and the complexity of the National Energy Programme and possible reactions to it. To forecast is turning point, we will have to rely unusually heavily on early indicators ( building permits and the like) and expressions of investment intentions.
- It may be difficult to interpret the available information. While the response of the oil and gas industry has not been even remotely positive, the Calgary and Edmonton real estate boards and the Alberta Construction Association have come out with an optimistic view of 1981.
- Governments have to be aware of the effects of their forecasts. That is, by affecting the psychological atmosphere of decision-making or, indeed, the information on which decisions are based, government can lead economic activity. While the government must make clear the negative impact of the federal budget on Alberta, a government forecast likely would not lead business decisions; it should react to them. Essentially, we are a collector and interpreter of information. The longer we wait, the more information we have.
- What is to be gained by an earlier official forecast?
Having counselled against a February news release, we will, of course, prepare an economic update for 28-Jan-81. It is unlikely, however, that much new or significant information will become available before that date.
C. Communication of Grant Funding to Universities and Colleges in Advance of Budget Night
If it is deemed desirable to communicate levels of financial support to be provided to grant- funded advanced education institutions prior to budget night, we would recommend that only the major global components of funding be conveyed to institutions. With the Premier’s approval, we would recommend that across- the- board provisions for cost escalation, special provisions for high government priority educational programs, provision for growth and perhaps major new capital projects (if approved) be communicated. We would recommend against announcing any funding for special institutions, as even the allocations that will eventually be printed in the estimates are preliminary and subject to minor adjustments in most years. We would also recommend that Treasury have the opportunity to review any correspondence prior to release of the funding information to the institutions.
D. An Alberta CPI Modifier
Perhaps this issue could be clarified if we were talking the same language. The CPI is an index of price changes over time. They have federally promulgated CPI for Alberta is, in our view, a methodologically sound measure of price changes in Alberta. Tax levels are captured in the CPI to the extent that they affect price changes. For example, Alberta has no sales tax. If a retailer raises the price of a consumer item by $1 in all Canadian outlets, then the effect of price increase in Alberta would be $1.00; in British Columbia where there is a 4% tax rate it would be$1.04 as measured for the CPI.
Source: Provincial Archives of Alberta, PR 1986.0245, Box #45, File #640 (Hyndman papers)