Updated and corrected 3 December 2022

See also a related BlogPost for the Parkland Institute

published 2 December 2022

Perhaps the best glimpse into Premier Smith’s thinking on a whole range of critical public policy issues is contained in a 20-page paper entitled “Alberta’s Key Challenges and Opportunities.”   This paper was part of the School of Public Policy’s pre-publication series called the Alberta Futures Project. This paper was published in June 2021 before oil and gas prices rose substantially changing the province’s fiscal picture. What is surprising is the absence of a discussion of a sovereignty act and confronting federal overreach central to her winning the UCP leadership.

In this article, I examine fundamental values, her diagnosis of Alberta’s economic challenges,  fiscal policy choices, and health and spending proposals.

Fundamental values

Smith begins her analysis by stating that Alberta does not share the central Canadian historical narrative of the union of two founding peoples. Alberta’s character grew out of trade, not conquest.

As a result of our history, the character of Albertans is both entrepreneurial and communal. We cherish our entrepreneurs and wealth creators, but we also expect them to be community leaders and philanthropists. Perhaps better than anywhere else in the country we understand that the success of our government is dependent upon the success of private enterprise.

For Smith then government is essentially an add-on.  The real action is trade and commerce, which is to say that homo sapiens are primarily economic agents. She confirms this when she stresses that growing profitable businesses are the entities which generate revenue “to pay for the social programs we all care about.” She earnestly believes that “titans of business” have “given back in spades. They will continue to.”

Her unbridled optimism for this province overflows in this SPP publication.

I have never been so optimistic about Alberta’s future. It’s like that fallow field that is just waiting to be seeded, a metaphor that has shaped the historic character of our people. We have been resting, and thinking, and quietly dreaming. When we are free to meet and start actively creating again, which will be soon, our economy will take off like a rocket ship.

Smith is a fan of Joseph Schumpeter’s “creative destruction” and remains highly optimistic about the capacity of Alberta business to solve problems. To her “There is no problem that is too big for our business leaders to solve.” She believes that in Alberta where we have a problem- “we figure out how to solve it.” This will eventually translate into Alberta’s fourth energy boom based on hydrogen.

There is some recognition that environmental liabilities of the fossil fuel industry are a “problem.”  However, she sweeps these concerns away by arguing “Oilsands mining creating a hazard with tailing ponds? The industry develops steam assisted gravity drainage.” How that is an answer to the problems of tailings ponds, is not clear.

The oilsands industry is lionized for its innovation and “entrepreneurial mindset.”  “Can’t build pipelines? Transport it by rail. Tanker ban off the BC coast preventing us from exporting bitumen in liquid form? Bitcrude and Canapux develop a way to transport bitumen by rail in a semi-solid state so it can be shipped by container ship.”

However, orphan wells liabilities are not specifically mentioned in this paper. As Professor

Andrew Leach has written Smith when she was with the Alberta Enterprise Group advocated for more government royalty holidays to address the orphan well problem. The program termed RStar is currently being investigated by Energy minister Pete Guthrie.

Finally, the not-for-profit centre and charities are singled out as the first to spring to respond to disasters such as wildfires or floods. Government’s role and responsibilities in addressing community crises appear to be secondary.

Alberta’s Economic Challenges

Smith believes that the primary challenge or barrier standing in way of Alberta’s economic potential is government. She singles out Alberta’s health care system stating that the system, which takes about half of all government revenue, was not up to the task of managing the COVID crisis. She accuses the health bureaucracy of complacency “who followed the crowd and lazily took the path of least resistance, locking down the entire economy and blaming Albertans for not doing enough to avoid getting sick.” What she wants is a public service that has a “can-do attitude” like the private and not-for-profit sectors. Her recipe is to instill innovative government.

Fiscal Policy

She then explores fiscal policy first noting that Alberta does not have a spending or revenue problem. She identifies the problem as “not a lack of diversification in industry, the problem is a lack of diversification in the provincial government’s source of revenues, and a lack of innovation in the public service as a whole.”   Furthermore, “Alberta has built its operational spending for the vital services everyone needs – health, education, post secondary, social services – on volatile and unstable sources of funding.”

She goes on

This is the fundamental conundrum of Alberta. We want gold-plated services and we don’t want to pay more taxes for them. Politicians are to blame for maintaining the fiction that this was sustainable. Anyone who proposes an alternative to raise taxes the sales tax is the most obvious source of long-term revenue the province could adopt to solve this structural shortfall – it is instantly shot down by politicians fearing they won’t be re-elected.

She concludes this illuminating thesis  acknowledging that Alberta can’t balance the budget on resource revenue or tax increases alone.  In a sharp departure with the Kenney-Toews government, Smith believed revenue increases of roughly $8-billion a year and spending cuts of $4-billion would bring the structural deficit to heel.

A key ingredient to fiscal sustainability according to Smith is managing resource revenues more effectively. She proposes to do this as follows. Alberta must bite the bullet and accept advice delivered to past Tory governments- to only include a small amount of royalties in operating budgets while seeding a revitalized sovereign wealth fund. She wants the province to be in a position to generate $4-billion in investment income from the wealth fund.

Smith then proceeds to back test her idea.  Starting in 2008-09, she uses her new budgeting rule limiting royalties absorbed into budgets to $2-billion a year and the excess split 50-50 between capital investment and long-term savings. She estimates that had her rule been followed, the new fund would reach $65-billion in fiscal 2024. She also runs through other scenarios which could have resulted in an $87-billion fund. She observes that compound interest “is deadly when you are in debt and it is working against you. Compound interest is a miracle when you have savings and it is working in your favour.”

Health Policy

Smith also proposes to reduce the revenue gap through user fees. She opines that we can no longer afford universal social programs “funded 100 per cent by the taxpayers.” She begins with health care by saying the society’s goal should be establishing a “patient centric” system.  As outlined in her campaign a health spending account would unlock innovation in the system.  By patients choosing where to allocate their health care dollars this would translate into less demand on the hospital system and better chronic care management bringing costs down.

She recommends that government match individual and employer donations with a $375 per year Health Spending account. Once people “get used to the concept of paying out of pocket for more things” the conversation on health care will change from what services the government will delist to what services are paid by government and what are paid out of the health spending account. Smith believes it is better for individuals to make their own decisions about what health providers to use.

Smith also wants to redefine the notion of universality. “Universality must mean that no one is denied care when they need it and no one should face bankruptcy because of medical bills. Full stop. It does not mean that we must maintain a system of arbitrary rules for what you must pay for out of your own pocket and what government must pay for exclusively on your behalf.” According to Smith once the spending account is accepted “then we can also establish co-payments.”  Co-payment, presumably for publicly-funded services “doesn’t need to be onerous, say $500.”  With all this in place Smith guarantees ”business and non-profits will step up.”

Spending

Smith argues that bureaucracies are terrible at finding efficiencies. Her solution to cut public spending is to promote charter hospitals which are publicly funded but privately delivered. She relies on Janice MacKinnon’s advice that Saskatchewan’s experiment with privately-run surgical centres has reduced waiting times. She believes that employees in privately run centres and hospitals will have better work experiences because they don’t have only one choice of employer- Alberta Health Services. As she puts it – “if you don’t like your work, the only option is to leave the profession.  Having multiple service providers allows for the creation of multiple creative environments that will be better for patients and staff alike.”  How well-grounded Smith’s enthusiasm and optimism is another question.

Charter hospitals are regarded as the beginning of a golden age of medical care in Alberta where expertise and entrepreneurialism translate into a “world of opportunity.” Reference is made to a Mayo Clinic North.

Her parting observations reflect frustration over how Alberta has managed to make the same mistakes over and over warning of government again frittering away the next revenue bonanza.

Implications/Opinion

Smith exuberant enthusiasm and belief in Alberta’s entrepreneurial and communal character may be wishful thinking or naïve.  Alberta government economic policy has remained in a rut of trying to attracting foreign investment and subsidizing these large corporations through low taxes, royalty rates, and incentives of a variety of kinds. Alberta small business is normally unable to take advantage of the opportunity for government handouts. And the gravy train continues even under a libertarian Smith government. Air Products an American concern mainly owned by U.S. institutional investors is being lured with $300-million in federal cash (Strategic Innovation Fund’s Net Zero Accelerator) and $161.5-million from Alberta’s Petrochemical Incentive Program and another $15-million form Emissions Reduction Alberta. The Alberta government also announced an additional $32-million which is tailored for the Dow Chemicals expansion in the “Industrial Heartland.” Given Ms. Smith’s recent conversion to the problems of affordability it is strange to see such largesse going to huge multinational corporations as  opposed to inflation-stressed Albertans. This instinct to reward outside capital should be reined in.

But the most important insight into her thinking is on the need to rethink Alberta’s fiscal policy.  Smith is absolutely right that the real problem in Alberta’s finances is the over-reliance on resource revenue, an abject failure to stick with a savings plan, and the need for Albertans to tax more in tax. During the leadership campaign Smith was attacked by her opponents for proposing a sales tax. Smith dismissed her Postmedia article as past musings accusing her opponents of a smear tactic. Now as premier she has a responsibility  take on those pusillanimous politicians in her party and across the floor and convince Albertans that her 2021 policy paper was not just musings but what she actually thinks. Perhaps the current windfall changes everything.  On the other hand, the great reliance on the Big Four underlines Smith’s very point- Alberta must get off the fiscal roller coaster and a sales tax is one of the ways. 

This is the fundamental conundrum of Alberta. We want gold-plated services and we don’t want to pay more taxes for them. Politicians are to blame for maintaining the fiction that this was sustainable. Anyone who proposes an alternative to raise taxes the sales tax is the most obvious source of long-term revenue the province could adopt to solve this structural shortfall – it is instantly shot down by politicians fearing they won’t be re-elected.  Danielle Smith  June 2021

On the health file, her willingness to experiment will be courageous.  Most Canadians recognize that more money is not going to solve the health care crisis.  The country faces epidemics of obesity, opioid use, poor health care for First Nations, an ongoing endemic and ideological warfare.  Smith clearly wants to break the real or perceived doctors’ monopoly in controlling access to the health system. Buckle up!

Acknowledgement

I would like to thank reader David Armstrong for pointing out Smith’s article in the SPP series.

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