It's no secret that Alberta's finances were mismanaged for years under Ed Stelmach and that the situation has only become worse since Alison Redford took office. That the richest province in the federation has the second highest per capita spending and is expected to run a $3.1-billion deficit this year, while depleting the reserves it had built up in good times, is a case study in fiscal mismanagement.
The obvious solution would be to decrease government spending, in order to bring it in line with the national average, while maintaining low tax rates as an incentive for businesses to grow the economy, which would serve to grow the tax base as well. But not if you ask former Alberta Liberal leader Kevin Taft who, in a new book produced in partnership with the Alberta Federation of Labour, argues that Albertans are being "played for fools" by greedy corporations that are making windfall profits, while the government scavenges for pennies.
But Mr. Taft doesn't blame the corporations, he blames "the trustee of the people's wealth — the government of Alberta — for failing every citizen and their future." The solution, according to Mr. Taft, is to throw out the province's policies of maintaining low corporate taxes and a competitive royalty regime, and start collecting a fair share of revenues for Albertans.
Now where have I heard that one before? Oh right, Ed Stelmach made the same argument when he first came to power in 2006. He tried increasing oil royalties and — surprise, surprise — investment in the oil sector dried up. The Stelmach government was forced to do an embarrassing about-face and return the rates to their original levels.
Since that time, Alberta's economy has been recovering and it once again has the highest per capita GDP in the country. And the growth is expected to continue, according to a report released last summer by Scotiabank, which predicts the provincial economy will continue to outperform its neighbours this year. "Heavy oil output is being ramped up, with further investment and construction activity underpinning a multi-year period of solid growth," reads the report. "The manufacturing and service sectors will experience a positive spillover as physical and human capital are added to support the expansion."
Indeed, this is precisely how economic growth takes place. When oil companies are increasing production — and, in turn, boosting their profits — they hire more people, they buy more equipment and they build more facilities. This, in turn, creates business for construction and service companies that also hire workers and perpetuate the cycle of growth. It's no wonder that a StatsCan report released in December shows that Alberta is the top destination for Canadians and immigrants alike.
Most people would probably prefer to have prospering companies that provide jobs and put money in their own pockets, rather than a provincial treasury that's flush with cash. After all, the government would just spend it on a $25-million foot bridge, or some other useless infrastructure project. Most people, but not everyone.
"There's nothing wrong with profitable companies. I want those in my pension plan, too," said Mr. Taft in an interview with the Edmonton Journal. "But profits in Alberta are at double the rate of anywhere else, including the U.S., that's what we are looking at." Well gee, that must be bad. Loot 'em!
On second thought, maybe penalizing businesses for being successful isn't such a bright idea. It's no wonder the Liberals have been shut out of power since 1921.
Financial Post, Thurs Jan 19 2012