Alberta’s largest worker advocacy group warns government of dire consequences for ignoring revenue hole created by irresponsible Klein-era tax cuts
With global oil prices staying “lower for longer,” Alberta’s 2018 budget must fix the revenue hole that has loomed since Ralph Klein’s reckless tax cuts, according to a 2018 budget submission report commissioned by the province’s largest workers’ advocacy organization in collaboration with economist Hugh Mackenzie.
Between 2005-06 and the end of the boom in 2014-15, resources accounted for a staggering 21-42 percent of total revenue, averaging 27 percent. But since the global price of oil has plummeted, current budget projections show resources contributing only 9.3% of provincial revenue.
“A closer look shows that Klein’s so-called ‘Alberta Advantage’ of low taxes and high-quality services was a mirage – a sleight of hand that only worked as long as oil prices stayed high and royalties kept rolling in,” said Alberta Federation of Labour President Gil McGowan. “We can’t expect the hole in Alberta’s budget created by the 2014 collapse in oil prices to be filled by a rebound in fossil fuel prices. Non-renewable resource prices are poised to stay ‘lower for longer’ – and with U.S. shale oil production creating supply gluts as far as the eye can see, experts like the CEO of Shell have concluded oil prices might just stay ‘low forever.’”
Public spending isn’t to blame for Alberta’s revenue hole. In 2016, Alberta spent about 17 percent of its GDP on provincial public services – the second lowest in the country. The problem is that we only collected 9.2 percent of our GDP in “own-source” revenue to pay for those service – a full 3.5 percentage points below Saskatchewan, the second-lowest province. The rest of the costs have, for the past 20 years, been covered by windfall oil and gas revenue.
“As a share of our economy, Albertans pay far less than any citizens in other province for our public services. But the lower bill for individual Albertans isn’t because we’re better or smarter than everybody else. Instead it’s because, since the Klein era, we’ve essentially spent all of our oil and gas revenue in order to keep our taxes artificially low and give people the impression that we could get more for less,” said McGowan. “With natural resource revenue drying up, Albertans need to face the reality that we’ll need to start paying something closer to Canadian mainstream taxes if we want Canadian mainstream services.”
If Alberta were to model its revenue regime on British Columbia, its revenue base would increase by more than $15 billion, or $11 billion if modeled on Saskatchewan. A pre-2000 Alberta regime would increase the provincial revenue base by $7.4 billion.
“Instead of high-stakes gambling on resource revenue, Alberta needs to face a new low-oil-price reality,” said McGowan. “Ralph Klein’s legacy saddled the province with a profound and unsustainable structural revenue problem, and we need to begin the tough conversation about how to fix it. This doesn’t necessarily mean a sales tax, but it does mean admitting that there is, in fact, a problem. Denial that the problem exists is no longer an option.”
Alberta Federation of Labour President Gil McGowan will be available to media for comment at the legislature following Budget 2018 on Thursday, March 22nd.
The full budget report, The Elephant in the Room, is available online.
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