A $2.4 billion drop in resource revenue has put Alberta on pace for a deficit of between $3.5- and $4 billion — one of the highest deficits in history, Finance Minister Doug Horner revealed Tuesday in the province's third quarter fiscal update.
The sea of red ink will be four times deeper than was forecast in the budget last February. The province initially predicted an $886 million deficit, but by the second quarter had increased its deficit forecast to $2.3 to $3 billion.
Now it's forecast to be $1 billion more, which will rival the $4 billion deficit the Don Getty government posted in 1986-87.
Horner blamed the ballooning deficit on the discounted price Alberta companies are getting for the heavy oil or bitumen from the oilsands, which has had a dramatic impact on royalties and taxes.
"We're seeing declining resource revenues in Alberta and that's, for the most part, a result of Alberta's market access problem," Horner told reporters at Calgary's McDougall Centre, "I know you have heard me talk a lot about the bitumen bubble. ... It is a bubble that is not going to pop any time soon and it is costing us a lot of money."
But he noted it is not just the differential between the price of Alberta heavy oil and West Texas Intermediate that is hurting the treasury, but also the higher exchange rate and lower land lease sales.
"It doesn't paint a pretty picture for the third quarter, and to be honest, it's not getting all that prettier," Horner said.
The new deficit projection doesn't include $1.1 billion the province is borrowing for the twinning of Highway 63 to Fort McMurray or the $4.1 billion already borrowed for various financial corporations and for lending to municipalities.
The sustainability fund which has covered four previous deficits has been reduced to $3.4 billion from a one-time high of $17 billion.
The flood of red ink prompted the government to simultaneously announce a three-year management salary freeze that it says will save taxpayers $54 million. Horner also announced plans to cut public sector managers by 10 per cent over the same three-year period.
While he said he didn't want to interfere in the ongoing collective bargaining, unions should take the management wage freeze as a sign of the times.
"We've been fairly consistent in saying that there is no new money," he said. "They should take that as a strong signal of what we have in mind."
The province froze MLA wages earlier this month, rejecting a one per cent cost of living increase to their $156,311 salaries.
Horner said his Conservative government has also found $600 million of in-year savings across all ministries.
Guy Smith, president of the Alberta Union of Provincial Employees, said he doesn't think the government should be blaming a $3.5 plus billion deficit on the discounted price of bitumen, which accounts for less than $1 billion of the shortfall.
"It seems rather strange that the minister of finance would tell Albertans that this is a long-term situation because it's probably not going to be," he said. "It seems to be very much a knee-jerk reaction to a situation that won't last."
Smith said Horner is obviously interfering in the collective bargaining process before it even begins and that rather than slash management jobs, he should be redeploying managers to the front lines to meet the province's rapidly growing population and its demand for more public services.
Alberta Federation of Labour President Gil McGowan said the finance minister appears to be more intent on finding scapegoats than solutions.
"It's clear they are desperate to blame anyone but themselves," he said. "It's time for the government to stop playing the blame game."
McGowan said the question Albertans should be asking is not where to cut, but why does the province have a deficit in a booming economy.
"The real cause of the problem has to do with years and years of cuts to taxes for high income earners and corporations, and years and years of royalty giveaways," he said. "It has nothing to do with how much we pay our public sector workers."
Wildrose Leader Danielle Smith said the fiscal update shows Premier Alison Redford's provincial budget is unravelling.
"We're seeing the budget was an absolute farce," she said.
She dismissed as "window-dressing" the government's plans to cut management by 10 per cent and to freeze their salaries.
Liberal critic Kent Hehr said it was folly to blame slumping oil and gas revenues for the financial problems, saying the government needs to budget more conservatively and change the tax structure.
"Everyone knows our revenue structure is broken," he said.
NDP critic David Eggen said Albertans are angry over the Tory government's bungling of the province's finances.
"They know our economy is growing," he said. "What's wrong with this government? Why did they miss the boat that's been sailing along in Alberta?"
The Calgary Herald, Tuesday, Feb. 19, 2013
Byline: Darcy Henton and Chris Varcoe
The Redford government's promise to keep building Alberta despite budget woes and bitumen bubbles could lead the province to embrace alternative financing to pay for high-priority construction projects.
Premier Alison Redford and high-ranking cabinet ministers have said repeatedly since last fall they will borrow to bankroll critical infrastructure projects such as the twinning of Highway 63 to Fort McMurray.
Some of that debt could come in the form of public-private partnerships — an alternative method of building, maintaining and paying for major public works projects often referred to by the acronym P3.
"I think we've been pretty clear, we're not only going to be using P3s, but we're going to be using the capital markets for infrastructure and only when it makes financial sense to do so," Finance Minister and Treasury Board president Doug Horner said in an interview last week.
The 2013-14 budget to be delivered March 7 should add clarity. But if the province decides to use P3s to spread out construction costs, it will build on a decade of experience with the format.
Since 2003, the government has used the financing method to build large sections of Edmonton and Calgary's ring roads, as well as 41 schools and a water and sewer treatment plan in Kananaskis.
Under a P3, a government signs a contract with a private partner who agrees to design, build, maintain, and sometimes operate, the project over a period of time. That private company finances some or all of the project, and the government repays the company, with interest, over a set term of several years.
As an example, the northeast leg of Anthony Henday Drive, scheduled to open in 2016, is a $1.81-billion P3 project that will be repaid over 34 years.
Redford has made no secret of her interest in P3s. When she became honorary chairwoman of the Canadian Council for Public-Private Partnerships in November, she said in a statement she was pleased to work with the council to champion P3s across Canada.
After last week's Alberta Economic Summit, Redford described discussions related to P3s as "fundamental."
"There was much comment about the fact this isn't about incurring debt, this is about assuming risk," she said. "That these are still assets that continue to be publicly owned, but they allow us to build them in a more effective way."
Still, the subject of borrowing to pay for schools, roads or housing projects — always contentious in a province that wore its debt-free status like a badge of honour — becomes even more complicated when discussing P3s.
Advocates praise them as an efficient way of building and transferring risk from the public to the private sector. The P3 for the northeast leg of the Henday means the 27-kilometre stretch of road will be finished three years faster than through traditional channels and for $340 million less, according to the province.
Critics, however, pan P3s for their lack of flexibility and contractual secrecy.
NDP MLA David Eggen pointed to the complaints that surfaced in the first round of P3 schools that opened in Edmonton and Calgary in September 2010. Those schools, built on a standard design, faced many restrictions on how they could be used.
Alberta Education said last March they adjusted the contracts for the next round of P3 schools to allow outside groups to lease space for things like child care programs or community events.
Alberta Federation of Labour president Gil McGowan said he was disappointed to hear Redford focusing on P3s after the summit. He believes they do not provide better value for taxpayers.
"We now have more than three decades of (international) experience with P3s and what that experience shows us is that P3s are a shell game that almost never works for citizens and taxpayers," McGowan said.
"P3s are helpful to politicians in the short run because it allows them to move upfront costs for large infrastructure projects off the books in the short term, but over the long term we end up paying at least as much, if not more."
Wildrose leader Danielle Smith said P3s are simply another form of borrowing, which her party opposes in all forms. "We simply do not believe that once you start down the track of borrowing money that a government will ever stop," Smith said.
Anthony Boardman, Van Dusen professor of business administration at the University of British Columbia's Sauder School of Business, studies P3s. He said experience indicates that if a project is complicated, it may be better to keep it within government.
"Over time, what's happened is some governments are better at managing them, although there's still a fair amount of evidence we pay too much for them," Boardman said.
There are ways the government can make sure a P3 is a good fit, he said. One important step is to have an independent evaluation process looking not just at the financial impact of a P3, but also the social costs.
Governments often fail to take the social consequences of P3s into account, such as limits the arrangement might impose on community groups' use of a school building.
"That's a problem," Boardman said. "The reason why they don't is because it's not easy. But instead of doing the wrong thing because it's easy, on all projects we should devote the resources to getting it right."
The government also needs to be as transparent as possible, Boardman said.
In Alberta, the provincial government publishes more information today about new P3s than it did for the first P3s a decade earlier. Alberta Transportation's information about the northeast leg of the Henday includes a value for money report and contract information. (http://www.transportation.alberta.ca/3787.htm).
It also consults with the Advisory Committee on Alternative Financing, a panel of private-sector experts that examines the business cases for P3s and gives its opinions to Treasury Board.
Committee chairman Tim Melton, executive chairman of Melcor Development's board of directors, said P3s can be an excellent way for government to build but are not the best fit for every project.
Whether the government uses P3s, traditional bonds or cash to pay for construction, Alberta's finance minister said the province will take the advice Albertans have been giving to act more like a business when it comes to deciding how to pay for infrastructure.
"Money-in-the-mattress mentalities don't work," Horner said. "It certainly doesn't create value for future generations of Albertans.
"We have growth in this province and that makes us different than almost every jurisdiction in the country and we have to manage for that."
The Edmonton Journal, Monday, February 18, 2013
Byline: Sarah O'Donnell
CALGARY - A research paper is reinforcing the idea that Canada's resource industry is at risk of being left behind internationally if it doesn't find a way to get oil to receptive markets in the Pacific Rim.
The report from the School of Public Policy at the University of Calgary says demand for heavy oil from Alberta's oilsands lies primarily in southeast Asia, but warns the window of opportunity will begin to close.
Author Michal Moore says Canada needs to find a way to get into those markets in the next two to five years.
"If we can get our products into the market in that stream we're going to be competitive," Moore, a professor of energy economics at the school, said Wednesday when the paper was released.
"The equivalent of being late is you have to take a bigger and bigger discount on your product, or switch and start supplying a more higher valued-added product."
The Alberta government has turned up the volume in recent weeks about the hole the oilsands oil discount is eating in the province's bottom line. Premier Alison Redford has warned of a $6-billion revenue shortfall this year because oilsands crude has been fetching a significantly lower price than the U.S. and global benchmarks.
She's also referred to the buildup of crude in Alberta as customers get a cheaper product elsewhere as a "bitumen bubble."
Moore says competition is an issue for Canada.
"There's a lot of that oil out there in the market. There's plenty of capacity in the Pacific Rim/Asian markets for heavy oil like ours, but it's not infinite and it's certainly competitive."
The Canadian Press, Wednesday, Feb. 13, 2013
Maya heavy oil from Mexico and Arab Heavy are very close to Alberta's product in weight and sulphur content, Moore said.
The challenge becomes getting Alberta oil to ports so it can be loaded onto ships and sent to willing customers in China, Japan or Korea. Moore said the most cost-effective way of doing that is through pipelines, but delays in the proposed Northern Gateway project to the West Coast present a problem.
Some Alberta heavy oil is already being processed at refineries in California. Moore also pointed to the possibility of shipping Alberta oil eastward to New Brunswick. And there is talk of a rail link to a port in Alaska.
New Brunswick Premier David Alward was in Alberta this week and said he'd welcome a pipeline carrying oilsands bitumen to the 300,000-barrel-per-day Irving Oil refinery in Saint John - the largest in Canada - with the possibility of exporting some of that crude by tanker.
But the Alberta Federation of Labour says Alberta should require energy companies to upgrade oil in the province before they are allowed to ship it.
Citing an Alberta Energy Department analysis obtained under freedom of information laws, the group argued Wednesday that oilsands mining projects with upgraders will become hugely profitable as the light-heavy oil price differential expands.
Federation president Gil McGowan said the Alberta government continues to approve in situ oilsands projects without requiring associated upgrading, which is flooding the U.S. market and driving down the price.
"These projects become less economically viable as the price difference between bitumen and crude expands," McGowan said in a release.
"And yet these projects have mushroomed throughout the province. Weâ€™re flooding the market, and these documents show that the government knows it."
Alberta NDP Leader Brian Mason said the government's refusal to increase Alberta's upgrading capacity is part of a "bitumen bungle."
"Here we have a clear message from the market, from industry, from policy analysts and from the governmentâ€™s own research, yet Redford continues to bury her head in the oilsands and stubbornly insist that we can only talk about moving bitumen because thatâ€™s what is in the ground,â€� Mason said in a release.
According to experts inside Alberta Energy, it's much more profitable to refine more of our oil before we ship it.
Both the Alberta and federal governments are now pointing to the “oil price differential” as the culprit that has forced them to revamp budget projections and talk darkly about the need for cuts to programs, services and public employees.
But is this really true? Or is it just a complicated but convenient excuse that draws attention away from deeper problems?
A 2011 Alberta government research document recently released to the Alberta Federation of Labour after a lengthy tussle with the Freedom of Information gatekeepers suggests that it is a convenient excuse.
“The premier is telling only half the story,” says AFL president Gil McGowan.
The oil price differential is not something people think about, even in Alberta. It’s the kind of numbers game that only experts in the field usually pay attention to.
To put it simply, the oil price differential is the gap between the price Alberta producers get for the heavy oil that comes from the oilsands and the benchmark price for West Texas Intermediate, which is a lighter oil. Right now the U.S. has access to lots of lighter oil, so our unrefined oil is less desirable and fetches less per barrel.
According to the Alberta government, Alberta heavy oil producers are getting $30 a barrel less than the benchmark priceAlberta heavy oil producers are getting $30 a barrel less than the benchmark price. And this is the main reason, says Premier Alison Redford, the provincial treasury has a $6 billion shortfall to deal with. Federal Finance Minister Jim Flaherty is using the same excuse for reduced federal revenues.
So, you might ask why don’t we refine more of our oil before we ship it south or ship it anywhere for that matter? Wouldn’t that make more economic sense?
According to the experts inside Alberta Energy who wrote the research paper that was stamped “secret” and never publicly released, it certainly does make more economic sense for a key sector of the oilsands industry, especially when there is a large price differential.
“Stand alone mining is sensitive to changing light-heavy differentials while integrated mining is much less responsive. Despite the fact that adding upgrading capacity makes less sense in today’s market (in 2011 oil was selling at $100 per barrel) our sensitivity analysis suggests an integrated upgrader serves as a hedge against volatility of light-heavy differentials,” they wrote.
In other words, in today’s market where the oil price has slipped and the differential is greater, the oilsands players who mine and refine oil are much more profitable than those who simply mine and ship it south. And profitability means more money for both the overall economy and the provincial and federal treasuries.
“We think the premier and the government should be shouting this from the rooftops,” says McGowan. “It’s the upside of the price differential and we should be taking advantage of it.”
Instead, only 57 per cent of oilsands production is upgraded, and that percentage is expected to slide dramatically in the next few years.
McGowan has long been advocating for more refineries in Alberta. So did former Alberta premier Peter Lougheed, the godfather of oilsands development, right up until he died last September.
Not only would more refineries create more value for the resource in Canada, they would provide good jobs for thousands of workers. And wouldn’t refined oil be less of an environmental threat in all those pipelines that are currently being thwarted because they will carry diluted bitumen from the oilsands?
“Government can’t force industry to build upgraders. But it can make the most of an opportunity through good policy, regulation, incentives, even equity partnerships,” says McGowan. “That’s what Lougheed did with the petrochemical industry and it worked.”
It’s not as though oil price volatility is a sudden turn of events. The price of oil has been volatile ever since someone first discovered it seeping from the ground and realized it might be useful for lighting lamps.
Governments could face up to the volatility and minimize the risks. Instead they seem to be betting that no one will notice the truth differential — the widening gap between reality and political propaganda.
The Toronto Star, Tuesday, Feb. 12, 2013
Byline: Gillian Steward, Calgary writer and journalist
CALGARY — Premier Alison Redford was ready to declare the inaugural Alberta economic summit a success Saturday even without a consensus from the prominent Albertans who spent the day hashing out the province's spending and revenue issues.
But the call of many participants to introduce a provincial sales tax left lingering questions from the opposition parties about the Tory government's intentions around a consumption tax.
The focus of the summit — called by Redford because the province is dealing with a major revenue shortfall due to lower-than-expected energy prices and a deep discount for Alberta bitumen — was the long-term future of the province's economy, not the March 7 budget.
Speaking to reporters following the seven-hour conference at Mount Royal University, Redford said she was intrigued by suggestions around increased delivery of services by the non-profit sector and greater use of public-private partnerships (P3s), as well as the emphasis on gaining new market access for Alberta energy.
She said the repeated emphasis on a sales tax by many panellists did not necessarily point the direction the province will ultimately take.
"I also heard a lot today about spending cuts, I heard about reducing provincial income tax or eliminating provincial income tax, reducing corporate tax," said Redford.
"Do we need to have a conversation about revenue? I don't know the answer to that yet. But I think there's a lot of smart people engaged in that room who want to keep having that conversation. We're going to keep talking to Albertans."
The summit saw over 350 Albertans from academia, the business community and the non-profit sector — as well as MLAs from all parties in the legislature — in attendance. The event was also streamed online and Redford touted the social media success of the summit, noting in her closing address that 72,000 individual Twitter accounts used the hashtag #absummit.
The event saw four five-person panels discussing the state of the provincial economy, the public's expectation of services, Alberta's revenue mix and the government's spending habits.
Many of the panellists argued for a consumption tax even if they differed over whether the province's $40-billion budget is out of line.
George Gosbee, president and CEO of AltaCorp Capital, said the province could no longer rely on natural resource revenues to pay for programs and government should introduce a five per cent sales tax, as well as consider bringing back the health-care premiums scrapped by former premier Ed Stelmach.
"We had a free ride and we had a great ride. Now's the time to get off of it," Gosbee said.
Other panellists who advocated a consumption tax included the former dean of the University of Alberta business school Mike Percy, interim dean Joseph Doucet and AIMCo CEO Leo de Bever.
Jack Mintz, director of the University of Calgary's School of Public Policy, said Alberta has a spending problem but does need a fundamental reform of the tax system.
He said a sales tax harmonized with the federal GST would be more efficient and should be introduced with the aim of gradually eliminating the provincial income tax entirely.
But Derek Fildebrandt of the Canadian Taxpayers Federation doubted the possibility of a revenue-neutral sales tax being implemented in the province and suggested the Tory government would face an electoral revolt if it introduced a PST.
"The government has no mandate to bring in a sales tax," he said.
"The premier, I imagine, likes her job in government."
Redford has said the government faces a $6-billion shortfall in revenue in 2013-14 because a glut of oil in the United States has depressed the benchmark West Texas Intermediate price of oil and widened the differential in price between WTI and Western Canadian Select, which includes Alberta bitumen.
The government has made gaining access to new markets, particularly in Asia, its priority. That means the provincial go-ahead for pipeline proposals such as the Keystone XL line to the U.S. Gulf Coast, Northern Gateway and an expanded Trans-Mountain pipeline in British Columbia, and a reversed line to Eastern Canada.
However, all those projects face fierce opposition because of the environmental impact of the oilsands.
Jim Prentice, a former federal Conservative cabinet minister who is a close ally of Redford, said in his keynote address that "energy leadership and environmental leadership are now two sides of the same coin."
"We will either be an environmental leader or we will have other jurisdictions dictate our environmental policies, dictate our energy policies and dictate the markets we are able to access," he said.
The tone of the debate was always civil but the most striking differences were seen on the last panel of the day, which dealt with government spending.
Tom Flanagan, the University of Calgary political scientist who managed the Wildrose campaign in the spring election, said the solution to the government's financial woes could be found 20 years ago.
The cross-the-board cuts of Premier Ralph Klein and Finance Minister Jim Dinning in the early '90s balanced the province's books and set the stage for the province's economic boom, he said.
But Gil McGowan, president of the Alberta Federation of Labour, said the Klein-era cuts devastated the province's infrastructure and services.
"Albertans are willing to make tough sacrifices when necessary. We're prepared to take it on the chin when we've been convinced it's the right thing to do, he said.
"But allowing yourself to get punched in the face when it's not necessary is not brave and it's not noble. It's stupid."
Wildrose Leader Danielle Smith said she was pleased overall with the summit and noted that most Albertans would have found at least one or two panellists they agreed with.
"I was disappointed to see how often the conversation turned to this being a revenue problem and the solution being either taking out debt or raising taxes," she said.
"I don't support a sales tax because it is regressive. It actually does hit the lowest income people the hardest."
NDP Leader Brian Mason was more blunt, suggesting the summit had been "stacked" to deliver a message favouring a sales tax and pipelines.
"But we didn't learn what it was that created the dependence on royalty revenue in the first place, which was of course cuts to income tax for the wealthy and for corporations. That didn't even come up," said Mason, who noted there was also little discussion about increasing refining in the province to deal with the differential issue.
"My sense is that they're trying to set the stage for a sales tax, which is not something we support."
The Calgary Herald, Monday, Feb. 11, 2013
Byline: James Wood
With all the discussion recently over the lack of so-called value-added jobs, one might wonder why that debate is confined to one sector of the economy.
For example, in 2010-2011, Canada exported more than 12 million tonnes of wheat. Also in 2011, a $100-million bread plant opened in Hamilton, Ont., bringing about 300 new jobs to that city. Presumably, more of that wheat could be "upgraded" here at home, thus creating more of the kinds of jobs that the Hamilton plant is providing.
The same could be true of the billions of dollars worth of lumber exports produced by Canada each year. Surely, we could provide a multitude of jobs in the production of kitchen tables and baseball bats by discouraging the export of such raw materials.
Fortunately, there are no serious calls for such interference in the economy — at least in those sectors. When it comes to the export of raw bitumen, though, there's no shortage of such calls.
With the price differential for Western Canada Select (as measured against the price for West Texas Intermediate) oil having a significantly negative effect on Alberta's bottom line, there have been demands for a government strategy to encourage more upgrading and refining in our province.
First of all, it should be noted that there is a great deal of such activity that already occurs. As a report last week from the Canada West Foundation notes, there are eight refineries operating in Western Canada — three of them are in Alberta, representing almost two-thirds of the West's refining capacity.
Additionally, there are five upgraders in Alberta, and in fact, upgrading capacity in Alberta more than doubled from 2001 to 2011. That doesn't include the recent expansion of Shell's Scotford upgrader, and there is also the massive $5.7-billion North West Upgrader, which has just recently been approved.
So when the Alberta New Democrats and the Alberta Federation of Labour seize upon government documents as proving a "strong economic case" for more upgrading capacity, they overlook the fact that some companies have already made that bet.
But the decisions being made in the here and now tell a different tale.
Just last week, we learned that Suncor's proposed $11-billion Voyageur Upgrader project is in serious jeopardy. The project has already been on hold for the past three years, and Suncor has confirmed that cancellation is now one of the options it is considering.
Suncor's struggle illustrates the weaknesses and challenges in the economics of upgrading that the Canada West Foundation addresses in its report. There is surplus refining capacity elsewhere. There is falling demand for refined petroleum products. There is also, of course, massive upfront capital costs that are coupled with low returns.
If indeed there is a "strong economic case" for building new upgraders and refineries, then it does not follow that industry would need to be bribed, cajoled, or threatened into acting on it. True evidence for a strong economic case lies not in the analysis contained within some government document, but rather the actual investments being made by the private sector. Like, for example, the investments in new pipelines.
As University of Alberta economist Andrew Leach wrote last year, if we want more refining capacity, it's likely to come at the government's expense. He then frames the issue thusly, "should we be willing to subsidize ... upgraders and refineries in this country in order to export a higher value end product?"
To look at it that way illustrates for us how this notion of "value-added" is really a reallocation of the value that already exists in the resource.
Why should we value refinery construction jobs over pipeline construction jobs? Why are jobs at new upgraders more important than jobs in existing and new oilsands projects?
Both the Canada West Foundation analysis and a separate study last week from the U of C's School of Public Policy illustrate the importance of additional pipeline capacity. Delays in proposed new pipeline projects are costing the economy millions of dollars daily.
Even if we were to do more upgrading here, we'd still need pipeline capacity to get that product to market.
The evidence is clear: Alberta needs more pipelines, not more pipe dreams.
The Calgary Herald, Monday, Feb. 11, 2013
Byline: Rob Breakenridge
With academics and everyone but the Tories themselves realizing that the government is too dependent on energy royalties, it was obvious Saturday's economic summit was little more than a feel-good exercise. Even the government itself said the meeting was a conversation about the direction Alberta needs to take moving forward and wasn't likely to shape next month's budget.
But of all that was said at the meeting, the best wisdom was expressed by the president of the Alberta Federation of Labour.
"Albertans are willing to make tough sacrifices when necessary. We're prepared to take it on the chin when we've been convinced it's the right thing to do," said Gil McGowan. "But allowing yourself to get punched in the face when it's not necessary is not brave and it's not noble. It's stupid."
McGowan's remarks appear to be in response to comments made by Tom Flanagan, who pointed out that the across-the-board cuts of Ralph Klein in the early 1990s balanced the province's books and set the stage for Alberta's economic boom.
Conservatives should heed what McGowan has to say, but instead, agree we shouldn't take tax increases on the chin while the budget has all but doubled in the past decade and a University of Calgary report found that 95 per cent of the increases in revenues during the same period were swallowed up by the public sector.
McGowan is right: we'll make sacrifices when necessary. But the fact the government can't do its job is no reflection on ordinary Albertans, who provide the highest tax contributions per capita in the country.
The Calgary Herald, Sunday, Feb. 10, 2013
CALGARY - Premier Alison Redford's first economic summit primed Albertans for a consumption tax, foreshadowed coming service cuts and reiterated the need to access new markets for oilsands products.
Virtually all of the economists at the Saturday summit in Calgary agreed a sales tax makes financial sense for Alberta, either because it will lower personal and corporate taxes, or because it will underwrite government spending.
That led critics to conclude the panels were "stacked" in favour of the government's existing agenda, but Redford said only that she will continue to engage with Albertans on the issue.
"I think it's really important to talk to Albertans about (the idea of a sales tax)," Redford said. "One of the other things a lot of people in the room said was that even before you start having a conversation about this, you have to understand what the fundamentals are."
Under Alberta law, a referendum would be required before the government could implement a tax. Asked if it's time for a referendum, Redford said: "I don't think we're anywhere near that at all. I think the fact that people are beginning to think about it and talk about it as an idea is a really important thing. ... No need to jump the gun."
Redford said more than 70,000 people engaged in the discussion through the online social media network Twitter. Roughly 300 people attended the summit in person, including most Tory MLAs and members of Redford's inner circle.
Redford listened to all the panels and said afterward she took particular interest in discussions about increased use of public-private partnerships and the notion that assuming low-interest debt is a worthwhile risk to build public infrastructure.
"This isn't about incurring debt, this is about assuming risk," Redford said. "These are still assets that continue to be publicly owned, but they allow us to build them in an effective way."
Redford also took note of the role not-for-profit agencies play in the service delivery, and touted her Canadian Energy Strategy.
Opposition parties said Redford is laying the groundwork for a sales tax.
Wildrose opposition leader Danielle Smith said she was disappointed the conversation turned so often to the idea that Alberta has a revenue problem and should either take out debt or raise taxes.
"I'm very worried that what we're going to see is that this is laying the table to try to soften the ground for tax increases in future years, and I don't think that's what Albertans want."
Smith said a sales tax will hit low-income Albertans hardest.
Alberta NDP Leader Brian Mason was disappointed nobody talked about the need to upgrade bitumen in Alberta and that economists talked almost exclusively about a sales tax, not about increasing taxes on corporations and wealthy Albertans.
"My sense from this is that those panels were stacked with people who wanted to have a sales tax," Mason said. "It was not unanimous, but it was pretty close. And nobody talked about a progressive income tax, nobody talked about making sure the wealthiest in our society pay their fair share.
"I think the government ... is trying to set the stage for a sales tax, and that's not something we support, because it is a more regressive tax, because it doesn't tap into the wealth that is there."
Several prominent Alberta economists and business leaders called for a sales tax, including the University of Alberta's Joseph Doucet, AIMCO's Leo de Beaver and AltaCorp CEO George Gosbee, who advocated a five-per-cent sales tax.
Jack Mintz, chair of the University of Calgary's public policy school, said the province should levy an eight-per-cent consumption tax and the money collected should be used to offset personal income and corporate taxes.
"The art of taxation is plucking the goose with the least amount of hissing," Mintz said, adding the case for a sales tax is a "slam dunk."
In the final session, panellists discussed Albertans' expectations, and talk turned to cuts.
University of Calgary professor and Wildrose strategist Tom Flanagan said the best solution is Ralph Klein-style budget cuts.
"Politically, the only thing that works is virtually across the board," Flanagan said. "I'm talking about fairly drastic action ... what you have to do to bring your budget back into line."
Alberta Federation of Labour president Gil McGowan objected.
"We've seen this movie, and it was a horror story," McGowan said. "It vaporized an entire generation of nurses and teachers ... and created an infrastructure deficit that undermined the productivity of our private sector.
"Haven't we learned anything?"
Calgary Herald, Sunday, Feb. 10, 2013
Byline: Karen Kleiss, Edmonton Journal
CALGARY - Alberta Premier Alison Redford says a sales tax isn't on the agenda, even though many of the panellists at an economic summit that her government convened Saturday said it could be one solution to the province's fiscal woes.
"Oh, I don't think we're anywhere near that at all. I think the fact that people are beginning to talk about it as an idea is a really important thing," Redford told reporters after the day-long event.
"Ideas are important, but no need to jump the gun on that."
By law, Albertans would need to vote on a provincial sales tax through a referendum.
Alberta has prided itself for decades on being the only province not to have a sales tax and Albertans were amongst the most angry when the Conservative government of Brian Mulroney brought in a federal sales tax in the 1990's; two Tory MPs from Alberta left the Conservative caucus in protest.
Redford's government has said it faces a $6-billion oil and gas revenue shortfall, mainly due to the inability for Alberta crude to access markets that will pay the best price.
Among the business people, economists and academics in favour of bringing a sales tax to Alberta were George Gosbee, CEO of investment firm AltaCorp Capital, and University of Calgary tax expert Jack Mintz.
"It's my view that we don't have a cost problem, we have a revenue problem," Gosbee, who said spending cuts would be "draconian."
Gosbee said he's also in favour of bringing back health care premiums.
Mintz said Alberta's challenge has more to do with spending than it does revenue, but that it has a "tax mix problem" as well.
He said the province relies too much on "harmful and volatile" sources of revenue.
Mintz advocates switching from income to consumption-based taxes, whether that's through user fees, excise taxes or a sales tax.
"Many Albertans believe that having no sales tax is a tax advantage. It is the opposite. Not having a sales tax is a disadvantage in today's global economy," he said.
He added U.S. state governments that have low income taxes but have a sales tax, such as Texas, are seeing stronger economic growth.
Danielle Smith, leader of the right-wing opposition Wildrose Party, said she was disappointed to see how much revenues dominated the day's discussion, whether it was through taxes or debt. Some panellists said low interests rates make borrowing money a good option.
"I'm very worried that what we're going to see is laying the table to try to soften the ground for tax increases in future years. I don't think that's what Albertans want," she said.
"I don't think that's what they voted for in the last election."
NDP Leader Brian Mason said the economic summit did little to address the underlying issues plaguing the province.
"We didn't learn what it was that created the dependence on royalty revenue in the first place, which was of course cuts to income tax for the wealthy and for corporations. That never really came up. We were just into a sales tax all of a sudden," he said.
"My sense from that was that those panels were stacked with people who wanted to have a sales tax. It was not unanimous but pretty close and nobody talked about a progressive income tax, nobody talked about making sure that the wealthiest in our society pay their fair share."
Derek Fildebrandt, Alberta director of the Canadian Taxpayers Federation, said spending has increased 25 per cent over the last decade, adjusted for inflation and population growth, even though revenues have increased 21 per cent over that same time period.
"It is precisely our unwillingness as a province to hold spending increases to a reasonable level that has resulted in expenditures outgrowing revenues," he said.
Tom Flanagan, a University of Calgary political science professor who led the Wildrose campaign in the last election, said spending cuts are something concrete that can be done today, and that revenue is more of a long-term matter.
In order to be politically palatable, those cuts would have to take place across the board, Flanagan said when panellists were pressed on what spending they'd target.
Alberta Federation of Labour leader Gil McGowan said Albertans would be willing to make sacrifices in tough times — but he's not convinced times are all that tough and that spending cuts are necessary.
"Allowing yourself to get punched in the face when it's not necessary is not brave and it's not noble, it's stupid," he said, asking if Alberta "learned anything at all" from spending cuts during the tenure of former premier Ralph Klein.
"We've seen this movie and it's a horror story."
The economic summit, Redford said, was not meant to deal with the upcoming March 7 budget, but have a more forward-looking view.
Victoria Times Colonist and The Canadian Presss, Saturday, Feb. 9, 2013
Byline: Lauren Krugel
Federation president to set the record straight on bitumen glut
Edmonton – AFL president Gil McGowan will be tackling Alberta’s revenue problem this Saturday at the Alberta Economic Summit.
The summit will bring together industry, not-for-profit leaders, academics and government members to discuss Alberta’s economic future in light of the current low price of bitumen. McGowan will use this opportunity to ensure revenue reform and oil royalties are part of the discussion on how to tackle the deficit.
“In the debate so far, we’ve heard a lot of misinformation, some obfuscation – and even outright lies,” McGowan said. “Our economy is red hot. Balancing the budget should not be difficult, unless you’re either being deliberately dishonest, or you’re just bad at math.”
McGowan noted that Alberta does not spend more than other provinces on services, and when looking at expenditures on public services as a percentage of the economy, actually ranks dead last in Canada.
“We need to make sure that revenue is part of the discussion,” McGowan said. “By the government’s own numbers, we could collect $10 billion more in taxes and still be the lowest taxed province in Canada. We could use that $10 billion to protect and strengthen public healthcare and education.”
The summit, which will be held at Mount Royal University in Calgary, will involve four moderated panels. McGowan has been asked to participate in the moderated panel on “Balancing Expectations on the Services Albertans Need.” He notes that the ‘Services Albertans Need’ are already understaffed — Alberta has nearly the fewest public employees per capita in the country.
“It’s childish to think that Alberta can maintain good public services without having a revenue base to pay for them,” McGowan said. “That means royalty reform and it means returning to a progressive income tax like Alberta had before 2001.”30-
AFL Factsheet: “Revenue, spending, and public-sector wages”
Gil McGowan, President, Alberta Federation of Labour at 780-218-9888 (cell)
Olav Rokne, AFL Communications Director at 780-289-6528 (cell) or via email [email protected].