Alberta Premier Alison Redford is no leader: Alberta budget 2013: Hicks on Biz column originally published in Edmonton Sun, March 16, 2013
A few weeks ago, every mad dog in that online kennel known as the Hicks on Biz comment section was taking a chunk out of my sorry rear for the suggestion, the mere suggestion, that Alberta Premier Alison Redford was a pretty smart political cookie.
Well, after that provincial 2013/14 budget announced on March 7, I apologize.
The mad dogs were right.
Her fiscal course for the coming year was politically expedient, but not what was right for Alberta.
Redford took the easy way out.
The 2013/14 budget was a watershed.
Redford and her Conservative government could have introduced new taxes and at the same time kick-started the Heritage Fund.
She had the perfect storm. The Alberta public was ready to accept short-term pain for long-term gain.
Martha and Henry, Ralph Klein’s “severely normal” Albertans, have finally realized we can’t spend every penny of oil royalties and never save for tomorrow. With minimal new taxes and much the same spending, Redford could then have diverted 30% of oil revenues into savings, as envisioned by the last visionary who led this province, the late, great Peter Lougheed.
She could have ensured Alberta’s prosperity for hundreds of years.
But it would have taken immense courage. It would have taken a leader of such persuasiveness that her caucus and cabinet would have followed her into a valley of either possible death or resounding victory.
With minimal new taxation, this budget could have been balanced without going $6 billion into debt. Or somewhere around that figure - nobody seems to know.
(Let’s not pretend borrowing for capital spending is somehow “good”. That’s putting lipstick on a pig. Likewise, the budget’s “savings” plan is smoke and mirrors. There’s no suggestion of seriously saving energy royalties … unless there’s future surpluses.)
Redford could have pushed us off our “spend for today, who cares about tomorrow” mindset.
By changing that mindset, the Conservatives could – finally – re-start the Heritage Trust Fund.
In 1978, Lougheed’s Heritage Fund was to be topped up by 30% of oil revenues every year hence. Had successive governments stayed the course, assuming an 8% return, an annual top-up of $2 to $3 billion, and reinvestment of half the profits, today’s Heritage Fund would be worth $150 billion, not $15 billion.
Redford could have re-energized the Heritage Fund.
If we place $3 billion per year into the Heritage Fund from 2013 to 2023, assuming an average 8% per year return and the re-investment of all profits for those first 10 years, the Heritage Fund would grow from today’s $15 billion to $75 billion. Look out Norway!
Remember the Alberta government earns $8 to $15 billion a year from oil and gas royalties. Most years, $3 billion is less than 30% of annual oil revenues.
If Redford had bought back or introduced some combination of health premiums, progressive personal income taxes, higher corporate income taxes or even a 2% to 3% provincial sales tax (which would require a referendum or the repeal of the Alberta Taxpayers’ Protection Act), we could have started saving, as of March 7, 2013, for the future.
In just 10 years, we’d have that $75 billion in the bank.
As every other provincial government has proven, borrowing inevitably turns into a run-away train.
Why was Redford so timid? Because she was backed into a corner of her own making. She’d said ‘read my lips, no new taxes’ once too often.
She had a chance to cement down, for once and for all, Alberta’s future prosperity, to wean Alberta off the month-to-month volatility of oil and gas prices.
She chose not do.
And so Alberta’s government continues on its merry way, throwing away the future to live well today.
Today’s value $15 billion.
Estimated value had the original 1978 funding formula (30% of all annual oil and gas royalties) been adhered to, $150 billion.
Estimated future value of Heritage Fund if topped up from 2013 to 2023 by 30% of annual oil and gas royalties, $75 billion.
Additional annual revenue Alberta would generate with a tax system comparable to other provinces, $10.6 billion (Alberta Finance, Budget 2013)
Income generated from provincial sales tax in other provinces, 2012/13 (Alberta Finance, Budget 2013)
B.C. $5.5 billion
Ontario, $7.8 billion
Saskatchewan, $6 billion
Never bet on “expert” forecasting:
Alberta Finance oil and gas royalty income forecasts for 2013/14.
In the current 2013/14 budget forecast, $7.25 billion
In the 2012/13 budget forecast, $13.4 billion
In the 2011/12 budget forecast, $11.8 billion
(Alberta Finance: Past budget documents)
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