Hicks on Biz: Party in power matters not BY GRAHAM HICKS, Edmonton Sun FIRST POSTED: FRIDAY, APRIL 15, 2016
It’s not about the political party that happens to be in power.
If Jim Prentice hadn’t called the Alberta election a year early, his Progressive Conservative Party would be in the same deep do-do as Rachel Notley’s New Democrats.
It’s about a near unalterable reality that Albertans must face.
This economic crisis isn’t going away.
Global energy analysts predict world oil and gas prices will not recover for a very long time, probably decades. World-wide demand for fossil fuels is dramatically slowing. Supply just keeps on growing.
There’s no way around it – Alberta’s over-all standard of living will have to drop.
By how much, nobody knows. For the sake of argument, let’s say, conservatively, 10%.
It matters not what party is in power. The gusher of cash from oil and gas is gone, not to return for many, many years. In Calgary, they call it the new “long low.”
The marketplace, that cold-hearted beast, has already reacted, slashing jobs and spending in the oil patch. In Calgary and Fort McMurray the pain is palpable. House prices have plummeted, there’s not a job to be seen, vehicle sales have ground to a near-halt.
But everybody still wants the same public health and education services that we had in the good times. We want new and renovated roads, rail and rapid transit.
We have a government that deeply believes in strong public services. We have a government so worried about climate change that it is raising taxes for the cause – i.e. the carbon levy – when individual incomes are falling.
The government’s choices are simple.
Cut government spending, raise taxes, borrow massive amounts of money, or some combination of the three.
Doesn’t matter. All paths, sooner or later, lead to a lower standard of living.
The New Democrats have opted to borrow an astounding $30 billion (all figures rounded off) for the next three years.
They have no idea when the borrowing will stop, nor have they considered how future provincial governments can pay back all this money, plus interest, yet continue to provide services as provided today.
Edmonton’s happy, for now. With 25% of our work force in government and quasi-government jobs, no civil service cutbacks are mighty reassuring.
The regional economy has slowed, but is still growing. School boards and post-secondary schools were dancing in the streets with a 2% increase in funding. We’re okay, at least for the next 12 months.
Borrowing is such an easy, short-term, painless option.
The fact is Alberta’s future governments could continue to borrow for a very long time, maybe 20 years, before debt repayment cripples its ability to deliver health and education services.
Look at Ontario. With deficit budgets for nine years now, Ontario has a record $300 billion debt.
But, thanks to low interest rates, Ontario only pays $12 billion a year to service that debt. Out of a $114 billion budget – pfhhh, $12 billion is chicken feed! — debt repayment hasn’t (yet) impacted on Ontario’s health and education spending.
So when does Alberta’s gravy train come to an end?
Outside of the government’s spending, it’s already happened.
You can’t take $40 billion in lost oil and gas revenue out of Alberta’s Gross Domestic Product ($320 billion in 2014) and not have a devastating impact.
For the reasons mentioned above, oil and gas revenues, even if they recover, will be half what was flowing into government coffers pre-2015 … especially when Premier Rachel Notley’s federal New Democratic pals are gung ho on ridding the world of fossil fuels, no matter the consequences to Alberta and Canada.
To its credit, this government is getting serious about economic diversification … but economic diversification is a long, slow, pennies-on-the-pile process, and will never, ever replace the number of high-paying oil patch jobs vanishing forever.
The militant environmentalists blithely pipe up that alternative-energy jobs can replace oil patch jobs. Nothing but wishful thinking – the numbers wouldn’t come close.
The golden goose has died. There will be economic recovery – all things are cyclical – but it will never come close to generating the wealth produced by oil and gas from 1947 to 2014.
Alberta governments will just keep on borrowing until they can borrow no more.
Maybe then, and only then, will we truly face the consequences of living beyond our means today.