Friday, March 6, 2015

Prentice and the Mirror

I'm sure you've heard of this controversy by now. I wanted to address it.

Before I do, I wanted to make clear this is my personal opinion. It is not the 'official' opinion of the Blunt Objects blog (if there is such a thing) nor is it the position of the Sr. Blogger, Kyle, nor is it the position of the Liberal Party, at any level, in any part of Canada. 

I want to first start by reading what was actually said:

We all want to blame somebody for the circumstance that we are in. But the bottom line is we have had the highest cost and the best public services in the country and we haven’t built basically a revenue model that sustains them. And this has been clear in our province for a number of years. People have been saying this for many years that we were in this circumstance and that we would eventually get caught. Now we have, because oil prices have collapsed, and suddenly the province has a $7-billion hole in its budget.

Is there anything that you favour, Mr. Prentice, on the revenue side?

In terms of who is responsible, we all need only look in the mirror, right? It’s basically all of us have had the best of everything and have not had to pay for what it costs.

Frankly, Prentice is 100% right. In just about every election since the 1980's, both the provincial Liberals and NDP have said Alberta needs to rely less on Royalties.

And yet, time and time again, Alberta elected the PC Party to government.

Time and time again, Albertans decided they wanted a PC premier, and now that they've realized they've made a horrible mistake, they want to blame the same people they gave that responsibility to in the first place.

They did not just elect the Tories "Again and again", They quite literally elected the party, first in 1971, and then again, and again, and again, and again, and again, and again, and again, and again, and again, and again, and again. Think that's annoying? Me saying "and again" all those times? Frankly I hope so; because each and every one of those is a roughly 4 year term in office. Not just 8 letters and a space; 4 entire years. 

When the government was elected, M*A*S*H the TV show was nonexistent, Roe vs Wade had yet to be decided. Microsoft had not even been founded. Ebola had not even been discovered. Star Wars had not been released.

And yet we've seen time and time again, Albertans re-elect the government.


That's not even relevant. 

Re read what Prentice said. I will summarize:

"Who should we blame? Our revenue model, our reliance on royalties, our fantasy that we pay 'too much' taxes for the services we get when the reality is we pay too little. Our own lies to ourselves is what is to blame."

Prentice is 100% correct. Alberta's problem is it's reliance on royalties. 

Here is Prentice saying the same thing back in November. There are suggestions this is impossible to fix, but that is untrue. I will outline some simple fixes.

1 - Cut cut cut.
The simplest way to fix this is to cut spending so that a $50 a barrel oil can still balance the budget. In order to keep things from getting out of hand, you must keep that at a $50 level. You can still collect additional revenue, but that revenue must be used for other purposes. I will outline these later.

2 - Tax tax tax.
About a third of Alberta's revenues come from royalties. On a budget of roughly $40 billion, this works out to around $12 billion dollars. This would be equal to a 12% sales tax. I am not suggesting such an insane rate, but rather, an giving a comparison as to how much in taxes this would require. The problem is that you can't realistically cover the entire shortfall, so you'd need to cover a portion of it. 

So what to do about Royalties?

Frankly, the most logical thing is to set a level that is seen as a low price of oil. $50 a barrel is a good line, perhaps even $45. 

Any revenue above and beyond that should be put directly into savings. Relying on that money just means you will see an endless boom and bust cycle. Budget your revenues for a bust, and if you have a boom, save it. 

So, what are some different ways to achieve this?

A 1% increase in income tax could raise roughly $1 billion. It would remain the lowest in Canada.
A 2% sales tax would raise roughly $2 billion. It would return the tax rate to a total of 7%, what it was before the Harper cuts. It would remain the lowest in Canada.
a 4 cent increase in the gas tax would keep the rate to the lowest in any province in Canada, and bring in a few hundred million. Increases in tobacco and alcohol taxes could make up the rest of the wya to 3.5 billion.

The final 3.5 billion could be found though cuts. Alberta spends about $10K per person on government services. Quebec spends $8K. A $3.5B cut would lower that to only $9K. I'm sure if Quebec can provide Quebec level services fo $8K, Alberta can provide Alberta level services for $9K. 

One of the other problems is budgeting is confusing. Governments like to claim they have surpluses when, in fact, they have deficits. I will be making a post this weekend examining just that. 

1 comment:

  1. And the Alberta PCs will be re-elected this year to yet again another majority government. I'm predicting very low turnout. Why would people bother voting in an election that will be a cake walk for Prentice? There is no real opposition in Alberta. The Wildrose and Liberals are on life support. The NDP, which is primarily an inner Edmonton party, will be the official opposition (a party that will never form government in Alberta).

    "Progressives" in Alberta need to get their act together and come as a unified force under an electable banner. I think the party to eventually replace the PCs in Alberta would be slightly to the left of the current party.

    Taxes will eventually go up in the province. There is no way the province can sustain on just cuts alone. Time for more technocratic solutions.