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In the Media

article imageOp-Ed: Alberta Economic Summit; how can the province solve budget woes

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By Karl Gotthardt
Feb 10, 2013 in Politics
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Calgary - Alberta Premier Alison Redford has recently under fire from opposition parties for reckless spending and unrealistic budget predictions based on an overestimate of oil royalty revenues. In late January Redford had a conversation with Albertans.
During the Alberta Economic Summit, held at Mount Royal University on Saturday in Calgary, several recommendations were made. Economists and tax experts suggested that Alberta's budget woes could be solved with a more reliable source of revenue. These included the return of health care premiums, a sales tax. To move to a more reliable revenue stream, replacing income tax with a consumption tax that could be through user fees, excise taxes or a sales tax.
According the the Calgary Herald, the summit is probably smoke and mirrors and a day of fascinating chatter, without any impact on the 2013 budget, which will be announced on March 7.
Apparently the summit is too little too late as the budget details, according to the report, were thrashed out on Thursday at a Treasury Board meeting and the budget document is headed for the Queen's printer. Some budget details, revealed by government sources, indicate that the budget is more about restraint than deep cuts. The government will hold the line on spending, but spending on operations will actually increase by .06 per cent.
That meeting was closed, naturally. But key details provided by government sources point to a budget far more about restraint (or “holding the line,” as the government calls it) than deep cuts.
The sources say spending on operations will actually rise 0.6 per cent.
Starting from this year’s base of $36.422 billion, total program spending in 2013-14 is projected at $36.673 billion (an increase of 0.689 per cent, to be exact.)
The PCs will also reveal an operating deficit of about $300 million. Just a few months ago, they promised never to do that. Now there can be “no denial,” one source said.
Debt Free Alberta
Less than nine years ago, in July 2004, Ralph Klein (PC) declared Alberta debt free. After eliminating a $3 billion debt, due to high oil revenues and some tough program cuts, Klein declared that the province would never have to set aside a single tax dollar for debt. Klein had come under fire for some of his tough budget measures by interest groups, but nevertheless moved ahead.
Alberta is now debt-free, due in part to the high price of oil and gas.
"Today I'm very, very proud to announce that Alberta has slain its debt," Premier Ralph Klein said on Monday in Calgary.
"Never again will this government or the people of this province have to set aside another tax dollar on debt," Klein said.
"Those days are over and they're over for good, as far as my government is concerned, and if need be we will put in place legislation to make sure that we never have a debt again," he added.
Ten years prior to the announcement Alberta carried a debt load of $23 billion, run up during the period 1982 to 1992, when oil prices crashed. Alberta became the only debt free province under Klein and passed a law that required Alberta to operate within a balanced budget, without taking on debt.
Here we go again
The law went out the window during the tenure of Premier Ed Stelmach. In what has become a familiar refrain in the Redford government, started under Stelmach. High oil revenues guaranteed his government surpluses during this first two years in office. That came to an end when oil prices tumbled to $55 dollar a barrel and the government had based it's budget on $119.25 per barrel price. The 2009-2010 budget anticipated a deficit of $4.6 billion, the largest deficit in Alberta's history.
In her April 2008 budget, Stelmach's Finance Minister Iris Evans forecast a $1.6 billion surplus for 2008–2009. By August, she had revised this prediction to $8.5 billion. The major reason for this change is an increase in oil prices: while she had estimated in April that they would average $78 per barrel over the fiscal year, by August increases—including a high of $147 per barrel in July—have led her to make a new estimate of a $119.25 per barrel average. By November, prices had fallen to $55 per barrel, and Evans estimated a $2 billion surplus. By February 2009, the government of Alberta appeared poised to run a $1 billion deficit. In April 2009, Evans released her budget for 2009–2010, in which she anticipated a $4.6 billion deficit. This is the largest deficit in Alberta's history, and its first in sixteen years. The government's fiscal plan includes deficits until 2012–2013, when it again anticipates a surplus.[
Stelmach's approach to this deteriorating fiscal situation, part of a global recession, has been to invest heavily in infrastructure in an effort to stimulate the economy and take advantage of low construction costs. He has gone so far as to advocate borrowing for capital construction, a departure from the Klein government's notoriously anti-debt approach. However, his government was also one of only two in Canada (the other being Saskatchewan's) to cut overall spending in the 2009–2010 budget. This approach drew the ire of Liberal leader David Swann, who supported increased government spending for economic stimulus purposes, but drew support from some economists and was defended by Evans on the basis that capital spending was at twice the per capital level of the Canadian average.
Redford announced a $6 Billion dollar revenue shortfall in her address to Albertan, which is once again based on an overestimate of oil revenues. Common sense would dictate that the conclusions of economist are correct. Alberta requires a more reliable revenue stream and can't rely on oil royalty revenues to cover thirty percent of its overall budget.
The economic summit was a nice public relations exercise, but does nothing to eliminate the budget woes. With the budget document on its way to the Queen's printer, Redford announced that she doesn't plan on putting a provincial sales or consumption tax in the budget.
Economists are suggesting a sales tax may help the province’s financial woes.
The comments were made during an economic summit held in Calgary Saturday.
However Premier Alison Redford has said she does not plan on putting a provincial sales tax in the next budget.
Without a more reliable source of revenues, Redford is banking on the construction of pipelines both to the US and the west coast, neither of which have been approved and never may. In the latest move there is some movement to ship Alberta bitumen to the Atlantic coast, but that won't happen anytime soon.
Premier Redford has some difficult choices to make in the absence of oil royalty revenue. Taking health care premiums, worth approximately $1 billion, and new taxes out of the equation, leaves two options, which is to either cut program spending or take on more debt. Redford's budget on March 7 will likely include a little of both.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of DigitalJournal.com
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