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Rich Spared as Alberta Deficit Balloons

Ordinary Albertans shoulder burden of 'fiscal fiasco.'

By Mitchell Anderson 7 Apr 2015 |

Mitchell Anderson is a freelance writer based in Vancouver and a frequent contributor to The Tyee.

Premier Jim Prentice finally brought down his much-anticipated budget to address the disastrous state of Canada's alleged richest province. And while groups like the Fraser Institute bleated about a grotesque tax grab, the fact is, their friends in the business community emerged completely unscathed. Resource royalties and corporate tax rates remain unchanged, and among the lowest in North America in spite of a $5 billion deficit -- the largest in provincial history. It's the humans who live in Alberta who have to pick up the slack for years of utter fiscal failure.

Albertans were hit with some $1.5 billion in new taxes including increases on gas, alcohol and cigarettes. There is a new health care levy for anyone earning more than $50,000 and increased fees for vehicles, land transfers and government records. Once additional increases take effect, total new taxes will top $2.7 billion.

Meanwhile the government will chew through $5.5 billion in past public savings by the end of next fiscal year while racking up another deficit of $3 billion. The red ink dating back to 2008 will add up to a staggering $27 billion.

Let's also not forget the existing infrastructure deficit of around $24 billion. Where will the rest of the money come from?

Debt, and plenty of it -- about $30 billion by 2020. The brain trust at the so-called Calgary School of economics is welcome to explain how all this is somehow good news.

Albertans are right to be angry. How can a place with such vast resources have screwed up its finances so badly?

With a growing and aging population, these cuts are going to be particularly painful in the health care sector, which somehow has to do more with 1,700 fewer staff next year.

'Don't get sick'

"You cannot make cuts of the magnitude Prentice demands by saving on toner cartridges and paper clips," said Elisabeth Ballermann, president of the Health Sciences Association of Alberta. "The care Albertans need will be hurt. It's unavoidable and undeniable. I warn Albertans, don't get sick, don't get old, don't be born prematurely. Don't expect to get the health care you need."

So why should ordinary Albertans shoulder the entire burden for this fiscal fiasco? Corporate tax rates in Alberta remain among the lowest in North America and the government even has a helpful webpage itemizing how little corporate revenue they collect on behalf of their citizens -- 14 per cent less than in most U.S. states. Raising corporate taxes by three per cent would have brought in another $1.5 billion.

And what about oil and gas royalties? The province has another sweetheart deal for everyone except the people who live in the province and own the resource. Alberta proudly collects less revenue for oil and gas than almost any jurisdiction in North America -- about 25 per cent less than the rate in Louisiana and 12 per cent less than Texas. Somehow this policy is portrayed as a public good. You can ponder that while waiting for your next elective surgery.

The last review of the badly broken royalty regime was back in 2007. The Alberta Royalty Review Panel composed of six experts bluntly determined that "Albertans do not receive their fair share from energy development and they have not, in fact, been receiving their fair share for quite some time."

Not only were these recommendations never fully implemented, the rate of return for Albertans has since grown worse. Eight years ago, the province was charging a combined tax and royalty on conventional oil of 44 per cent and 58 per cent for natural gas. The Panel recommended raising these to 49 per cent and 63 per cent respectively. The oil industry wasn't happy so instead they were chopped to 39 per cent and 35 per cent by 2011.

Where is the money?

Such numbers can be an eye-glazer so lets keep it simple. So far Alberta has extracted about 16.9 billion barrels of conventional crude, 9.6 billion barrels of bitumen and 162 trillion cubic feet of natural gas. Even at current depressed prices, this would have a combined market value of more than $1.7 trillion. Where did the money go?

Albertans are waking up to the fact that they have been hornswoggled. The provincial economy does not need personal tax tinkering. It needs a complete overhaul. For instance, oil sands operators can now write off virtually all of their billions in expenses, creating zero incentives for efficiencies while driving up labour costs for the entire economy. Why not tax profits instead of production as they do in Norway, which now has over $1 trillion in the bank?

Like virtually every other oil jurisdiction in the world, Albertans would also benefit from a public energy company. Norway taxes oil profits at close to 80 per cent, but they make as much or more from their own equity stake in production. Even in terms of oversight, how can the government have any handle on real costs and margins in the industry without a public player on the field?

The one potential benefit of the Prentice budget is that Albertans might take a more active interest in their governance now that they are paying more for it. Voters seem to have happily sleepwalked through a series of caretaker premiers as long as gas was cheap and taxes were low. The rude awakening from last week may finally rouse the ire and independent spirit of Albertans to actively decide what kind of province they want to live in.  [Tyee]

Read more: Politics

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