Canada West Foundation Blog

By: Jacques Marcil, Senior Economist

This is the season of budgets and baseball spring training. While there is no true link between the two, one could not help think of Alberta Finance minister Lloyd Snelgrove as a relief pitcher.

Snelgrove was brought in last month as an emergency caretaker minister of Finance in replacement of Ted Morton, who resigned to join the PC leadership race. (One of the worst-kept secrets in Alberta is that Morton essentially resigned because his views on government cost-cutting were too drastic for outgoing Premier Ed Stelmach’s taste.)

There were no real surprises in the February 24 Alberta budget. Usually, the absence of surprises is considered to be a positive sign. Is this the case here? Yes and no.

On the expense side, the 2010 approach is somewhat repeated: sustained financing for health, education and other “social” ministries, with modest cuts to the other ministries to offset this. This results in program spending increases of 0.5%, 1.3% and 3.1% over this year and the two following years.

On the revenue side, nothing much is done except some service fee increases. However, Snelgrove expects Alberta revenues to grow solidly on their own, reflecting very positive forecasts for economic growth and for natural resource royalties. The latter are expected to jump by 23% and 16% in 2012-13 and 2013-14 respectively. (This is not impossible, but who knows?)

As a result, the province’s deficit gets erased by 2013-14, one year later than originally planned. This delay is not bad in itself given the severity of the recession in Alberta. The problem is that the balancing act is accomplished by drawing down most of the Sustainability Fund—a meager $1.7B is left in it by that date, one-tenth of what was in the Fund in 2009-10.

So the Alberta government has little margin of maneuver and lots of hope hanging on energy price forecasts. Past experience has taught Albertans that those prices are full of surprises, positive and negative. We might have reached the point where Alberta taxpayers have had enough of this uncertainty.

You can’t have your cake and eat it too—Albertans have long enjoyed low taxes, but if they want to enjoy the same level of services as other parts of the country they will have to start considering other sources of revenue for their provincial government.

Energy royalties are nice but they are irregular and unpredictable. The province pays for most of the steadily-growing cost of its services using rollercoaster energy money. If Alberta needs to reform its tax system, it should do so. Taxes are not an ideological issue, they are a practical one. Decisions on tax policy should be fact-based, period.

To return to my baseball analogy (a very agreeable thought when the windchill factor is -36ºC outside), walks are “bad things” but even the best pitcher sometimes has to issue an intentional walk depending on the game situation. No one likes taxes, but sometimes we need them.

Given the unpredictability of Alberta politics (a misnomer until a few years ago), maybe now is not the time to start complex discussions on what size of government Albertans want, or about what taxes are needed for its proper functioning.

Thinking again about it, maybe it is the right time.

In a recent column by L. Ian MacDonald (Calgary Herald, Feb. 9, 2010), Stephen Harper is criticized for not doing anything big. Mac-Donald argues that “while [Harper] has done a good job of running the country, he hasn’t yet done much to change it.”

The problem with this analysis is twofold. First, it assumes that the Prime Minister wants to do something big. Second, it fails to see that not initiating huge changes is itself a major change of direction for the federal government.

Harper’s ideological bent is conservative. Conservatives are suspicious of big government projects on the grounds that they grow the state at the expense of personal freedom and tend to have all sorts of negative unintended consequences. For a true blue conservative, running the country is not about changing it, but making sure that there is “peace, order and good government.” It’s up to Canadians to change their country, not the Prime Minister.

There is little doubt that Harper has had to compromise some of his conservative beliefs to win two elections and hold onto two minority governments. I don’t even want to think about the stomach ache he probably had while overseeing the use of taxpayer dollars to bail out auto companies.

And while the idea of a secret agenda has always been nonsense, this doesn’t mean that the Prime Minister doesn’t have a different vision for the federal government than his predecessors.

Harper is a fan of small (or at least smaller) government. He used to rail against politicians who went to Ottawa to impose their big ideas while spending truckloads of tax dollars doing it. It should not, therefore, be a surprise that he has not proposed a lot of big ideas.

Harper wants to be “transformational” (to borrow MacDonald’s word), but not by leaving a legacy of major federal initiatives. He wants to transform the approach of the federal government from a “let’s create a new program” to “let’s see if we can get by without a new program, let the provinces look after their areas of jurisdiction, and generally be less, not more, present in the lives of Canadians.”

This boggles the minds of those who want, or are used to, the idea of an interventionist federal government. Harper appears to have no vision because “vision” is typically associated with more government. Harper’s vision is less government.

Whether you agree with this or not, it’s “transformational” — if it can outlast Harper. Unlike some of the accomplishments of previous PMs, Harper is not leaving behind a lot of programs that will be hard to dump when he is gone. Cracking down on crime, good relations with the United States and a predilection toward less rather than more government are simply not as durable as Medicare or the Canada Pension Plan.

There is at least one major exception to this: the GST cut. Harper and every economist worth their salt know that cutting a consumption tax is not as good in economic terms as cutting income or corporate taxes. But, as Maclean’s columnist Paul Wells has noticed, Harper’s goal was not good economics but good conservative politics. “Harper’s GST cuts were designed to deprive future governments of an income source” (Maclean’s, May 26, 2008).

The two percentage points shaved off the GST mean that every time someone spends a dollar on something, two cents less goes to Ottawa to fund more ambitious government programs.

This looks less smart in the wake of the recession and the deficits that will follow it, but it still makes a great deal of sense if your goal is to rein in government rather than unleash it. It is important to note that the federal government is not withering away under Harper’s leadership — it remains a massive operation with a huge influence on the lives of Canadians. The difference is one of degree, albeit an important degree.

It remains to be seen if Harper’s vision for the federal government can stand a third electoral test. Canadians like social programs and we are generally not shy about asking our governments to do more (even if we ask for less in the next breath). O Canada, indeed.

Posted By: Robert Roach