New roads, more spending on health and education and a boost to drought-stricken farmers — it was a good-news budget for Albertans seeking to loosen the province’s tight grip on its oil-engorged surplus, but does it fit the bill for the business community?
Economic analysts have been revving up their calculators to plot the impact of $21.6 billion in spending, which translates into an overall hike of about 24 per cent, including previously announced funding projects.
The province’s remaining $6.9 billion debt is nine years ahead of the legislated 25-year schedule for debt elimination, but depending on revenue, some analysts predict it may not be paid for another 15 years.
“It’s unclear from this budget where we are going,” says Ted Chambers, executive director of the Western Centre for Economic Research, based at the University of Alberta.
“Everyone agrees that eliminating the debt is a desirable thing, because certainly you save a lot of money in servicing it . . . so the question becomes, what else? What are the other directions besides eliminating the debt? I’ve got to confess I don’t see much in the budget on leadership or forward thinking.”
Chambers believes there are several pressing problems facing the government, including a deteriorating infrastructure — which the budget has partly addressed through a $3.2-billion “one-time” expenditure on schools, hospitals and roads.
But in the longer term, Chambers says, it’s “dysfunctional” to have big spikes in infrastructure expenditure followed by years-long droughts in doling out needed cash.“One has to recognize that what the province has spent on infrastructure in the last decade is certainly inadequate, given the amount of growth that has occurred in the province.”
Chambers also called on the Klein government to consider revenue-sharing with municipalities to aid their planning, and pump even more money into economic diversification.
Other analysts say Finance Minister Pat Nelson has successfully walked a fine line between immediate spending needs and hedging against tomorrow. “This government has a big problem in that a lot of revenue comes from non-renewable resources, which is volatile like all get-out,” says University of Calgary economics professor Ron Kneebone.
“From a business point of view, what you want your government to do is recognize the high oil and gas prices we’re experiencing now aren’t going to be around forever, and they shouldn’t be planning on them being around forever.”
Kneebone noted that since Klein came into office, the government has been careful to allocate 75 per cent of any budget surplus to debt repayment. But his calculations show it is moving away from that strategy this coming year when only 14 per cent of the anticipated $4.3-billion surplus will go to debt reduction.
“It’s quite a change in philosophy,” Kneebone said. “But an important question from the business sector should be: Are they making reasonable guesses as to what they believe oil and gas royalties will be? I think they are.
“They’ve been saying, let’s maintain low taxes because that’s good for business. They’re also saying that it’s also important for business to maintain infrastructure like roads, sewers, hospitals and education facilities.”
Barry Rempel couldn’t agree more. The president of the Calgary Chamber of Commerce says while the government’s projected 12.5-per-cent spending increase in 2001-02 would likely raise eyebrows in any bottom-line focused corporation, the Alberta government appears to understand that tax-cutting isn’t the only way to roll out the welcome mat to business and increased investment.
“In an ideal world, we’d like to see the debt paid down more quickly, with them being more proactive on personal and business taxation.”
But pumping more money into children’s hospitals and roads is a more holistic understanding of the pressing needs in the community, Rempel adds. “This will barely let us catch up on some of the infrastructure spending that probably should have taken place over the last 10 years.”
Other pro-business groups have decried the hike in spending, comparing it to the freer-spending years under former premier Don Getty.
“Ultimately, program spending is what drives taxation,” said John Carpay, Alberta director for the Canadian Taxpayers Federation. “It’s time for this government to focus on spending better and smarter, rather than spending more.”
Calling some of the spending “one time” or “infrastructure” does not change the fact that every dollar spent by politicians is a dollar taken from a taxpayer, he observed.
Dan Kelly, prairie vice-president of the Canadian Federation of Independent Business, also said he was disappointed in the lack of emphasis on tax reduction. The CFIB, which represents 8,700 small and medium-sized businesses in Alberta, praised the tax cuts introduced in response to the business tax review report, but noted businesses are still paying 50-per-cent more education tax compared to homeowners.
But a Calgary-based political analyst believes the Alberta government is striking the right balance. There’s a fundamental distinction between long-term spending on programs and one-time spending, adds Allan Tupper, a political science professor at the U of C. “That, I think, is the compromise that has been struck.
“It’s just a further variation on the theme the Klein government has been talking about for five years — once the budget is balanced, there is going to be this dance between tax cuts, various forms of expenditure increases, which they call reinvestment, and debt repayment,” says Tupper.
There is an emerging view that the government has been too cutback-oriented in the past decade, he argues, and even the business community can agree that a term of reinvestment can be helpful to the overall strength of the province.
“You cannot let a democratic government run down to the degree it can no longer perform its basic functions, which are crucial to the strength of the economy.”
“I think the Klein government made this transition in its thinking in the mid-1990s and although it’s certainly reduced and altered its role somewhat, it became quite clear it was not going to eliminate the provincial government as a player.
“After all, the fundamentals of Alberta remain unchanged: it’s diversified, but still a very resource-dependent economy, we’re still a very small population and . . . we’re still far away from major markets even with all the advanced telecommunications technology. Those circumstances don’t really allow for a pure laissez-faire system.”
Ana The government was faced with cutting taxes, boosting spending, and paying down the debt — and the middle ground has prevailed, says Tupper.
THE BUDGET:
* Surplus of $817 million forecast for 2001-02.
* Projected revenues of $22.7 billion, based on oil prices staying at $25 US a barrel.
* Total expenditures of $21.6 billion.
* Health spending up 13.5 per cent or $737 million, including increases for health providers.
* Education spending up 7.7 per cent or $343 million, including teacher pay hikes.
* $3.2 billion in one-time spending, mostly directed towards infrastructure.
* More than $250 million in agricultural assistance.
* $286 million reduction in corporate taxes.
* Education property tax reduction of $135 million.
* A forecast of 40,000 new jobs, with another 114,000 over the next three years.
