Alberta's revenue disadvantage

Alberta’s budget: The good, the bad, and the elephant in the room

The province’s woes will continue unless politicians find the courage to advocate for increasing government revenues
Photo: Chris Schwarz/Government of Alberta

The Alberta government recently released its 2016-17 budget to lay out its plan for the new fiscal year. The budget is relatively good news for public services, given the continuing impact of the global price of oil and the province’s anemic tax system on government revenues. However, the budget contains no changes that raise new money to begin addressing Alberta’s severe revenue shortfall. The shortage of revenue remains the elephant in the room that none of the major parties seem prepared to address.

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The Good

Here are a few of the highlights in the budget.

  1. Post-secondary tuition freeze. When tuition is frozen, it is important to pay attention to the amounts given to post-secondary institutions as operating grants. If those amounts are not increased to account for inflation, institutions will struggle to provide the same level of programming. Statistics Canada puts the rate of inflation for Alberta at 2.4 per cent, and funding for post-secondary operations increased by 2.8 per cent. In real terms, institutions saw a small increase in overall funding, while tuition rates in real dollars will actually decrease, making tuition slightly more affordable. It is a small step in the right direction.
  2. Increase to child care. The increase in child care investments follows the government’s announcement in November 2016 that it will fund up to 18 Early Learning and Child Care Centres, which will create up to 1,000 new child care spaces that raise standards of affordability, accessibility, and quality. In addition to a $14 million increase to the provincial child care budget this year, the recent federal budget pledges money for provinces to further improve child care. The new federal money should go toward scale-up of the provincial government’s actions and increased training and support for child care workers, but we won’t learn those details until the provincial and federal levels of government come to an agreement, which is expected to happen this summer.
  3. Substantial increase to home care funding. The budget increases funding for home care by $201 million, an increase of 11 per cent. However, it is not yet clear whether this funding will be used to fulfill the government’s election promise to “phase in a new model for expanded public homecare.” The previous government’s preference had been to offload the responsibility for home care by signing contracts with private organizations and corporations. The result was reduced transparency and quality of care. It is important that the expansion of homecare is done through the public system, either with Alberta Health Services or municipal governments.
  4. Elimination of basic mandatory school fees. As announced in early March with the introduction of Bill 1 in the Alberta Legislature, this budget fulfills the government’s campaign promise to eliminate mandatory fees for instructional supplies and bussing. The announcement came a week after 14 organizations representing public school boards, support staff, teachers, and other groups released a proposal to phase out public funding of private schools (more on that below) and to reallocate the money to eliminate school fees and carry out three other campaign promises. The other three commitments to reduce class sizes, introduce a permanent school lunch program, and increase classroom supports remain unfulfilled, but the elimination of school fees represents significant progress to strengthen K-12 public education.

It's time to end Alberta's revenue disadvantage

The Bad

  1. Cuts to acute care and ambulance services. At a minimum, budgets for basic frontline services should increase by the amount of inflation plus population growth, roughly 3 per cent this year. Instead, acute care and ambulance services actually saw their funding decreased by $49 million and $17 million, respectively. Mike Parker, president of the Health Sciences Association of Alberta, which represents the province’s paramedics, warned that the cut will result in more ambulance shortages in a system that already does not have enough resources to meet the needs of Albertans. As the province’s population grows, the budgets for acute care and ambulance services should be expanding, not shrinking.
  2. Increased public funding to private schools. The public continues to provide massive subsidies to private schools, which actually saw an increase from $255 million to $263 million. While the increase approximately represents the growth in population plus inflation, it stands in stark contrast to the cuts to acute care and ambulance services. Five provinces in Canada do not provide subsidies to private schools, and Alberta’s subsidy system is more generous than any other in the country and involves subsidies to the province’s most expensive private schools, including “The Elite 15,” which charge more than $10,000 a year in tuition while bringing in more than $30 million a year in subsidies. Given the province’s severe revenue shortage and the struggle of public system schools to meet students’ needs, it is unacceptable that the government is not focusing all its scarce education dollars on making the public, Catholic, and francophone systems the strongest they can be.

The Elephant

The elephant in the room remains the province’s shortage of revenue resulting from its anemic tax system. Aside from Greg Clark, leader of the Alberta Party, none of the parties in the legislature has talked seriously about addressing the issue.

To be clear, Clark’s preference for a sales tax is not the only possible solution, and some of Clark’s ideas, such as cutting personal income taxes and corporate tax, are downright counter-productive. His overall plan actually proposes more spending cuts than it does revenue-raising measures.

What Alberta needs from the current government is much more of the kind of leadership they have shown on issues like raising the minimum wage to $15 per hour or ensuring farm workers have basic rights in the workplace.

However, Clark’s statement that "for far too long, we've relied on non-renewable resource revenue as our saviour, and this government is doing the same thing” is the closest Alberta has to a productive voice in the revenue conversation right now. Similar lines were spoken by Jim Prentice when he was premier, though his willingness to act on those words was limited. Alberta Premier Rachel Notley made similar comments before the NDP formed government in 2015, and at the beginning of her term the government took some significant action, but it has not raised nearly enough revenue to solve the problem. Since those early days, the current government has even adopted the old PC government talking point that low tax revenues is an advantage.

What is the truth about Alberta’s so-called tax advantage that no party wants to discuss? If we adopted the tax system of any other province in Canada, the minimum amount of new revenue would be $8.7 billion per year. I wrote in October 2015 that the Alberta’s Tax Advantage graph in the province’s budget documents should be relabelled “Alberta’s Revenue Disadvantage,” and it remains as true today as it was then.

Low tax revenues put Alberta’s public services at risk and limit our ability to improve them. Short-term deficit budgets are necessary if revenues are temporarily down, but the only plan the government has for balancing the budget in the longer term is for the price of oil to go up, which of course is not a plan at all. In the longer term, the NDP government will be under more and more pressure to make cuts to public services like health care and education, or a conservative government of one sort or another will have more than enough pretext to take a slash and burn approach like Ralph Klein did in the 1990s, when demolishing hospitals became part of the solution.

The solution

What Alberta needs from the current government is much more of the kind of leadership they have shown on issues like raising the minimum wage to $15 per hour or ensuring farm workers have basic rights in the workplace, where the government stood up to conservative voices that argued for the perpetuation of poverty wages and indentured labour.

As it stands, whenever government officials are asked a question about taxes in Alberta, they remind everyone about the so-called tax advantage. The first step toward a solution to the revenue problem is a public understanding the problem exists. The finance minister and the rest of the government caucus need to start answering questions about taxes in Alberta by pointing out how utterly inadequate our tax system is at raising revenue compared to every other tax system in the country. They also need to understand what is at stake and where we are headed if we don’t make big changes. When the public understands those key elements, political leaders will be able to begin talking about and building public support for solutions, which must include raising substantially more revenue through fair approaches to increased taxation.

All in all, the 2016-17 Alberta budget takes the right approach by resisting pressure to make big cuts to public services while making progress on priorities in post-secondary education, child care, home care, and education. However, to sustain and expand our public services in the longer term, our elected leaders need to begin a broad conversation with Albertans on how to fix the severe shortage of tax revenue, and they need to do so now.

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