Guest Blog by Doug Griffiths: On the Budget

As you may have noticed there is a PCAA leadership race going on in Alberta – it is an exciting time and there is promise of change in the air. What excites me most is that a party leadership race often sparks the opportunity to share new innovative ideas. There is an expectation that there will be fresh prospective.

Doug Griffiths and his Build a Better Alberta campaign is exactly that, in my opinion. His first, in what he tells us will be a series of blogs, talks about the Alberta Budget in a different way that we are used to. Sit back and take it in … and pay close attention to the need for a long term fiscal framework.

CR xo

Doug’s words start now …

I have been reading over the budget and I have a few comments I thought I would make since there is ‘sort of’ a leadership race going on and so many have asked me for comments and my evaluation.

First, it is a little tough to fully evaluate this budget without the context of a long-term fiscal framework to judge it against. A long-term fiscal framework lays out the spending, saving, and tax policy over the next few years so that all Albertans know what to expect—not just this year—but in years to come. A long-term fiscal framework would ease fears by putting into place plans that would show the course for getting out of the red ink, but also for managing the next round of surpluses that would come with the next boom.

Some will want to simplify our current fiscal challenges as either a spending problem or a revenue problem. Our situation is, unfortunately, more complex than that. We have both revenue and spending problems. Natural gas royalties provide about two thirds of the province’s royalty revenue. With prices consistently low it is causing huge revenue shortfalls, and there is no end in sight as forecasts predict natural gas prices to remain low for years to come. Any upward revenue adjustments that come from, and will come from, increasing crude oil prices are, and will continue to be, offset by the rise in the Canadian dollar, which lowers revenue to the provincial coffers. So we have a revenue problem.

We have a spending challenge as well. We consistently spend more per capita than virtually anywhere else in the nation, and unfortunately we often spend more while seeing average or below average results in some of our largest programs. It has been too easy in Alberta to simply spend more money, since we had lots, and hope the problem would go away. It’s not simply the government’s fault for that either, though it is easy to blame the government. We, as Albertans, consistently demanded more money be spent on our challenges. Often money is the last step in the process to find a solution, and often isn’t necessary at all, but we got used to saying and hearing how much money was going to address a problem, and we accepted that everything would be okay. So, we have a spending problem too, since spending isn’t always the answer we think it is, but have come to rely on it.

Now, I am going to shock a few of you by saying that there is nothing inherently or morally wrong with running a deficit. A deficit is a one-year shortfall of revenue over spending. It is necessary, on occasion, to run a deficit to cope with unforeseen circumstances, such as the worst global recession in 70 years, or a steep and long decline in the price of natural gas. Circumstances like that happen and so it is appropriate to offset steep, sudden, and unforeseeable revenue declines with acute deficits that are covered by accumulated savings deliberately set aside for this very purpose.
It is important to have the savings to ensure there is no need to cut essential programs and critical investments, such as in education, research and development, and necessary social programs due to a temporary situation. It would be short-sighted to cut investments that ensure our long-term success because of a short-term issue. Building a savings account, such as our Sustainability Fund, to cover shortfall revenue is sound government policy, especially for such cyclical economies as ours. It affords us the opportunity to cushion and pad the boom and bust blows we are all too familiar with in our economy.

We have some long-term revenue challenges, as I identified earlier, that could keep us in a tight spot for a while, so it is critical to watch spending. I am pleased that this budget keeps the spending to only a 2.2% increase; pretty good by anyone’s standards. In fact, if you look closely, you will see that the province is running an operating surplus of almost half a billion dollars. That is good because operating deficits are dangerous even with a Sustainability Fund in place. Operating deficits have the potential to become chronic, rather than acute, and accumulate into long-term debt. Long term debt accumulated because of operating deficits is unacceptable. This is a tax on the next generation for what we want today. That is spending money our children have not yet earned. Thankfully, we are not in this place. Not yet.

It is also important to have the resources available to invest in infrastructure such as schools, hospitals, and roads that will be used for generations to come. The province had an Infrastructure Fund, which it rolled into the Sustainability Fund. That was a pool of funds set aside to deliberately build infrastructure during the economic downturn when the province would get much more value for the money spent than at peak economic cycles. That was prudent planning and the province is spending much of that money to build infrastructure while costs are still down. Once our economy heats up again and the private sector increases their investments, we will not get as much value for our money. We need a solid plan to provide the necessary infrastructure to support our economy, and manage that investment throughout the market cycles.

As a wise and successful man once said, “When everyone else is afraid, be bold, and when everyone else is being bold, be afraid.”

The current shortfall in this budget, therefore, is not due to operating deficits, but rather investment in infrastructure. Some people may suggest that the government should not be using savings to invest in infrastructure. They may suggest the government should only invest in using in year cash available. In reality, infrastructure is utilized over generations, and as the foundation on which the economy is built, must be capitalized over longer terms, especially in economies such as ours that grow at such incredible rates. The investment in infrastructure during this downturn is an investment in the future and for future generations. Government is a $36 billion dollar company and requires long-term planning and vision, and must invest on market cycles, not cash cycles. Cash in-cash out thinking is how you run a flea market, not a $36 billion corporation.

That said, we cannot cease to be vigilant. The investments we make in infrastructure must be wise and prudent, be critical to the foundation of our economy. As a province and as a public we cannot afford to build our infrastructure in cycles that compete with the private sector and exacerbate the boom and bust cycles we so often experience. We must ensure a planned flow of investment to ensure wise spending of taxpayer dollars. As well, we can never place ourselves in a position where short term program spending deficits caused by unforeseen circumstances become chronic spending deficits. Currently we are not running a deficit on program spending, but with consistently low revenue pressures and consistently high spending pressures, the situation has the potential to get away on us.
This all warrants having a discussion, and Albertans, not just politicians, need to be front and centre participants in that discussion. We need to be deliberate architects of our own destiny.
Without a long-term fiscal framework, it is hard to assess whether this situation is still short-term acute or at risk of becoming chronic.

Without a long-term fiscal framework it is hard to evaluate if we have ensured the right time to invest, or the right way to save, or the right programs for government to provide. Without a long-term fiscal framework we don’t have a plan to manage the next boom, which will then prepare us for the next bust. Without a long-term fiscal framework we don’t know whether we are making the right choices for ourselves, and for our children to ensure their future is bright. Without a long-term fiscal framework we simply have no context to assess whether we are making all the choices necessary to build a better Alberta.

Doug Griffiths

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