Alberta Economy Outlook - 2015 Version

[Cuz]

I don't think we have a revenue problem, rather we have a spending problem...

[Skootenbeeten]

The province has been booming for the better part of 15 years and the price of oil drops for what 4 months now and now we are in a "unprecedented fiscal hole". Do we as a province live pay cheque to pay cheque?

[Slava]

Originally Posted by Skootenbeeten

The province has been booming for the better part of 15 years and the price of oil drops for what 4 months now and now we are in a "unprecedented fiscal hole". Do we as a province live pay cheque to pay cheque?

Yes. Actually we live month to month as a province and at the end of the paycheque there is still month left. Its pretty pathetic, but people don't like bad news. When its election time and some talk about raising taxes to pay for everything there are others who say we can "trim the fat" and people would rather do that than pay more money. People vote with their wallet, so if one guy says he can solve everything and it won't cost more money, than no matter how stupid it is, that guy gets a lot of votes compared to the solution that costs people more money.

[ranchlandsselling]

Yeah, introduce sales tax the following things happen (without me agreeing / disagreeing)
Teachers ask for raise
Nurses ask for raise
Doctors ask for raise (go for that one)
Politician salary increases
Provincial employees start asking for raises
Health Super Boards increase in size
....
....

[GP_Matt]

I have no outright problem with a sales tax, but I am afraid of what Ranchland is saying. If they raise a new source of revenue to meet their needs this year, what happens when prices recover and they have huge surpluses.

If they raise taxes and then remove oil revenues (or a portion of them) from the budget then I will support it completely. Otherwise, the next recession will come and we will already have a sales tax in place.

[stampsx2]

Originally Posted by ranchlandsselling

Yeah, introduce sales tax the following things happen (without me agreeing / disagreeing)
Teachers ask for raise
Nurses ask for raise
Doctors ask for raise (go for that one)
Politician salary increases
Provincial employees start asking for raises
Health Super Boards increase in size
....
....

And municipalities ask for more money. Raise money elsewhere, not through a sales tax.

[oilyfan]

Originally Posted by stampsx2

And municipalities ask for more money. Raise money elsewhere, not through a sales tax.

What's your suggestion on where else to raise money from?

[Flash Walken]

Originally Posted by oilyfan

What's your suggestion on where else to raise money from?

Why not a corporate tax increase?

[White Out 403]

I don't know what's worse. The PC's running of the province for the last 20 years or the zombies who vote them in time and again.

We've been oil rich for so long and a dip in prices will cause this much pain? Jesus Christ. Where was the savings? What did we do with this money?


But don't worry vote in the PC's again cuz uncle NDP and liberal party have the spending problem. Lol. What a joke.

[Flash Walken]

Originally Posted by Resurrection

I don't know what's worse. The PC's running of the province for the last 20 years or the zombies who vote them in time and again.

We've been oil rich for so long and a dip in prices will cause this much pain? Jesus Christ. Where was the savings? What did we do with this money?


But don't worry vote in the PC's again cuz uncle NDP and liberal party have the spending problem. Lol. What a joke.

I raised this in another thread, but I think it puts the whole ideology up for debate.

Is this what 'fiscal conservatism' means?

Someone raised the point about 'fiscal responsibility' not being the same as 'fiscal conservatism' and I think this is a pretty fantastic example.

I may have been fiscally conservative to use oil royalty revenue to prop up the budget, but it sure wasn't fiscally responsible. Unlike a lot of other hotly contested discussions about political ideology, where there is a back-and-forth regarding culpability/responsibility of policies and how they play out, there's only been one party in Alberta in living memory for many/most Alberta voters. Not a ton of 'back and forth' there, other than characterizing what are clearly 'conservative' policies as 'drifting to the 'left'', which seems to be how things are being narrated by some now.

[Ashartus]

Originally Posted by Cuz

I don't think we have a revenue problem, rather we have a spending problem...

We do have a revenue problem. However the problem isn't so much with the number of dollars of revenue, but rather the source and stability.

[ExiledFlamesFan]

It's amazing the province has pissed away all this wealth while Norway and Saudi Arabia have at or near a trillion dollars in wealth funds/cash reserves while we barely have enough to cover next year

Hopefully when the next boom hits we'll finally learn our lesson and actually save up for the busts.

[chemgear]

Originally Posted by ExiledFlamesFan

Hopefully when the next boom hits we'll finally learn our lesson and actually save up for the busts.

[normtwofinger]

Booms cause unsustainable growth, which puts a strain on provincial infrastructure and services. We complain. The province spends to fulfill the need. Then the bust comes and we are surprised the province has no money. Rinse and repeat.

[edslunch]

Originally Posted by GP_Matt

I have no outright problem with a sales tax, but I am afraid of what Ranchland is saying. If they raise a new source of revenue to meet their needs this year, what happens when prices recover and they have huge surpluses.

If they raise taxes and then remove oil revenues (or a portion of them) from the budget then I will support it completely. Otherwise, the next recession will come and we will already have a sales tax in place.

I'd be happy if they raise taxes (sales tax or move away from flat tax) but legislate that equivalent royalties must be saved once prices recover.

[ExiledFlamesFan]

Originally Posted by edslunch

I'd be happy if they raise taxes (sales tax or move away from flat tax) but legislate that equivalent royalties must be saved once prices recover.

Agreed. Sales tax that helps pay for deficits during busts and put into a wealth fund during booms.

[Flash Walken]

Since then, Karl has studied the impact of oil revenue on oil-exporting states. Her seminal book, The Paradox of Plenty, remains a classic on how the world's most capital-intensive industry corrodes the economy, politics, and culture of most oil exporting states in much the same way gold undid King Midas.

Karl even coined the term "petro state." She developed her thinking from the so-called staple theory of Canadian historian Harold Innis. "I was excited to read his work. Everyone at the time thought having oil meant certain and progressive development. But they had not read Innis, the Iranian Mahdavy or the great economist Albert Hirschman who wrote about how commodities shape development -- for good and bad."

Petro states aren't like other states for several reasons, says Karl.

For starters, their dependence on oil profits breaks the necessary link between taxation and representation. Instead of extracting state funds from citizens, wealth magically comes from the ground. This makes governments unaccountable; it means that people don't demand to see how money is spent.

And oil governments, in turn, tend to treat their citizens like subjects, either paying them off or, when necessary, repressing them. Wedded to boom and bust cycles, oil-dependent regimes are either overspending to keep themselves in power or accruing debt to mask problems with seemingly no ability for fiscal reform.

Oil and highly centralized rule go together. Oil wealth permits governments to dismantle accountability mechanisms, weaken bureaucracies and undermine the rule of law.

Karl further found that although petro states appear strong, and some governments last for long periods of time, these oil infused regimes are highly vulnerable. When they collapse, they fall apart very quickly. Neither autocracies nor democracies are immune.

"I showed that petro-states had the effect of replacing tax mechanisms with excessive oil profits, and this, in turn, then petrolized the whole political and economic environment. Oil influence and oil issues dominated the government.

"Petro states do not have to bargain or negotiate with their citizens. Their power depends on how they pass around oil revenues, how this wealth is distributed. Regimes that do that well, like the Saudi royal family or the former Venezuelan two party system, stay in power for a long time. Those that keep the revenue too closely inside their own support base, whether this is an autocratic family or a small religious or ethnic group, often don't last as long.

"In most petro states, government spending is never an issue for public debate. Norway, the exception that proves the rule, has constant debates about oil distribution, even between its citizens today and future generations.

"A centralized power, to the contrary, just hands out petrodollars, quieting the loudest voices and its own power base. Thus statecraft is stifled. Because petro states invite little debate, nourish no coherent bureaucracy and engage in volatile spending, the state's institutions get weaker and weaker. Stability-wise, this is not good.

"Alaska and Texas and Alberta are all part of a federal system, but they certainly take on some of the same characteristics of petro states. If you look at Texas or Alaska, and how they distribute oil wealth, they have boom and bust cycles just like an oil state, and they have repeated serious trouble balancing their budgets. But this volatility is mediated by central government.

"As easy oil becomes scarcer, and the commodity becomes even more valuable, oil politics inside these states have a contagion effect and tend to increasingly influence the central government. I suspect this same phenomenon can be seen in Alberta and the Canadian government."

"Instead, if prices continue declining and if they stay low for a few years (two big 'ifs') -- they have already dropped 40 per cent but no one knows whether this price will endure -- expect the following: a rapidly declining Canadian dollar, greater problems over pipelines, the reduction of future investments, and a very bumpy oil ride, especially for Alberta.

"Any adverse effect low oil prices will have on Canada's high cost oil industry will have a multiplier effect on the economy and polity. Government services will be cut back, house sales will decline, and banking will slow down. Canadians will not be so happy with their government.

"How long will the prices stay down, and how long will it take for those effects to work their way through the economy? That is the question. If other vulnerable petro-states collapse, like Venezuela or Libya, or if conflict removes oil from the market, prices quickly could soar again."

Has oil ruined us, as Perez Alfonso feared?

"For those of us living in advanced industrialized countries, inexpensive oil through 1970 has largely made our current standard of living. But Perez Alfonzo understood that oil is a non-renewable resource. It has huge costs associated with it, not only benefits.

"Let me be clear: the commodity itself is neither good nor bad.

"But the excessive profit involved from what Adam Smith called 'reaping what has not been sown' has led to a concentration of power and influence that makes it exceptionally difficult to fight the negative consequences of hydrocarbon dependence. This is true not only in Venezuela, Nigeria, Russia and the Middle East but also in the U.S. and Canada."Instead, if prices continue declining and if they stay low for a few years (two big 'ifs') -- they have already dropped 40 per cent but no one knows whether this price will endure -- expect the following: a rapidly declining Canadian dollar, greater problems over pipelines, the reduction of future investments, and a very bumpy oil ride, especially for Alberta.

"Any adverse effect low oil prices will have on Canada's high cost oil industry will have a multiplier effect on the economy and polity. Government services will be cut back, house sales will decline, and banking will slow down. Canadians will not be so happy with their government.

"How long will the prices stay down, and how long will it take for those effects to work their way through the economy? That is the question. If other vulnerable petro-states collapse, like Venezuela or Libya, or if conflict removes oil from the market, prices quickly could soar again."

Has oil ruined us, as Perez Alfonso feared?

"For those of us living in advanced industrialized countries, inexpensive oil through 1970 has largely made our current standard of living. But Perez Alfonzo understood that oil is a non-renewable resource. It has huge costs associated with it, not only benefits.

"Let me be clear: the commodity itself is neither good nor bad.

"But the excessive profit involved from what Adam Smith called 'reaping what has not been sown' has led to a concentration of power and influence that makes it exceptionally difficult to fight the negative consequences of hydrocarbon dependence. This is true not only in Venezuela, Nigeria, Russia and the Middle East but also in the U.S. and Canada.

http://thetyee.ca/News/2014/12/18/Te...arl-Interview/

[4X4]

I know I'm naive to think this, but I was hoping that a sales tax would reduce income tax. Get a little bit from tourists, and get a lot from people that can afford to spend a lot. It's pretty much the fairest tax.

[DownhillGoat]

Originally Posted by 4X4

I know I'm naive to think this, but I was hoping that a sales tax would reduce income tax. Get a little bit from tourists, and get a lot from people that can afford to spend a lot. It's pretty much the fairest tax.

And something from the masses that use Alberta's infrastructure and amenities but file income tax elsewhere.

[ExiledFlamesFan]

SK charges a 5% PST and they made 1.4 billion in revenue from PST in the 13/14 fiscal year.

http://finance.gov.sk.ca/taxes/pst/

With 4X the population Alberta should easily be able to pull in 3 or 4 billion dollars in yearly revenue from a 3% PST.

And our total sales tax at 8% will still be extremely competitive and lowest in the provinces, we'd likely still get BCers and Saskatchewans coming here to make large purchases.