Monday, May 15, 2006

Doing the RIGHT Thing in Alberta

The two most radical policies the new progressive conservative Premier of Alberta will need to pursue, once elected are: (a) reduce government spending and lower expectations of the Alberta government’s future prosperity; and (b) increase taxation so that people start to pay more of the real costs of Government services. This is what a true conservative would do and here’s why.

First, the Government are subsidizing a range of services and, by doing so, encouraging demand for these services to grow. As demand grows, the cost of these services also grows and they become increasingly difficulty to pay for. Health care is a good example. The more we provide health care services at modest costs to people, the more these services are demanded. If growth in health care costs continues at its present rate – around 11% each year – that at some point in the future, health care expenditure will cause the Province to return to deficits and debt.

Alberta has been spending too much. Annual growth in government expenditure is around 6% on average – some 1.5% more than the rise in inflation and the growth of the population would suggest as appropriate. To balance the books on a continuing basis, annual growth in expenditure needs to be no more than 4%. This will minimize the risk of Alberta returning to debt.

Just tackling spending does not solve the problem of responsible Government. If Albertan’s are serious about key issues – education, health, environment and the future – then they should start to build up the Heritage trust funds and focus on adequate base funding for the services they need, preparing Alberta for an inevitable fall in commodity prices. Our taxes should be around 19-20% of GDP, not the 17% Alberta now enjoys. Why? It is at this rate that citizens become much more critical of Government services and waste and use the level of taxation to determine what really matters. They challenge government to get out of some areas of activity and to focus on the real work of Government.

Cutting spending without increasing taxation rarely works – it simply stimulates special interest groups to complain and creates a “defensive” government who then avoid taking bold measures. Increasing taxation without reducing spending also rarely works, people will pay more for specific services like health and education provided that they can see the additional taxes being used intelligently. It is the combination of “tax and cut” that produces real changes in attitude and behaviour. “Tax and spend”, in contrast, is the mantra of another political party.

As taxes increase, the nature of these taxes needs to change. We need to shift the tax burden from personal taxation to consumption taxes – higher taxes on environmental spending (gasoline, for example) and lower taxes on environmentally friendly fuels (bio-diesel or ethanol blends, for example). To reduce demand for health services, there should be a strong focus on prevention and patient education and encouragement of self-care. Patients who abuse the system by not showing up for appointments or seeking medical help for the common cold or similar non treatable ailments should face penalties. We need to change attitudes and behaviour to change the demand for service.

None of the declared candidates for the Premiers position are likely to push the argument for smaller government and higher taxes. More likely, we are going to hear bigger government and lower taxes – exactly the opposite of what Alberta needs. It is when times are good Government needs to be bold and show courage – protecting the longer term interests of Albertans by doing the right thing.

Imagine this scenario. Government spending continues to grow at current rates; taxes are reduced and we all continue to receive $400 bonus payments each New Year. By 2008, the Province will be looking at annual deficits and by 2018 debt will be the same as it was in 1992. If oil prices fall below the estimated $60/barrel for oil, as most serious commentators think it will, then Alberta will start debt funding sooner. Health care costs double every nine years – and by 2015, health care and education will account for almost 80% of Alberta’s government expenditure, leaving little for other areas. This is where we are headed unless someone shows courage, calls a spade a spade and does the right thing.

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