Tuesday, February 09, 2010

Alberta Government Plays the Health Card at the Expense of the Prosperity of the Province

Tax and other revenues before oil and gas in Alberta in 2010-2011 will be $26.7billion. Of this, the Province will spend $15 billion in this same year on health care – 56%. Between health care and compulsory education, some 79% of our base revenues will be spent – add in post-secondary education and innovation and we are now at 90% of base revenues. Oil and gas, which are expected to produce revenues of around $7.3 billion, funds the rest of the work of the Government of Alberta.

This is not how the Government looks at it. They see these two sources of revenue as a single pot from which they can dip into to fund programs and services. For them, revenues total $34 billion. But not all of this revenue is of the same kind. Oil and gas revenues depend on global prices and the decisions made by people other than the Government – the decisions private companies make. Some of these oil and gas funds were expected to be used to boost the Heritage Fund and the sustainability fund, but instead we are using them to boost spending.

When we take the government’s figure of $34 billion, health care takes up 44% and within five to seven years will pass the 50% mark. The Government says that this is what Albertans want. They say whenever they talk to “real” Albertan’s they tell them to invest “what it takes” to run health care. This is rather like asking an obese teenager whether they would like another hamburger. No one has explained the medium to long term consequences of this spending – closing one of our Colleges, cutting more social and cultural programs, abandoning commitments to the homeless. Rather, we are again treating health care (or, more realistically, sickness) as if it is an unstoppable force.

One way of looking at the decisions made by the Government in its budget today is that it is sacrificing its long term interests for short term gain. The long term interest requires us to increase access to and the affordability of post-secondary education so that we have more people in our workforce who have the skills to adopt and adapt and respond to innovative opportunities. This long term view also sees improving the work of schools as key to our collective future – securing more high school completion, enabling more of our young people to qualify for access to post-secondary education, improving performance across the board. So as to fund health care, we are now reducing affordability (reducing funds available for scholarships and awards) and reducing capacity by cutting real investment in our post secondary institutions.

We are also reducing, in real terms, spending on education in schools. While the budget makes it look like there is an increase in spending - $43 million of “new money” (0.7% of the education budget) – this will quickly be eaten away by the decision not to directly fund mandated pay increases for teachers and not to provide funding to account for inflation, now running at 1.3% but expected to rise during the year.

Education, both at K-12 and post secondary, is critical to Alberta’s future. It is the underpinning of any strategy to really diversify the economy, build jurisdictional advantage, make it possible for our firms to compete against players who have ready access to larger markets and a more venture capital. For Alberta to be successful in the middle of this century we need to double the number of people working in firms with post-graduate degrees, increase our investments in lifelong learning and encourage more entrepreneurs to see learning and investment in productivity skills as key to their future. In this sense, educational investments are exactly that: investments in future prosperity.

Health care spending is consumptive spending. Because we are prosperous – Alberta has one of the highest GDP’s per capita in the world – we spend because we can. We create substantial new facilities and seek to attract some of the best medical scientists in the world so that they can extend the life of clearly deserving individuals by a few years or months. This is highly desirable and valuable service for those individuals, but hardly an investment in future prosperity for the Province as a whole. As the population ages, we will spend more and more of our health care resources on caring for the terminally ill and those whose medical conditions cannot be treated, merely ameliorated. This is a great thing to be doing, but let us recognize it for what it is – spending to support individuals in need, not spending so as to invest in our future prosperity.

Some health care spending is future focused – spending on wellness and fitness programs, programs intended to get injured workers back to work quickly, investments in children’s health so as to ensure that they can have many years as productive members of society. All of these activities are future focused and the balance of health care spending needs to shift from sickness to wellness over time. But the level of spending on these services is not as great as spending on tertiary care, pharmaceuticals and the care of the elderly.

By moving resources away from education to health our Government is making a conscious choice to favour the present over the future. By reducing in real terms its commitment to post secondary education and holding the line on spending in K-12 it is willing to risk the future well-being of the economy in favour of health care and its attempt to “buy votes”.

At some point the tension between consumption and investment becomes real. This is when, in order to fund continued consumptive spending, the Government has to make tough choices about investment – closing a Community College, privatizing a University or increasing tax revenues to pay for continued consumption and investment. The “bet” being taken by the Government of Alberta is that this “tipping point” is some ways away. It’s a big bet.

Once health spending surpasses half of all revenues several things need to happen. First, there needs to be an understanding that health costs cannot continue to rise at an annual rate in excess of the growth in revenues. Second, there needs to be a shift of resources away from tertiary care – hospitals and specialist services – towards wellness and primary care. Third, there needs to be a way to reduce the growth of non publicly funded health care costs – especially pharmaceuticals, medical technology and dentistry. Finally, there needs to be a recognition that, while public health should remain the cornerstone of provision, our system is actually a mixed economy of public and private, public funds and user pay and private providers providing services (pharmacies, doctors, dentists are largely private providers). Given this mixed economy, there will be a need to change the mix.

We cannot allow political expediency to undermine Alberta’s future prospects. We need to rebalance our budgets through tax increases so that we can expand our educational provision, make it affordable and increase our competitive advantage. This may not be what the “real Albertan’s” Ed Stelmach talks to say they want, but it is actually what they need.

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