Thursday, February 20, 2020

An Open Letter to Premier Kenney, Premier of Alberta

Dear Premier Kenney:

I acknowledge that, in your understanding, Alberta’s economy is challenged and that action is  needed by government to do three things:

·      Stimulate economic growth through investment in productive enterprises that create wealth.
·      Ensure that government expenditure both meets social and health needs of citizens in effective and efficient ways.
·      Secure Alberta’s infrastructure so that Alberta is a great place to live, work and play.

Your diagnosis of what the issues are, however, seems to me to flawed. The McKinnon panel pointed to the need to do two things: (a) to manage spending in such a way as to deliver outcomes better aligned with the best in other jurisdictions at a lower unit cost than at present; and (b) to increase revenues. You always give emphasis to the first of these, but neglect the second completely. The McKinnon team said this:

”steps need to be taken to increase stable sources of revenue and decrease the reliance on the volatile non-renewable resource revenues” (page 16)

This statement is clear and explicit. Yet your own actions have been to reduce Government revenues through lowering tax rates on profitable corporations and cancelling the levy on CO2. In addition, you have made the fiscal situation worse by unnecessary spending – for example, allocating $30 million a year for four years to the Canadian Energy Centre.

You also appear to ignore the mounting evidence that tax breaks for profitable corporations and reducing taxes on wealthy individuals – so called “trickle down” economics – is generally seen as a failure.  This is evidenced by a variety of research studies and through the work of the IMF. There is no current evidence that this strategy is working in Alberta. Indeed, the evidence seems to point in the other direction.

You also ignore the significant wage differences between Alberta public and private sector employees versus wages of those in similar positions in other provinces. GDP per capita in Alberta, as you well know, is much higher than any other province – indeed, it is amongst the highest in the world.

Your relentless focus has and remains on the reduction of the deficit within the lifetime of the present government. You seem to see deficits as bad, no matter how they come about and ignore the role of government to support the needs of its people, including through the use of debt instruments.

The 2019-2020 deficit looks to be around $8 billion – app. 2.4% of GDP. The primary reason for this is that we have a growing population and have a very low revenue level in comparison to other provinces. Our revenues are just 13.9% of GDP in comparison to others whose numbers are higher – 19% in BC, 22% in Manitoba and 18% in Ontario. Your argument is that our spending on government services are far too high and need to be reduced – yet the evidence shows that Alberta’s spending is the lowest in Canada at just 15.7% of GDP. You always refer to government spending per capita as the key indicator - $12,915 which is certainly higher than that in some other jurisdictions, but so too are wages in Alberta in both the private and public sector.

We can always be more efficient and a focus on controlling spending growth is not a bad thing, but cutting spending on health and education which you are clearly doing (despite denials) is damaging services.

The more serious concern you continually express is with the level of debt. Alberta’s debt. Current net debt is $36 billion – app. 10.2% of GDP. This is amongst the lowest level of net debt for any jurisdiction anywhere in the world. It is sustainable, if revenues for the government increase and effective management of spending is maintained. Reducing it is not always desirable – debt is a useful instrument which all organizations use. Some of the most successful companies in the world get there by the smart use of debt instruments. This you well know.

What is worrying me is that your current strategy does not seem to doing what you indicated it would do. 69,000 jobs have been lost since your government took office and there are no compelling indicators of turnaround in the economy. Indeed, some of the actions taken by government look to me to be creating recessionary conditions – reducing public spending and head-count in the public service, reducing services and increases the costs of public services through privatization are all likely to worsen the situation.

In short, Alberta needs a better economic strategy that the one you are pursuing. It also needs to focus on the revenue challenge – a sales tax is the elegant solution. While I accept that effectiveness and efficiency in public services is a key requirement of your government (as it should be for all governments), what I do not see is coherence in a strategy for ensuring that the very real needs of people for health, education, social services and eldercare are to be met in the short and medium term. 

Your Ministers will put the final touches to the Provincial budget in the next few days. I must share with you that my concern is that, given your current strategy is not working, your Ministers will conclude that the strategy needs to be reinforced and doubled-down upon rather than changed.

The first rule of holes is clear. When what you are doing gets you deeper into the hole, stop doing what you are doing and change. It is time for you to recognize that the bold, brash strategy you have been pursuing is not working and to change.

With good wishes

Stephen Murgatroyd, PhD


Bobby said...

Absolutely well said. And thank you for writing this.

Sarajane said...

This is a clearly crafted statement of what’s not working and what needs to change Steve. How can you ensure he and the right people read it and actually reflect meaningfully on their actions in order to make the changes you suggest? What needs to happen? Can you influence this

pohearn said...

Do you have numbers on debt service ratios? In a perpetually low interest environment, and with an already low debt/GDP they must be well within the comfort zone. Also do you have figures for percentage of retained earnings that have gone into share buybacks from Alberta tax cuts. The vast majority (95%?) of the savings from the Trump corporate tax cut has led to share buybacks, like all US corporate tax cuts since 1982!