Public Values

Alberta budget spending shell game gets losing grade

Increases to health care, infrastructure were financed by cuts to other areas, elimination of 800 public service jobs.

Budget: robbing Peter to pay Paulby Ricardo Acuna and Diana Gibson

Although initial reaction to the provincial budget by pundits and media focused on the increase in spending overall and to health spending and infrastructure in particular, a deeper look at the numbers reveals the real price of those increases and raises serious concerns about long-term fiscal management in this province.

In short, Budget 2010 is an exercise in robbing Peter to pay Paul. The increases to health care and infrastructure funding were financed by over $1.7 billion in cuts to other areas, and the elimination of at least 800 public service jobs.

Particularly concerning are the $36-million cut to Children and Youth Services, most of which will come out of child intervention services, and the $69 million in cuts to Housing and Urban Affairs.

Finance Minister Ted Morton defended the cuts by suggesting that these programs are not entitlements, but he is wrong. Albertans have a right to shelter, and Alberta's children have a right to safety and security. These are basic entitlements that are being defunded for the sake of political expediency.

Other cuts highlight the degree to which this government seems to be working at cross purposes to itself. The throne speech, for example, stated that the government was committed to environmental leadership.

Tuesday's budget, on the other hand, cut $40 million from Alberta Environment's budget -- a cut of more than 11 per cent -- and implemented a hiring freeze for the department.

In post secondary education the government not only froze funding for operations, which actually equals a cut once inflation and population growth are factored it, but also cut grants and scholarships by approximately six per cent. Alberta tuition rates and student debt levels, already among the highest in the nation, will be going up again.

  "The reluctance to fiddle with taxes during a recession is understandable, but that doesn't take away the need to properly fund social services and restimulate the economy."

The increase in health-care funding is certainly welcome, but after the Alberta Health Services deficit is paid off and inflation, aging pharmaceutical costs and population growth are taken into account, it is barely an increase at all. Likewise with education. In other words, the government has decided that these two areas, both plagued by overcrowding and staff shortages, are fine that way -- Budget 2010 will not provide either ministry the resources necessary to deal with those issues.

The only area to receive a real increase well above inflation and population growth was infrastructure, which is welcome in theory -- building while labour and materials are cheap -- but lacks any long-term vision in that the focus will be infrastructure which emphasizes our reliance on fossil fuels and actually increases our environmental footprint.

At the same time as the government was playing this giant shell game with its expenditures, it seems to have completely forgotten that the budget documents actually have two sides: expenses and revenue.

Morton freely admits that the volatility of oil and gas markets makes forecasting and budgeting difficult, but Budget 2010 does nothing to address the province's over-exposure to that volatility. Fully 21.5 per cent of revenues in the budget come from our natural resources.

The oil and gas price projections factored into the budget for the year are actually higher than the current actual price of oil and gas. The budget also fails to account for whatever policy (read royalty break) comes out of the province's ongoing competitiveness review. Both of these factors could have serious implications not only on the size of the provincial deficit next year, but also on the government's plan to eliminate the deficit within three years.

A provincial government genuinely focused on a stable long-term fiscal outlook would take steps to address that over-dependence, and there are simple steps that it could have taken to do so.

For example, Alberta's flat tax structure -- which means higher taxes for the poor and middle class and lower taxes for the rich -- currently costs the province more than $5.5 billion per year in revenues. In addition, Alberta's taxes are currently so low that we could actually stand to raise them by as much as $10 billion and still have the lowest taxes in the country. Taking either of these steps would allow the government to eliminate the current deficit and begin weaning itself from reliance on oil and gas revenues.

The reluctance to fiddle with taxes during a recession is understandable, but that doesn't take away the need to properly fund social services and restimulate the economy. If it is not to be done by fixing our tax regime, then the government should be prepared to use its $40 billion in savings to do it until the recession is over.

The focus on the amount of spending and the size of the deficit by the alarmist conservative fundamentalists is largely a smokescreen. In any jurisdiction where the government is doing its job and protecting its programs from inflation and population growth, every year will see higher spending than the year before, and for folks like the Canadian Taxpayers Federation and Wildrose Alliance Leader Danielle Smith to pretend otherwise demonstrates a serious lack of understanding of basic economics.

Likewise, a deficit is only a deficit if you have no way of covering the expense. Over the course of the boom, Alberta managed to sock away some $40 billion in various savings accounts. Would these folks really suggest that a family who had lost their income not dip into their savings to pay the rent and buy groceries? That's what the savings are there for, isn't it?

In the end, Budget 2010 is a political document which accomplishes nothing concrete in the big picture. There is no recognition that we are still in the midst of a recession that is hurting Albertans, and there is no indication that the government is serious about making the province's finances viable, sustainable or predictable over the long term.

We're staying the course, wherever it might take us.

Ricardo Acuna and Diana Gibson are directors of the Parkland Institute, a non-partisan social policy research institute based at the University of Alberta.

Links and sources
  Parkland Institute site

Posted: February 23, 2010

Categories:
  Research
  Politics
  Health care
  Public services
  Education

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