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PostPosted: Tue Jan 29, 2013 10:29 pm
 


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Alberta is not as rich as it thinks – time to redesign tax policies
Troy Media | January 28, 2013 |

Alberta should re-design policies to overcome fiscal challenges

Time for Alberta to rethink its tax policies and fiscal strategies, argues tax expert.


Troy Media – By Glen Hodgson

Alberta is arguably the most blessed jurisdiction in North America.

Despite the continued- bumpy global economic environment, prospects are better in Alberta than in every other state and province in North America, with the Conference Board of Canada forecasting average growth of 3.0 per cent in 2013.

The unemployment rate has already dipped to 4.8 per cent, and we expect private investment growth to remain robust. Alberta has closed the output gap caused by the 2008-09 recession and is moving back to its full growth potential.

So why is Alberta in such a muddle when it comes to fiscal policy? Why are fiscal deficits growing again, rather than shrinking back to a balanced budget as planned? The simple answer is that raising revenue for the provincial government in an energy export-driven economy has seemed too easy for too long.

The apparent ease of generating revenue has created the false impression that spending growth could proceed with few constraints. And now, fiscal reality is biting.

Like it or not, Alberta remains a boom-bust economy, driven to a great degree by the global commodity cycle.
When global (i.e. Chinese and American) demand for energy and other resources is growing strongly, the revenues pour into Alberta’s coffers from rising incomes and growing energy royalties. But when there are hiccups in the global economy – as occurred repeatedly during 2011 and 2012 – that revenue growth stream is interrupted, and government finances can quickly shift into larger fiscal deficits.

Moreover, current transportation bottlenecks are proving costly for the provincial treasury – Alberta’s producers are taking heavy price discounts on oil and bitumen production and the problem will not be resolved quickly.

With this reality as a backdrop, Alberta’s approach to fiscal policy needs a fresh re-think. Public finances are heavily exposed to global commodity prices and can exacerbate the boom/bust cycle.

Not having a provincial consumption or sales tax is highly popular and has been great politics, but it denies the provincial government a steady and stable source of revenue through the business cycle.

It also feeds the illusion of Albertans being richer than they really are – and governments are de facto pressured to use royalty earnings from non-renewal energy and other resources to pay for current government spending on health care, education and other highly-valued public services.

This builds the illusion that Albertans can get something they value (hospitals, schools and public infrastructure) without having to pay the full price. Low rates of taxation on personal and corporate income, while popular, add to the wealth illusion and increase the pressure to find revenues from other sources.

What’s the right solution? Alberta’s policies and practices should be re-designed to strengthen the fiscal base and dampen the impact of external market forces. Specifically, within a plan to maintain a balanced budget over time, the province should be banking a growing portion of its expanding energy royalties (like Norway), rather than spending them today.

This means expanding the tax base and specifically taxing current consumption to pay for current government services. It means a more measured expansion in public services, recognizing that Alberta can probably still grow spending on health and education faster than almost anyone else in the industrial world. And it means steady growth in private investment, while being careful to avoid excessive exuberance through regular dialogue among the key players.

This kind of advice was offered two years ago by David Emerson and his fellow commissioners in their report Shaping Alberta’s Future. The advice was solid and correct – even if it was generally ignored. It remains the right fiscal advice today.

Moreover, Alberta (and Canada) is facing the major structural challenge of an aging population and workforce, which is making it increasingly difficult for Alberta-based firms to find the talent they need to sustain their planned business path.

The days of very tight labour markets and rapidly rising wages in Alberta, as experienced in 2005-07, have returned. Indeed, these labour market pressures will be even more acute this time, due to aging demographics across the country and much slower projected growth in the available labour force.

There are many ways for Alberta to mitigate the impact of aging demographics. Options include: sustained investment in advanced and applied education; active and employment-focused immigration policies; encouraging older workers to stay engaged longer; better integrating Aboriginals into the workforce; continuing to attract other Canadians to Alberta; and private and public organizations transforming their business operations, concentrating on their core functions within the province while shifting non-core operations outside the province wherever possible. All of these options will be needed if Alberta’s firms hope to sustain their growth curve.

The time has come for Alberta to modernize its tax revenue base and chart a more sustainable economic path. The current renewed fiscal pressures reinforce the need to re-think Alberta’s approach to fiscal policy.

Glen Hodgson is Senior Vice-President and Chief Economist – Forecasting and Analysis – with the Conference Board of Canada.


http://beaconnews.ca/blog/2013/01/albertans-are-not-as-rich-as-they-think/


Related Story:

Alberta's Redford warns 'difficult' budget choices coming
http://www.cbc.ca/news/canada/edmonton/story/2013/01/24/edmonton-redford-televised-address.html


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PostPosted: Wed Jan 30, 2013 10:16 am
 


I thought you were from Ontario?


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PostPosted: Wed Jan 30, 2013 10:55 am
 


I am...are only Albertans allowed to post in here?


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PostPosted: Wed Jan 30, 2013 10:57 am
 


BeaverFever wrote:
I am...are only Albertans allowed to post in here?


Post away. I just wondered why you cared about something that doesn't affect you, and that you cannot change.


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PostPosted: Wed Jan 30, 2013 10:59 am
 


Looks to me like a problem that Alberta can resolve by selling more oil.


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PostPosted: Wed Jan 30, 2013 11:01 am
 


DrCaleb wrote:
BeaverFever wrote:
I am...are only Albertans allowed to post in here?


Post away. I just wondered why you cared about something that doesn't affect you, and that you cannot change.


We're all interconnected, Caleb. We're one country. And with equalization, of course it connects us. Also, in BC we have the same low taxes bullshit and are also running deficits.


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PostPosted: Wed Jan 30, 2013 11:22 am
 


andyt wrote:
DrCaleb wrote:
BeaverFever wrote:
I am...are only Albertans allowed to post in here?


Post away. I just wondered why you cared about something that doesn't affect you, and that you cannot change.


We're all interconnected, Caleb. We're one country. And with equalization, of course it connects us. Also, in BC we have the same low taxes bullshit and are also running deficits.


I am quite aware of our interconnectedness. Albertans are also quite aware, and polls indicate we'd generally be in favour of increasing the very low personal tax rate, and even re-instatement of Health Care premiums.

I just wonder why Alberta tends to be everyone's focus. I rarely see anything on CKA about, say, Nova Scotia's situation. Or Saskatchewan's.

Just seems to be 'Alberta'.


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PostPosted: Wed Jan 30, 2013 11:30 am
 


BartSimpson wrote:
Looks to me like a problem that Alberta can resolve by selling more oil.


We're already selling every drop we can get as quickly as we can get it - the problem is its a landlocked market and subject to price cuts.

If we had a pipeline to the ocean, then a lot of that problem would disappear pretty quickly, because we'd ship every barrel possible west (to Asia) instead of south (to the States).


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PostPosted: Wed Jan 30, 2013 11:32 am
 


andyt wrote:
We're all interconnected, Caleb. We're one country. And with equalization, of course it connects us. Also, in BC we have the same low taxes bullshit and are also running deficits.


That's odd, because I thought that a large number of fellow countrymen (especially to Alberta's west) were directly opposed to a pipeline that would generate billions more in wealth for people all over this country.

Maybe I'm mistaken... :wink:


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PostPosted: Wed Jan 30, 2013 11:34 am
 


DrCaleb wrote:

I am quite aware of our interconnectedness. Albertans are also quite aware, and polls indicate we'd generally be in favour of increasing the very low personal tax rate, and even re-instatement of Health Care premiums.

I just wonder why Alberta tends to be everyone's focus. I rarely see anything on CKA about, say, Nova Scotia's situation. Or Saskatchewan's.

Just seems to be 'Alberta'.


Because you guys have scads of money rolling in, have lived high off the hog for a while now. So there's an element of shadenfreude here, but also I told you so. And probably some worry that Canada's economic engine is sputtering. Harper has certainly put his eggs in your basket.


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PostPosted: Wed Jan 30, 2013 11:37 am
 


bootlegga wrote:
andyt wrote:
We're all interconnected, Caleb. We're one country. And with equalization, of course it connects us. Also, in BC we have the same low taxes bullshit and are also running deficits.


That's odd, because I thought that a large number of fellow countrymen (especially to Alberta's west) were directly opposed to a pipeline that would generate billions more in wealth for people all over this country.

Maybe I'm mistaken... :wink:


Nope, not mistaken. The project as planned is a bust, and if things were reversed you'd feel the same way. We take the risk, you take the profits. I actually would really like to see oil shipped to the coast, but it has to be done in a way that minimizes the risk.


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PostPosted: Wed Jan 30, 2013 11:51 am
 


andyt wrote:
bootlegga wrote:
andyt wrote:
We're all interconnected, Caleb. We're one country. And with equalization, of course it connects us. Also, in BC we have the same low taxes bullshit and are also running deficits.


That's odd, because I thought that a large number of fellow countrymen (especially to Alberta's west) were directly opposed to a pipeline that would generate billions more in wealth for people all over this country.

Maybe I'm mistaken... :wink:


Nope, not mistaken. The project as planned is a bust, and if things were reversed you'd feel the same way. We take the risk, you take the profits. I actually would really like to see oil shipped to the coast, but it has to be done in a way that minimizes the risk.


I don't see you taking the risks - I see a company taking them. And depending on who you talk to, BC does get a nice payoff from oilsands (certainly more than Alberta sees from the BC logging or fishing industries) - roughly 6% according to CAPP.

Quote:
Oil Sands currently affects the jobs of 112,000 people across Canada and this is expected to grow to over 500,000 jobs over the next 25 years. Many of these will be created in provinces outside of Alberta. Ontario is one of the largest benefactors with seven per cent of the total jobs from oil sands. British Columbia receives the benefit of six per cent of total oil sands jobs and Quebec and Saskatchewan see about three per cent each. Oil sands growth will create new jobs in these and other regions across Canada over the next 25 years.


But who wants 30,000 or so six figure jobs paying taxes to the BC government when they can just work at Timmies and pay next to nothing? :lol:


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PostPosted: Wed Jan 30, 2013 12:06 pm
 


andyt wrote:
bootlegga wrote:
andyt wrote:
We're all interconnected, Caleb. We're one country. And with equalization, of course it connects us. Also, in BC we have the same low taxes bullshit and are also running deficits.


That's odd, because I thought that a large number of fellow countrymen (especially to Alberta's west) were directly opposed to a pipeline that would generate billions more in wealth for people all over this country.

Maybe I'm mistaken... :wink:


Nope, not mistaken. The project as planned is a bust, and if things were reversed you'd feel the same way. We take the risk, you take the profits. I actually would really like to see oil shipped to the coast, but it has to be done in a way that minimizes the risk.


I think you skipped a step there Andy. For pipelines to go through BC, North Dakota, Idaho or Saskatchewan, they first have to go through Alberta. We take as much environmnetal risk as any other province, perhaps more so since all the pipleines converge in only a few places.

And our profit is a fixed amount, once a company takes coal, gas or oil out of the ground and pay their royalties, the product belongs to the company not Albertans.


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PostPosted: Wed Jan 30, 2013 12:24 pm
 


It would take someone landlocked to ignore the marine aspect.

As for what you charge the oil companies, that's part of your problem right there. But you guys at least get the royalties, we basically get diddly squat, yet assume a huge risk. The people shipping the oil would have to demonstrate how they could make BC whole again after a big spill, at their cost, before I would support the project.


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PostPosted: Wed Jan 30, 2013 12:31 pm
 


andyt wrote:
It would take someone landlocked to ignore the marine aspect.

As for what you charge the oil companies, that's part of your problem right there. But you guys at least get the royalties, we basically get diddly squat, yet assume a huge risk. The people shipping the oil would have to demonstrate how they could make BC whole again after a big spill, at their cost, before I would support the project.


Propaganda bullshit.

The rate that BC would receive is between the BC government and the oil company(ies) involved.

Has absolutely nothing to do with Alberta at all.

BC is sitting on a potential goldmine, but their politico's have everybody so confused that they can't see it.

Not only would BC get to charge for the pipeline to cross, they would also get larger transfer payments (every province would) from the increased revenue Canada would bring in.

BC would get to 'double dip' as it were.


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