LESSONS FOR NEWFOUNDLAND AND LABRADOR FROM ALBERTA’S EXPERIENCE ?
BEV DAHLBY DISTINGUISH FELLOW AND RESEARCH DIRECTOR SCHOOL OF PUBLIC POLICY UNIVERSITY OF CALGARY 11-FEB-20
www.policyschool.ca OUTLINE OF THE PRESENTATION
• Political and Fiscal History of Alberta • The Alberta’s Fiscal Future Project • The Economic Context • The NDP’s Path to Balance Plan • The UCP’s Blue Ribbon Panel • The UCP’s October 24 Provincial Budget • EY Alberta Health Services Review 3-Feb-20 • Lessons for Newfoundland and Labrador?
www.policyschool.ca GOVERNING PARTIES IN ALBERTA Term in Party Premiers Office
1905 to 1921 Liberal Rutherford, Sifton, Stewart
1921 to 1935 United Farmers Greenfield, Brownlee, Reid
1935 to 1971 Social Credit Aberhart, Manning, Strom
1971 to 2015 Progressive Lougheed, Getty, Klein, Conservative Stelmach, Redford, Hancock, Prentice 2015 to 2019 New Democratic Notley
2019 to ??? United Conservative Kenney www.policyschool.ca REAL PER CAPITA REVENUES AND EXPENDITURES
In Thousands of 2017 $ 15
10
5
0 1971-72 1981-82 1991-92 2001-02 2011-12 1976-77 1986-87 1996-97 2006-07 2016-17
Real Per Capita Program Expenditure Per Capita Real Per Capita Resource Revenue Other Real Per Capita Revenue
www.policyschool.ca REAL PER CAPITA SURPLUSES AND DEFICITS In Thousands of 2017 $ 6
4
2
0
-2
-4 Lougheed Getty Klein Stelmach Redford* Notley -6 1971-72 1979-80 1987-88 1995-96 2003-04 2011-12 1975-76 1983-84 1991-92 1999-00 2007-08 2015-16
www.policyschool.ca ALBERTA, WE HAVE A PROBLEM
• How to convince the public that Alberta has a fiscal problem that needs to be addressed sooner rather than later? • How to provide politicians with a framework for the key issues on spending and taxation?
www.policyschool.ca THE SCHOOL OF PUBLIC POLICY’S ALBERTA’S FISCAL FUTURE PROJECT, 2017 TO 2019 • Three Events: • “How Did Roy and Ralph Tackle Provincial Deficits in the 90s?” Edmonton, Sept. 20, 2018. • “The Challenges and Opportunities for Fiscal Reform in Alberta” Edmonton, Feb. 7, 2019 • The UCP’s First Budget”, Calgary, Nov. 5, 2019 • 10 Research Papers • 8 Policy Briefs • https://www.policyschool.ca/albertas-fiscal- future/
www.policyschool.ca Putting the Alberta Budget on a Janice MacKinnon and Jack New Trajectory Mintz
Why Alberta Needs a Fiscal Ted Morton Constitution
Alberta’s Fiscal Responses to Fluctuations in Non-Renewable Ergete Ferede Resource Revenue Ron Kneebone and Margarita 50 Years of Alberta Budgeting Wilkins Alberta’s Long Term Fiscal Trevor Tombe Future. www.policyschool.ca Provincial Public Infrastructure Spending And Financing In Melville McMillan Alberta: Searching For A Better Course Reforming the Federal Fiscal Bev Dahlby Stabilization Program The Effect of Corporate Income Tax on the Economic Growth Bev Dahlby and Ergete Ferede Rates of the Canadian Provinces Altering the Tax Mix in Alberta Ken McKenzie Public Sector Wages in Alberta: How Do These Compare to Richard Mueller Other Provinces and to the Private Sector? www.policyschool.ca THE ECONOMIC CONTEXT • With the decline in oil prices, Alberta’s real GDP per capita fell by 9.5 percent between 2014 and 2016 because of a sharp reduction in private sector investment. • Private sector investment is not expected to return to the pre-2014 levels in the next four years. • The Alberta economy is “stuck in low gear while we wait for the new pipeline capacity that is needed to move more Alberta oil to market.”1 1ATB Alberta Economic Outlook of September 10, 2019
www.policyschool.ca LABOUR MARKETS • The unemployment rate in Alberta rose and peaked at 9.1 percent in November 2016. • In 2019, the average monthly unemployment rate in Alberta has been 6.9 percent compared to 5.6 percent in Ontario and 4.7 percent in British Columbia. • Since 2014, there has been a 2.5 percentage point reduction in the employment rate, which 88 thousand fewer people are working in Alberta in 2019
www.policyschool.ca WESTERN CANADA SELECT (WCS) AND NATURAL GAS PRICES IN ALBERTA $US per barrel $CDN/GJ 140 12
120 10 100 8 80 6 60 4 40
20 2
0 0 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Jan-19 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18
WCS (LHS) NG (RHS)
www.policyschool.ca OIL AND GAS INVESTMENT Billions of $ 70 60 50 40 30 20 10 0 2010 2012 2014 2016 2018e 2020f 2022f 2011 2013 2015 2017 2019f 2021f 2023f
Oil Sands Investment Conventional Oil and Gas Investment
Notes: 2018 is an estimate; 2019 to 2023 are forecasts. Source: Budget 2019 Economic Outlook Chart 13
www.policyschool.ca EMPLOYMENT IN THE MINING AND OIL AND GAS SECTOR
Thousands 140
130
120
110
100
90 Jan-14 Oct-14 Jul-15 Apr-16 Jan-17 Oct-17 Jul-18 Apr-19
www.policyschool.ca SEASONALLY ADJUSTED MONTHLY TOTAL EMPLOYMENT IN ALBERTA Thousands 2,400
2,350
2,300
2,250
2,200
Jan-14Apr-14Jul-14Oct-14Jan-15Apr-15Jul-15Oct-15Jan-16Apr-16Jul-16Oct-16Jan-17Apr-17Jul-17Oct-17Jan-18Apr-18Jul-18Oct-18Jan-19Apr-19Jul-19Oct-19 Source: Statistics Canada. Table 14-10-0355-01.
www.policyschool.ca REAL AVERAGE WEEKLY EARNINGS
$1,300
$1,250
$1,200
$1,150
$1,100 Jan-13 Nov-13 Sep-14 Jul-15 May-16 Mar-17 Jan-18 Nov-18 Sep-19 Jun-13 Apr-14 Feb-15 Dec-15 Oct-16 Aug-17 Jun-18 Apr-19 Source: Statistics Canada Tables 14-10-0203-01 and 18-10-0004-01 Notes: Real Average Weekly Earnings in September 2019 dollars
www.policyschool.ca UNEMPLOYMENT RATES IN ALBERTA AND ONTARIO
Percent 10 9 8 7 6 5 4 3 2 1 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Ontario Alberta
Source: Statistics Canada Table 14-10-0287-01
www.policyschool.ca ANNUAL PERCENTAGE CHANGE IN REAL PER CAPITA PRIMARY HOUSEHOLD INCOME 10%
5%
0%
-5%
-10%
-15%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 20182019f2020f2021f2022f2023f Source: Statistics Canada Tables 36-10-0224-01, 17-10-0005-01, and 18-10-0005-01. Forecasts for 2019 to 2023 are based on author's calculations. See text.
www.policyschool.ca RECENT ELECTION RESULTS
New Wild Rose Progressive United Democratic Party Conservative Conservative Party Party Party May 5, 2015 Election
Seats Won 54 21 9 ---
% of Pop. Vote 40.6 24.2 27.9 ---
April 16, 2019 Election
Seat Won 24 ------63
% of Pop. Vote 32.7 ------54.9
www.policyschool.ca THE NDP’S PATH TO BALANCE PLAN IN 2018 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 $ Billions Forecast Estimate Targets Targets Projection Projection Projection Revenue 46.9 47.9 50.6 53.8 57.8 62.3 66.3 Operating Expenditures 47.7 49.8 51.6 53.3 53.7 55.7 57.5 Capital Expenditures 9.2 6.4 5.9 6.0 6.4 5.2 4.8 Interest on Debt 1.4 1.9 2.4 2.9 3.4 3.7 3.8 Total Expenditures 58.3 58.1 59.9 62.2 63.5 64.6 66.1 Cash Surplus (Deficit) -11.4 -10.2 -9.3 -8.4 -5.7 -2.3 0.2
Net Financial Debt 20.3 30.5 39.8 48.2 53.9 56.2 56.0
www.policyschool.ca THE UNITED CONSERVATIVE PARTY • A merger of the Progressive Conservative Party and the Wild Rose Party under Jason Kenney. • In 2019 election, the UCP campaigned on a promise of eliminating the provincial deficit, without increasing taxes, by 2023. • Promised to appoint a Blue Ribbon Panel “to report on the province’s financial situation and to provide advice on balancing the provincial budget.” • Promised an independent review of Alberta Health Services.
www.policyschool.ca THE BLUE RIBBON PANEL WITH PREMIER KENNEY AND FINANCE MINISTER TOEWS
www.policyschool.ca THE BLUE RIBBON PANEL
• On May 7, 2019 the Government of Alberta announced the establishment of the Blue Ribbon Panel to: • “provide advice to the government on plans to balance the provincial budget by 2022/23, without raising taxes, based on the fiscal outlook.” • The Panel delivered its report (the MacKinnon Report) on Alberta’s finances on September 3, 2019. • https://open.alberta.ca/dataset/081ba74d-95c8-43ab- 9097-cef17a9fb59c/resource/257f040a-2645-49e7- b40b-462e4b5c059c/download/blue-ribbon-panel- report.pdf
www.policyschool.ca THE PANEL’S CONCLUSIONS
• “there is an ongoing structural imbalance between revenues and expenses in the Alberta government that represents a serious threat to the financial health of the province” • “Alberta’s annual expenditures would be $10.4 billion less if its per capita spending simply matched the average of spending in Canada’s three largest provinces: British Columbia, Ontario and Quebec – and we would not have a deficit.”
www.policyschool.ca PUBLIC SECTOR COMPENSATION
• Panel found that compensation rates physicians, teachers and nurses are generally higher than in British Columbia and Ontario. • The average fee-for-service for physicians was $107,000 or 35% higher than the average in comparator provinces. • The maximum teacher compensation in Alberta was 10.8 percent higher than in British Columbia, although 2.6 percent lower than in Ontario. • The maximum hourly rate for registered nurses was 5.8 percent higher than in British Columbia and 3.5 percent higher than in Ontario in 2019.
www.policyschool.ca PUBLIC SECTOR COMPENSATION
www.policyschool.ca PER CAPITA SPENDING
www.policyschool.ca HEALTH CARE SPENDING
www.policyschool.ca ADVANCED EDUCATION SPENDING
www.policyschool.ca EDUCATION SPENDING
www.policyschool.ca CAPITAL EXPENDITURES
www.policyschool.ca A BALANCED BUDGET SCENARIO (IN $ MILLIONS) 2018-19 2019-20 2020-21 2021-22 2022-23 (actual)
Revenues 49,600 49,600 49,700 53,200 57,100
Operating 48,400 48,500 48,300 48,000 47,800 Expense Capital Grants 2,000 2,100 2,200 2,300 2,000
Capital 4,200 4,300 4,600 3,800 3,200 Investment Debt Service 2,000 2,300 2,600 2,800 3,200
Surplus/ (7,500) (7,800) (8,500) (4,200) 500 (Deficit)
www.policyschool.ca THE UCP’S PROVINCIAL BUDGET OCTOBER 24, 2019
• This Budget that contained the most significant changes in the province’s fiscal policies since the Klein-Dinning budgets in the mid-1990s. • The Budget sets the government’s plan to eliminate the government’s deficit by 2022-23 based on four years of expenditure restraint. • For 2019-20, the deficit is estimated at $8.704 billion. Only Ontario will record a larger deficit than Alberta. • The per capita deficit in Alberta will be $1,837 compared to $718 in Ontario.
www.policyschool.ca REVENUES Billions 60
50 Federal transfers Other own-source revenue 40 Premiums, fees and licences Investment income 30 Resource revenue 20 Other tax revenue Corporate income tax 10 Personal income tax 0
2013-142014-152015-162016-172017-182018-192019-202020-212021-222022-23
Source: Schedule 25: Historical Fiscal Summary, 2008-09 to 2022-23
www.policyschool.ca CHANGES IN REVENUES 2018-19 TO 2022-23 Millions of Dollars Percentage Change Personal Income Tax 2,461 21 Corporate Income Tax 517 11 Other Tax Revenue (626) -9 Resource Revenue 3,162 58 Investment Income 660 28
Premiums, Fees, Etc. 330 8 Other Own Source (318) -5 Revenues Federal Transfers 1,733 22
Total Revenues www.policyschool.ca7,919 16 EXPENSE Billions 60
50 Pension provisions 40 Debt servicing costs Other program expense 30 Social services Basic / advanced education 20 Health 10
0
2013-142014-152015-162016-172017-182018-192019-202020-212021-222022-23
www.policyschool.ca CHANGES IN EXPENSE 2018-19 TO 2022-23 Millions of Dollars Percentage Change
Health 338 1.5
Basic/Advanced (641) -4.3 Education Social Services 396 6.7
Other Program Expense (903) -7.6
Debt Servicing Cost 1,042 52.9
Total Expense 174 0.3
www.policyschool.ca CAPITAL PLAN Billions 7
6 Other 5 Seniors and Housing Infrastructure 4 Advanced Education 3 Education Health 2 Municipal Affairs Transportation 1
0
2018-19 2019-20 2020-21 2021-22 2022-23
www.policyschool.ca CHANGES IN THE CAPITAL PLAN 2018-19 TO 2022-23 Millions of Dollars Percentage Change Transportation (5) (0.3) Municipal Affairs 229 25.8 Health 152 16.4 Education (241) (35.5) Advanced Education (331) (47.7)
Infrastructure (70) (26.0) Seniors and Housing (64) (37.6)
Other (318) (47.1)
Total www.policyschool.ca(648) (10.7) DEFICITS AND NET DEBT
Surplus/Deficit in Billions Net Financial Assets/Debt in Billions 5 20
10
0 0
-10 -5 -20
-30 -10
-40
-15 -50
2013-142014-152015-162016-172017-182018-192019-202020-212021-222022-23 2013-142014-152015-162016-172017-182018-192019-202020-212021-222022-23
www.policyschool.ca EY ALBERTA HEALTH SERVICES REVIEW • Final Report, 220 pages • Summary Report, 101 pages • 57 recommendations • https://open.alberta.ca/ publications/alberta- health-services- performance-review- summary-report
www.policyschool.ca GROWTH OF ALBERTA'S PER CAPITA HEALTH SPENDING
EY Report Figure 4
www.policyschool.ca PER CAPITA HEALTH SPENDING
www.policyschool.ca LESSONS FOR NEWFOUNDLAND AND LABRADOR? • Academic and think tank research on why deficits and debt are a problem and the options for fiscal adjustments. • Public conferences in which research is presented and options and past experiences with fiscal adjustments are discussed. • Government sponsored public reports by independent panels. • Program reviews to make fundamental changes to the way the government provides services.
www.policyschool.ca THANK YOU.
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