It may have been only 20 years ago, but the early 21st century feels like a lifetime away for most Albertans right now. Back then, the last of the Don Getty-era debt was getting paid down, and with oil prices soaring (indeed, with credible worries that the world might run out), it looked like the province was set for decades of unparalleled prosperity.
That might help explain why, in July 2004, then-Premier Ralph Klein celebrated the moment — and, it turns out, tempted fate — by hoisting a “Paid in Full” sign above his head. “Never again,” Klein said, “will this government or the people of this province have to set aside another tax dollar on debt.”
Well, so much for that. The most recent budget from the government of Alberta included industrial-sized volumes of red ink, with debt expected to hit $115.8 billion by the end of the 2021-22 fiscal year. Some of that is due to the pandemic, but most is the result of poor planning and failed leadership by successive Alberta governments.
And no leader deserves more of the blame than Klein, whose choices helped paint Alberta into the corner in which it currently finds itself. After all, in the mid-2000s, he had the chance to put the province on truly sustainable financial footing, save tens of billions of dollars for the future and lock in a genuine advantage for generations to come. Instead, he decided to cut people a $400 cheque and fade into the political sunset.
Klein’s role in Alberta’s current predicament will come as a surprise to many conservatives, who would much rather blame either their NDP predecessors or the Liberal government in Ottawa for it. But according to data from a recent report from the Business Council of Alberta (BCA), Ralph Klein is the true author of Alberta’s fiscal misfortunes — especially, and perhaps most ironically, when it comes to the spending that conservatives like Jason Kenney talk about the most.
“Spending increases from 1999/00 to 2009/10 created a wedge between Alberta and other provinces, one that has persisted since,” the report notes. “At the beginning of that 10-year period, Alberta spent about $700 less per person than the average for the rest of Canada. By 2009/10, however, Alberta was spending $1,200 more per person.”
Much of that increase was driven by health-care spending, which nearly doubled in a decade from $2,600 per person to $4,700 per person. But according to the BCA’s report, those spending increases weren’t supported by underlying economic growth.
“While the economy was strong over that period, GDP growth was driven largely by an expanding population,” the report readshe wrote. “On a per capita basis, real GDP in Alberta grew by an average of just 0.4% per year — less than half the national average rate.”
Instead, Klein and his government were the beneficiaries of a massive rise in oil and natural gas prices, the latter of which was the real driver of the huge fiscal surpluses Alberta generated in the early and mid-2000s. And instead of saving Alberta’s increasingly massive non-renewable resource revenues for the future, as most economists (including perennial UCP favourite Jack Mintz) think is best and as Peter Lougheed recommended during the last major oil boom back in the 1970s, Klein decided to spend it on underwriting artificially low tax rates.
The so-called “Alberta advantage” those low rates created was advantageous for the Albertans of that particular time, but it effectively constituted borrowing from the future. Now, those debts are starting to come due — and Alberta is saddled with a government that, like its predecessors, remains terrified to do what it takes to pay them.
That includes bringing spending into line with other provinces, which could be done by holding public-sector wages flat and letting inflation do the heavy lifting. But the real roadblock is around revenue, where an eight per cent provincial sales tax would raise approximately $8 billion, of which nearly a billion would come from visitors to the province.
Together, these measures would allow the province to finally start saving what remains of its natural resource revenues, which are set to dwindle in the future as the world transitions away from oil and natural gas. Instead, Alberta has chosen to slash post-secondary spending, rack up more debt and hope commodity prices can rise high enough to bail it out — yet again.
Kenney and the UCP might get lucky here. If commodity prices really co-operate, they might even balance a budget before the next election. But that won’t repair the fiscal damage that’s been done over the last decade-plus or remove the burden it places on future generations.
And while those who benefited from the Klein era’s reckless policies may remember them fondly, the rest of us will be far less generous in our assessment. Now, it’s up to our current generation of politicians to make the hard choices that the last one wouldn’t — and make them before it’s too late.
Comments
You are exactly wrong about whose fault it is that Alberta is in trouble, and your age shows your naivety. Firstly, Ralph not only cleared the debt, he left $17 Billion in a rainy day fund, and a further $35 billion in a sustainability fund, not mentioning or including the Heritage Fund was sitting at about $16.5 Billon.
Get that straight young buck, Ralph left office out of debt, and with a war chest of more than $68 Billion in the bank, the lowest taxes on the continent, no healthcare premiums, and every one got $400.00 bucks.
On top of that, Ralph was not so arrogant as to assume for budgeting purposes that a barrel of oil or a cubic foot of gas would be at the price it was trading at when they created a budget. If oil was at $70.00, Ralph assumed $50.00, if Gas was at $8,00, Ralph assumed $3.00 a cubic foot.
If you wish to criticize Ralph for anything, you can hit him for cheaping out on infrastructure, but beyond that, he was golden.
The three primary culprits for the failure to budget properly and make us go into massive debt are in order:
1. Stelmach - Budgets based on the day end trading value of our commodities, leaving no room for error, and spending like a drunken sailor thanks to the money Ralph left behind.
2. Redford - See above, since she made a point of spending whatever Stelmach never got around to, but she took it one step further by buying off the teachers union and the civil service with massive wage hikes causing the per capita disparity you see today between our province and the rest of the nation. Not once did she or Stelmach assume a downturn in commodities. They blithely assumed oil would be $100+ forever, and Gas would trade at $7 to $8.
3. Notley - She made the same mistake the previous two did when it came to budgeting, but she took it one step farther by going on a hiring binge at the top of a downturn believing bigger government is better, and more public servants means more votes for the NDP.
Ralph had his failings, but he wasn't stupid enough to create budgets based on volatile commodity prices, where his inheritors did. Ralph always left wiggle room, the other three idiots were and are just that, idiots.
You are young, so it's natural that you don't know the truth, but the truth is the truth, and Ralph and Peter were the two best Premiers we ever had. If you want to blame someone, pick the right people.
Well said. It seems to me that premiership has been an ongoing game of musical chairs of late . Klein and Lougheed where at the helm for many many years saying to us. Steady as she goes. The discipline to look beyond a four term expired with Klein.
Many of your financial points are not backed by the Alberta government's own statements. The GOA Annual Report for 2005-06, available on the GOA website, shows the Heritage Fund at 13.4B and the Sustainability Fund at 5.2B. It also shows a woeful 11.6B in Capital Assets, which is now at 53B as roads, schools, and medical facilities were all left to age dramatically under Klein and required massive investment after his departure (as you noted). Lastly, Klein enjoyed 14B resource revenues in his last year, a figure never to be seen again, and yet, Expenses increased 25% in only two years from 21.7B to 27B. His low royalty rates, regardless of filling the coffers that year, ended up overheating the economy, raising housing prices 100% from 2000 to 2003, and leading to drastic calls for school builds, especially for the rapidly expanding population. And those low rates would not continue to sustain the already bulging expenses. You have some valid points about overall approach with Premiers since, but IMO, Ralph turned out to be a terrible financial manager, especially as it pertained to Alberta's future. Overheating any economy without the necessary infrastructure support and financial foundation is not good management. We can agree on Peter Lougheed though.
Klein had a PhD in gut level ideological populism, but an F in economics. Compared to Peter Lougheed (one of the greats, in my view) he was a buffoon and a laughing stock outside of Alberta. Inside the borders, failing to keep up with demographic growth while commodity prices were high enough to cause a world-scale recession while cutting programs, jobs and infrastructure, was a prime example of the failure of Milton Friedman's discredited ideas, to which Klein subscribed, but only with his gut. Klein went a lot further with the tainted and distinctly useless distraction of waging yet another war on labour, "leftists," the LGBT community, the poor, the feds and probably space aliens in his drunken private moments. Blood was spilled. But the people got their cash bribe and did their electoral duty.
The price is still being paid today in both Ontario (since Harris ruled) and Alberta for these failed philosophical exercises that toy with actual lives. BC has pretty well recovered from the massive, pointless cutbacks to public programs (also informed by Friedman's teachings) mixed incoherently with over-expenditures on megaprojects during the 80s under Bill Bennett, and has since developed a more diverse economy. It recently supplanted Alberta and is currently the richest province in the federation on a per capita fiscal capacity basis, so says even the Fraser Institute (!) and the Globe and Mail Report on Business. Fiscal capacity was calculated in two parts: non-resource revenue + resource revenue, both divided into the population. It is painfully obvious that Alberta's resource fiscal capacity far outweighed its non-resource fiscal capacity historically, so much so that the disappearance of the former exposed great weakness in the latter over three huge down steps: the 2008 world recession following record high oil prices and the collapse of greedy banks; the 2014 world oil price collapse; and the current pandemic.
You'd think that during six years of suffering and the withdrawal of so many major players, investors and insurers in the oil sands, and the international policies being instituted to decarbonize, that the Alberta government would have got the message that it must now strengthen its non-resource revenue capacity.
Funny, that's exactly what Peter Lougheed said back in the 80s and 90s, which also dovetails with legions of smart conservative-minded advisors who produced several reports on topics like apolitical economic diversification and life cycle accountancy. Klein mocked these efforts while the industrial-scale environmental liabilities mounted and oil dependency deepened.
There is a score that portrays the differences in these views:
Norway: 1.3 trillion
Alberta: negative 100+ billion
To think that Norway, with a similar population and expensive-to-develop public resource (deep sea drilling), modelled its sovereign wealth fund directly on Alberta's Heritage Trust Fund. The deep difference in results? Management. Norway did not exercise childishly politicized budgetary policy and banked most of the revenue like a smart adult. It also retained a relatively high-tax domestic economy to support extensive public programs rather than subsidizing public services with revenue from a finite commodity subject to control by outside forces, and the sudden withdrawal of that underpinning as outside forces dictate. Norway's non-resource fiscal capacity has always been strong and productive. And it is now ready and able to incrementally pull out of fossil fuels.
Klein's populism didn't change the fact that oil industry and government personnel are shamefully interchangeable, and therein government policy, rules and direction to this day are still composed in corporate boardrooms. Meanwhile, the world is passing by.