UCP LIES
Collapsed oil prices and an increase in spending amid the COVID-19 pandemic have pushed Alberta into a historic projected deficit of $24.2 billion.

The UCP government’s fiscal update, presented Thursday in the legislative assembly by Finance Minister Travis Toews, shows a projected deficit for 2020-21 that is $16.8 billion more than was previously forecast. The February budget had predicted a $6.8 billion deficit, however the government revised that to $7.3 billion in March.

Toews said the pandemic and energy price war “blindsided our economy, just as it was beginning to show signs of improvement and approaching pre-recession levels of economic activity,” pointing to markers such as increased drilling rig activity and building permits.

University of Alberta economist Andrew Leach said Toews’ speech gave a false impression of what the situation looked like before the pandemic hit.

For instance, GDP growth was forecast at 2.7 per cent in October’s budget and revised to 2.5 per cent in February.

“Even their own budget documents had downgraded their 2020 outlook, employment was decreasing, bank projections for GDP growth for Alberta were decreasing, we had negative growth in 2019,” he said Thursday.

“All of these things, … if you watch the finance minister’s speech, you’d have no sense that that was true.”

NDP Opposition finance critic Shannon Phillips said the government failed to create jobs before the pandemic and was neglecting to make the investments in health care, education and child care that the economy needs to recover.

“We do not work if child care doesn’t work. We do not work if the school plan does not work …The choice here instead has been to give away large sums of money to already wealthy corporations in the hopes that they would create jobs, which they were not doing before the pandemic,” said Phillips.

Earlier this year, the government accelerated its corporate tax cut to eight per cent from 10 per cent, which took effect July 1. Thursday’s fiscal update said that move will reduce government revenue by between $200 million and $300 million.

POSTMEDIA  



Many Albertans remember the iconic image of former premier Ralph Klein holding up the “Paid In Full” sign to symbolize a debt-free Alberta government.

“I’m very, very proud to announce that Alberta has slain its debt,” the late premier told a cheering crowd on July 12, 2004.

Albertans, in fact, lead the nation in consumer debt. Plus, many people in our province are living paycheque to paycheque. Nearly half of Albertans say they are $200 away from not being able to pay their bills.  

Another credit rating agency, TransUnion, reported last November that Alberta used to fall below the national average delinquency rate. That changed in the second half of 2015

See the provincial delinquency rates here. 

Average debt in Calgary is $28,421 excluding mortgages, while Edmonton's average debt is $26,479 compared to average consumer debt nationwide of $21,458. 

https://www.cbc.ca/news/canada/calgary/alberta-calgary-consumer-debt-equifax-1.3484940

https://www.cbc.ca/news/canada/calgary/road-ahead-brooks-alberta-debt-deficit-politics-1.4574465


'Ralph Bucks' 14 years later: Could the Prosperity Bonus have saved Alberta’s bottom line?

Matthew Black  CTVNewsEdmonton.ca Digital Journalist
  Tuesday, January 14, 2020



The Prosperity Bonus checks were mailed to all Albertans who were residents of the province as of September 1 and filed a 2004 tax return.

EDMONTON -- It’s hard to imagine now, but this time 14 years ago Alberta literally had more money than it knew what to do with.

A series of seemingly unending oil-fueled budget surpluses eventually peaked at $8.7 billion in June of 2006.

With so much cash on hand, Premier Ralph Klein announced the Alberta Prosperity Bonus in September of 2005: a one-time $400 rebate for every Albertans carved out of $1.4 billion of the provincial surplus.


“He came up with a typical populist approach,” said MacEwan University political scientist Chaldeans Mensah.

“Ralph was simply trying to placate his base, ordinary Albertans, to reward them for the difficulties he’d put them through to balance the books.” 

VIDEO: 'Ralph Bucks' come to Alberta

While the “Ralph Bucks” initially proved popular with many, the policy wasn’t enough to sustain Klein’s political future, or shelter the province’s bottom line from the boom-and-bust energy industry and the financial slump that was to come.

“It was strongly supported by ordinary Albertans but the political establishment had some issues with the approach,” said Mensah.

HOW TO SPEND?

Cheques started arriving in mailboxes during January of 2006, sparking sudden spending splurges.

“Dear Albertan: Enclosed is your Alberta 2005 Resource Rebate. This $400 per-person rebate is being provided by the Government of Alberta as a non-taxable, one-time bonus to all Albertans in recognition of their role in building this province," the letter accompanying the check read.

"Congratulations, and thank you for helping build this province.”



With inflation, $400 in 2006 equates to just under $500 in present-day value.

“To be perfectly honest, a lot of people will be going out to buy an iPod,” university student Dan Arnold said in 2006.

“A big shopping spree,” said Grade 8 student Shelby Airth when asked how she would spend her bonus.

Her mother was less enthused, saying “every kid I know is pumped about the $400 that they're getting. That money should go towards offsetting high energy bills, but of course these guys don't see that.”


Savvy businesses picked up on the boom as well, including the Fairmont group of hotels which offered $400 packages encouraging Albertans to "Stay with the Fairmont and let Ralph pick up the tab!"

Others called for a more charitable use for the bonus, with websites like ProsperityInPerspective encouraging donations to local causes.

“I think Albertans are intelligent enough to spend their own money and that’s what this is,” Deputy Premier Shirley McClellan told CTV News in 2005.

CASH BOON BACKLASH

But the cash giveaway wasn’t a smash hit.

The Opposition and others called for a more planned approach to spending the surplus including on ideas like a provincial endowment fund, heightened education funding and a high-speed rail line linking Calgary and Edmonton.

"What's the point of even having a budget? What has happened to the discipline that this government was known for?" asked then-Alberta Liberal Leader Kevin Taft.

Even the right-leaning Calgary Herald took issue with an op-ed headline reading,

“Nice gesture, wrong message.”

“Our issues were very different than they are today,” remembers Scott Hennig with the Canadian Taxpayers Federation.

He wrote an Edmonton Journal editorial opposing the bonuses as a bait-and-switch shortly after they were announced in September of 2005.

“If your government unfairly imposes a regressive $528 ‘premium’ and then refunds you $400 of that money as a ‘prosperity rebate,’ do you thank it?”

In 2005, Hennig called for an end to the province’s health care premiums, saying it would have amounted to an annual $884-million tax break.

“It would have meant more to a lot of people,” he said looking back years later.

“We thought it was a really ham-fisted way to give a tax cut.”



RALPH BUCKS LEGACY

Hennig says had the government of the day handled its surpluses differently, the province would be in very different economic shape today.

“Even with oil prices down we’d be nowhere near deficit if they’d taken corrective action,” he said.

“It was all very avoidable had they had more modest spending and put it into long-term savings.”

Politically, any popularity boost Klein got from the bonuses was short-lived, within his party at least.

Two months after the cheques were mailed out he announced his intention to resign after his fourth term on Oct. 21, 2007, some 19 months later.

“He was beginning to lose his edge,” said Mensah. “The Ralph edge, the common touch.”

But by the end of March, the Progressive Conservatives had had enough with delegates giving Klein an underwhelming 55 per cent show of support at a party leadership review.

“It was a combination of bumbling leadership … [Klein] ran into problems with his health care reforms and he had some clashes in the legislature,” said Mensah.

“He was done in by the party establishment.”

Klein eventually resigned near the end of September of 2005.

Oil prices crashed in 2008 and the province has posted deficits in every year since, save for one.

“I don’t think any other government is going to follow that path,” said Mensah. “That path was a unique period in Alberta’s history where the government was simply flush with all the money coming in.”

“In hindsight, we see that was not an appropriate approach given what we are now facing as a province.”

With files from the Canadian Press

.

Thanks largely to rapid spending increases that actually began in the later stages of the Klein era, Alberta’s net assets started falling in 2008-09.

By 2016-17 the province had burned through all its net assets and started racking up debt.

Alberta has been adding an average of nearly $10 billion in debt annually since 2015-16, and provincial net debt is projected to hit $35.6 billion this year (2019-20).

The Kenney government’s recently-released 2020 budget calls for gradual deficit-elimination and a substantial slowdown in the pace of debt accumulation.

But energy prices have fallen so far that the budget’s revenue projections are no longer worth the paper they’re printed on.

And stock markets have crashed.

And the coronavirus, trade wars and other factors threaten to trigger a global recession.

So what happens if Alberta’s debt accumulation continues at something like its current pace?

Alberta’s net debt has climbed to almost $8,200 per person, which puts us in spitting distance of British Columbia ($8,782) and Saskatchewan ($10,210).

If Alberta continues to rack up debt in the next five years like it has over the past five — now a plausible scenario — the government’s net debt will hit $85.1 billion by 2024 or $18,500 per Albertan.

Under this scenario, Alberta will carry more debt per person than any Maritime province, where fiscal problems are well documented.

And while it once seemed unthinkable, formerly “debt free” Alberta is in danger of catching Quebec, once the poster-child for fiscal mismanagement, in per-person debt, hitting approximately $20,500 by the middle of the decade.

The consequences of this type of debt accumulation would be painful.

Government debt interest, negligible as recently as 2009, has climbed to $2 billion annually.

The 2020 budget forecasts an increase to $3 billion annually by 2022-23 — but again, that now looks very optimistic.

It’s been two decades since Ralph Klein held up his “debt-free” sign.

Since then, irresponsible choices have derailed Alberta’s finances.

BY THE PC PARTY NOW REBRANDED UCP

https://calgarysun.com/opinion/columnists/guest-opinion-alberta-careening-towards-fiscal-disaster

1999 ALBERTA BUDGET

Revenue Variability – Alberta has been described as having one of the most volatile economies in North America. We are vulnerable to swings in commodity prices and changes in the North American and world economies. While the economy has become more diversified over the last decade, unexpected changes, especially in energy prices, continue to have a significant effect on government revenues. Alberta’s revenue has varied, and will continue to vary, considerably  

Overestimating revenue is a recipe for disaster in Alberta. It resulted in $21 billion of debt being accumulated from 1985-86 to 1993-94. A debt that Albertans are still repaying. It is critical for the government and Albertans to maintain a longer-term perspective on what is affordable. What appears to be affordable one year may not be the next. The events of the last year clearly demonstrate why Alberta needs to be prudent in its budgeting. As a result of weaker world economic growth and low oil prices, provincial government revenue declined from $17.8 billion in 1997-98 to $16.6 billion in 1998-99 – a decline of $1.2 billion or 7%. 

If 1998-99 spending had been based on 1997-98 revenue, we would have had a $1.2 billion deficit. Annual Percentage Change in Revenue 90-91 91-92 92-93 93-94 94-95 95-96 96-97 97-98 98-99 -10 -5 0 5 10 15 (per cent) "A legislatively mandated revenue cushion provides additional comfort to withstand price volatility in the energy sector and possible revenue downturns." - Moody's Investors Service September 1998 from year to year. During the 1990s, revenue grew by an average of 7% in six of the nine years. However, in the other three years, it declined by an average of 4.5%. Protection Against Uncertain Revenue – Revenue cushions were required in the Deficit Elimination Act and the Balanced Budget and Debt Retirement Act to help protect against revenue variability. They ensured that spending was not based on overly optimistic revenue forecasts and provided insurance against in-year revenue declines. Since first introduced in Alberta, similar concepts have been adopted by a number of other governments in Canada. However, the complicated calculation formula and method of presentation of the revenue cushion made it difficult for the public to understand what the ‘real’ forecast of government revenue was and what debt payment was really expected at year end. Also, due to the way the cushion was determined, its size varied considerably over the last few years. It ranged from about 4% of revenue in 1996-97 and 1997-98 to only 2.7% in 1995-96 and 1998-99

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