Monday, November 9, 2009

Dave Hancock vs free trade

The attendees of the P"C" party of Alberta convention in Red Deer this past weekend helped clarify for the voters their view of fiscal conservatism, as "Several resolutions on spending controls were rejected, including adopting legislation limiting year-over-year spending increases to the rate of inflation, plus population growth..."

Could it be any clearer? The Wildrose Alliance platform contains a plank, a plank that, in my view, would be the cornerstone of the platform if associated with anti-cyclical tax reforms that would put serious (windfall revenue denying) teeth into it: "The Wildrose Alliance believes Alberta will limit growth in program spending to the rate of inflation and population growth of Alberta." This very same Wildrose Alliance plank was considered by the P"C" Party and rejected. At least they are consistent... these P"C"s are the people who increased government spending 191% between 1996 and 2008 while the population grew 34%. Plus ça change, plus c'est la même chose.

What are the stakes here? Jack Mintz does not believe that even limiting spending to population growth plus inflation will be sufficient to both avoid both deficits and higher taxes. No economist of note who has taken full account of Alberta's future demographic challenge has disagreed. The implication is that continued government by the P"C" Association of Alberta would not mean just deficits and higher taxes, but LARGE deficits and/or MUCH higher taxes.

If that wasn't enough Red Toryism for you,
Members approved a policy from Education Minister Dave Hancock's Edmonton [Whitemud] constituency association calling for the upgrading of more oilsands bitumen in Alberta by blocking shipments to other jurisdictions. The province should take "whatever appropriate action is necessary" to achieve the goal, said the resolution, including legislating that bitumen be upgraded in Alberta.
"One of the things we want out of our oilsands is to have the value here," Hancock said, suggesting the proposal is consistent with government policy. While the province doesn't like to interfere with private business, "unless you engage in some way, bitumen is going to flow down the pipe," Hancock said.

It is absolutely true that unless government "engages in some way" ("engagement" being the Dave Hancock-approved term for coercive regulation) people will freely trade. That means exporting bitumen when the price is attractive and when the investment climate in Alberta has deteriorated to the point that the corporate finance number crunchers conclude upgrader projects within the province are lower NPV than in other jurisdictions. Now the government COULD change elements of those NPV calculations by 1) reducing the marginal effective tax rate (METR) on new investment to a more competitive level and/or 2) reducing the risk adjusted discount rate by not changing energy industry policy every time the populist winds shift and/or 3) stop crowding private investment with continued high levels of government spending that inflate the cost of business inputs, including labour. Not one of these options were acknowledged. Rather, Dave Hancock's Whitemud constituency association reckons coercive, trade restricting regulation needs a place at the table, a contention that would have been of limited interest to non-Whitemud voters were it not for the fact that the rest of the convention-attending, Stelmach-supporting P"C" membership decided it would make a great policy plank for their party. BA Energy spends more than a half billion on an upgrader near Fort Saskatchewan, goes bankrupt, and the problem wasn't the escalating cost of doing business but insufficient government "engagement"? Perhaps Hancock's idea of "engagement" also includes a massive corporate welfare scheme that would send billions of taxpayer dollars down the rat hole. After all, if they can find billions for boondoggle carbon capture projects, surely they can find billions for boondoggle upgrader projects that would create more carbon to capture! Of course, these upgraders will also suck so much juice from the grid we'll need a massive new power transmission line project... you see how it all fits together?

If the government is not going to allow the private sector to export bitumen, are they going to allow the private sector to give out-of-province investors a return on investment? If Hancock can't tolerate gooey black stuff "flowing down the pipe" how is he going to keep his paws off an actual cash flow? Longtime readers of this blog know that I'm a frequent critic of the Prime Minister and what I see as a "firewall" mentality. But if there has to be a wall, I'd take Harper and Ted Morton's mostly symbolic social "firewall" around Alberta over Dave Hancock's economic firewall any day of the week and twice on Sundays. It is the expectation of being able to eventually take out a return on investment that creates the confidence to put the initial job-creating, economy-building investment in.

At the 2010 P"C" Party AGM, perhaps the Edmonton Whitemud P"C" constituency association will propose that the government take "whatever appropriate action is necessary" to ensure Albertans consume Alberta-grown bananas. Mr Hancock could explain that Albertans want "to have the value [of banana production] here." Indeed, Albertans might have to go without any bananas that aren't home grown because foreigners decided not to trade with us after we are refused to part with our bitumen (we'll trade you some worthless stuff we Albertans don't want instead... what? not interested?) If the government does not "engage in some way," you get all these free traders influencing production and investment decisions, and that's apparently just too much to bear for Dave "give me my financially and environmentally dubious upgraders" Hancock.


Joe said...

Bravo Brian, Bravo.

Dead on and just highlights how small minded these guys are.

If we want bitumen to be upgraded in Alberta, then create the marketplace necessary for it to happen.

Re-Pete said...

Some where I read that the U.S. wants to manage as much upgrading / refining as it can for security reasons. Fat chance of being able to "block" anything related to oil.