Wednesday, January 13, 2010

"Alberta must go conservative"

On January 8 Fraser Institute economists Niels Veldhuis and Charles Lammam penned a Financial Post opinion piece titled "Alberta must go conservative."

But is the Wildrose Alliance the vehicle to bring "a clear focus on the investment climate" to Alberta? The real test will be when rhetoric runs into "reality". A trade-off will have to be made such that tax relief to investors gets funded by either cutting/capping program spending or shifting the taxation burden from business to consumers.

Last month Veldhuis wrote an op-ed in the Winnipeg Free Press saying
Finance Minister Rosann Wowchuk last week kiboshed a harmonized sales tax (HST) for Manitoba. Her reasoning: "We don't think it makes sense to impose $405 million in new sales taxes." While such rhetoric might be good politics, it is terrible economics...
Under an HST, businesses could claim a refund on the sales tax they pay on business inputs, reducing the tax penalty on new business investment and improving the incentives for investment. ...
Simply put, the HST is an excellent economic deal which would provide significant and lasting economic benefits to the province.

This sort of thinking isn't exactly in tune with the prevailing zeitgeist. On January 4 David Brooks observed that, "Every single idea associated with the educated class has grown more unpopular over the past year. As Andrew Steele, in a G&M op-ed titled "Going Populist" says
We have seen the same trend flaring in Canada. Sales tax is an obvious example. ...
Expect more sweaters and Tim Hortons cups from all parties this year as strategists seek to go down market at a time when fancy words and "inter-dependent productivity gains"-type language is out of favour.

My primary concern about the way the Wildrose Alliance is currently formulating policy is not that it is being handed over to the daily mob per se but that it appears the mob will be assessing policy planks individually instead as a coherent whole. There have been sincere efforts to set up a task force system that gathers together the available research, such that while everything (aside from floor crossings?) will apparently still come down to a grassroots vote, there's reason for optimism about how informed the vote will be. Just because I am not yet aware of any independent or academic research being utilized so far does not mean it won't be. The problem is rather that the membership, and Albertans, will apparently be presented plank after plank to vote for in isolation, such that the naturally interconnected web of policy will be chopped up into a series of one-off decisions that are prone to leading to contradictory results.

The fact that effective governments don't routinely make policy by reference to popular party membership votes outside of elections (unless making a change to the constitution) whereas the Wildrose Alliance does is not, in other words, the central problem. The topical expertise of elected ministers is typically limited enough relative to deputy ministers and assistant deputy ministers that ministers making final decisions on the memos they receive may be roughly analogous to Wildrose members voting on reports received by task forces. Of interest is rather the fact that real governments have central agencies: e.g. a Treasury Board, a Finance department reporting to a Finance minister, and a Privy Council Office reporting to a first minister.

If a Wildrose government did not have a powerful premier, Finance Minister and Treasury Board President it would represent a remarkable reversal of the trend towards centralization in Westminster jurisdictions. Currently, the leader's role in policy determination is relatively limited and nothing analogous to a Finance ministry or a Treasury Board exists. I have heard that there is a coordinating committee assigned with some authority to direct and intervene in the activities of the task forces, but I am told that it is limited. If the leader has a broad authority to coordinate and/or dictate policy, from her statements and actions to date it seems she is circumspect about wielding that authority. Now that may be a good thing on the democratic reform front. But it would not be a good thing for fiscal conservatism were this to continue while in government since the provincial government would be left with an uncoordinated collection of line departments each directing resources towards what they consider priorities. Minding the deficit would become no one's job in particular, which, of course, would mean that job won't get done.

If, for example, one Wildrose task force comes back with a recommendation to cut royalties without offering a substitute revenue source and another comes back with a recommendation to increase spending on healthcare, unlike the debate that would occur were a decision by a real government cabinet involved, there is no "Minister of Finance" who can be called upon to comment on the fiscal impact.

I have been advised by other Wildrose members that I am not helping the party's political prospects with my various criticisms of people and policies associated with the party. I should explain that I am not really a political type. A former Clerk of Canada's Privy Council, Gordon Robertson, distinguished between a Minister and a Deputy thusly:
A Minister is politically oriented but must be operationally sensitive.
A Deputy Minister is operationally oriented but must be politically sensitive.

As someone whose background is in the civil service of a federal central agency, I have a deputy minister's mentality as opposed to a minister's. I'm operationally oriented. Whereas the PCO, for example, analyzes a proposal in terms of impacts on costs and in how it relates to other government initiatives, the PMO (Prime Minister's Office), staffed by political advisors, looks at the issue from a political standpoint, ie. does an issue enhance the first minister’s standing or will it increase the government's popularity? This division between political and public service is replicated throughout the federal government: each Minister has key political advisors reporting directly to their Minister in addition to senior public servants reporting through the Deputy Minister. At a December meeting of Edmonton Wildrose organizers we were introduced to a Calgary-based assistant to the party's Calgary-based Director of Operations, who introduced himself as having advised Minister Flaherty against taxing income trusts while as a member of his team of political advisors. Meanwhile I was a member of the team of civil servants advising the Minister to do the exact opposite (ie tax income trusts). So while the egos of various people involved with the party, including my own, are likely partially to blame for any incongruent choreography, there are also some substantive differences in perspective about how the boat should be run and its direction.

Although Deputy Ministers take their cues on upcoming plans and priorities from ‘political documents’ (election platform, Ministers speeches, policy statements), they respond and fulfill these priorities in a nonpartisan manner. And indeed during my time in Finance Canada I came to appreciate the culture of nonpartisanship and concluded that the country needs more of it. Returning to Alberta, I saw partisanship and loyalty to political parties as more of a hindrance to good government than a help. I am not keen on the recent floor crossings primarily because they suggest to me that the party's position on democratic reform is ad hoc as opposed to philosophically consistent and creating financial hardship for politicians is not what I consider a serious policy concern. What this adds up to, of course, is the possibility that I do not play well enough with other politicians for me to make a good politician myself.

But even if I and people like me shouldn't or couldn't be made ministers, that does not mean that we cannot make a useful contribution to the party by interacting with and responding to it from a relatively nonpartisan, Secretary to Cabinet/Deputy Minister-like perspective. It is from this perspective that I sound the warning that as the policy formulation process currently stands, it is going to be a challenge to get the policies adopted under the current plank by plank process translated into actual policy that is coordinated by a premier's office, finance ministry, and Treasury Board easily or predictably. The more of that that is done in advance, the easier the adjustment will be once in government, and the fewer the "but when it came to reality..." situations that will arise.

Now I also happen to be of the firm conviction that the closer the policies are to those that would actually emerge from a government with a civil service of thousands, the better the policies will sell politically since Albertans will intuitively appreciate Wildrose as a government in waiting. This call should, of course, nonetheless be left for the "political" advisors!


Anonymous said...

I think it is pretty clear which party would be the best to lead Alberta to "a clear focus on the investment climate".

If you really believe the NDP, Liberals, or PC's are more equipped I would love to see your explanations why?

Brian Dell said...

It will be the party that creates the most structural obstacles to incremental spending and regulatory proposals by line departments so that more room can be created for investors and the businesses they invest in. It won't necessarily be the party that generates the most rhetoric about being business or investment friendly.

A bill requiring floor crossers to seek a byelection mandate is apparently going to emerge from the PC caucus even though historically the Alliance has generated more rhetoric about seeking popular mandates with greater frequency.

ace said...

"I think it is pretty clear which party would be the best to lead Alberta to 'a clear focus on the investment climate.'

If you really believe the NDP, Liberals, or PC's are more equipped I would love to see your explanations why?"

I'd say you just explained it yourself, Anonymous.

Mark Samborsky said...

Hi Brian,

It sounds like you're advocating a shadow Alberta government. Am I correct?

Brian Dell said...

Mr Samborsky! When you put it that way it sounds like a lot to ask for but I think the difference between Wildrose and most opposition parties is that most opposition parties have small policy shops that are analogous to central agencies, whereas with Wildrose you have various task forces analogous to line departments and no central agencies. Mechanisms for ensuring consistency across all of the party's various policy planks are not especially developed.

Jarrett Leinweber said...

Brian, I appreciate your warning that as WRA policy develops, it needs to be mindful of consistency and take into account the financial consequences of other policy proposals.

However, assuming WRA policy will include keeping spending at inflation plus population growth and making royalties more attractive for investments, this should avoid the trade off between business and consumers you warn of.

I'm confident that based on PC spending habits and fiscal mismanagement, many opportunities for controlling spending while maintaining the services that Albertans expect is possible. This coupled with recovering commodity prices and improving economic conditions should start to fill the coffers again.

The most important question that the WRA needs to answer to be seen as a government in waiting and worthy of running this province is "what is your long-term vision for Alberta?" What is the plan for investing our resource wealth? How are we going to prepare and build a vibrant and robust economy 50 years from now when the oil sands are gone and create a sustainable one? How are we going to address the potential for a price on GHG emissions? (for the record I think the cap n trade being discussed is beyond flawed and a horrible idea). How are we going to address water issues and other environmental challenges and eventual resource depletion as our basin matures?

Lots of challenges and problems, but also lots of opportunities! I want to live in a province that is fiscally responsible, has low taxes and attracts new businesses, investment and the brightest minds to innovate and create the technologies and companies that we will need to meet the numerous challenges we face.

Brian Dell said...

Keeping spending at inflation plus population growth is, I believe, already policy but I'd rather see mechanisms in place that create institutional obstacles to spending as opposed to a paper promise which might not survive "reality".

Jarrett Leinweber said...

Having the structure in place to keep spending low. Can you provide some examples of what you mean?