Saturday, August 14, 2010

this Wildroser salutes Kevin Taft

Former Alberta Liberal leader Kevin Taft (right) has announced that he will not be seeking re-election, although he will continue to serve his Edmonton Riverview constituency until the next election.

This is a lengthy post, but mostly because I quote at length from Taft's response to the 2008 Stelmach budget. The boldfacing you see is my own emphasis.

If there was a policy forum being held in the capital city, like on healthcare in Whitemud or on power at Rexall, Dr Taft could be counted on to attend. After lining up with other ordinary citizens to speak to a microphone at the Rexall rally, I noticed that the former Leader of Her Majesty’s Official and Loyal Opposition never introduced himself by name, never mind as an Edmonton MLA. Few politicians, I would think, would have been inclined to remain so anonymous.

When Wildrose MLA Rob Anderson introduced his private member's bill in February to limit provincial spending to population growth and inflation, Finance Minister Ted Morton responded "If you look at what’s happening in most of the U.S. states that have those types of rules right now, you’re seeing massive cuts to education, law enforcement, health care." In fact Finance Minister Morton was disseminating disinformation here since the bill at hand would cap the growth of spending, and as such would not force any net cuts. The states that are making deep cuts are in fact doing so because of mandated prohibitions against deficit financing (a reason why I spoke up against a proposal to prohibit debt financing at the last Wildrose AGM). If Morton were inclined to make a reference to the situation in the USA that was revealing instead of misleading, he could note that not all 50 states are running deficits. Alberta's only American neighbour has remained in surplus throughout the recession, and Alaska, which has analogous energy resources, anticipates a surplus in 2011. In addition, the Center for Budget and Policy Priorities notes that neither state has cut services. The Pew Centre's State of the States 2010 report notes that states situated similarly to Alberta are in relatively good fiscal health:
Call these the “Lucky Few”—states that have weathered the recession better than most: Alaska, Montana, Nebraska, North Dakota, Texas and Wyoming. Except for Nebraska, all of these states are rich in minerals. Nebraska, meanwhile, benefits from low unemployment, rising farm income and conservative government fiscal policies.

When Kevin Taft addressed the issue, he observed that capping at population growth and inflation "doesn't account for growth in the economy" and accordingly should perhaps just be "a short-term way to control spending." It was a thoughtful and respectful argument that prompted Anderson to say "very good question" and Anderson even felt compelled to agree with the former Liberal leader that "[y]ou don’t want to in perpetuity cap spending at inflation plus growth."

For what it is worth, I disagree with Taft and think the Wildrose MLA conceded to him too readily in that I don't see a gradual reduction in the size of government relative to the economy as a problem. The level and quality of government services would not go down, as their resourcing levels would be calculated per capita and would not be eroded by inflation. You just wouldn't see the government taking a cut out of the additional future wealth the economy would hopefully create over time. It's the most easily managed "diet" that a government could be on. I might add that the government's pension liabilities are likely to increase and the specific bill here, Bill 204, explicitly excluded changes in "liabilities respecting pensions" (and "debt servicing costs") from the "government spending" it sought to control.

Taft nonetheless helped inform the policy debate instead of disinforming it like Morton, and I note that Kevin Taft has repeatedly called for true fiscal conservatism. By this I mean caring for the province's asset position as opposed to just demanding less revenue collection, as all too many self-styled "conservatives" would have it. During the last election campaign the party he led issued a press release calling on the Tories to "rein in their massive spending", and observed that "[t]he Stelmach government spends more per capita than any province in Canada..." Without committing his party to a policy of indefinite duration, the press release quoted Taft saying, "'The Alberta Liberals will keep our commitment to real change through our platform, with no increase in real per capita program spending. It’s time to spend right, not more. It’s time for an end to Stelmach’s tax-and-waste government." He also observed that "[t]he Stelmach government spends 35% more per capita than the Ontario government" without noting that the former had a "conservative" label and the latter a "liberal" one.

Most notable of all, however, were Dr Taft's prescient observations that
[t]he Stelmach government is addicted to royalties. They act like the end of the gravy train will never come, like they can continually add spending without consequences. We have to get responsible and provide for the future before it’s too late.
At this rate, the Tories are setting us up for service cuts and rapidly increasing taxation when royalties slow down.
Within a year, the very slow down that Kevin Taft had warned of had materialized, with the one thing that he did not fully anticipate with his remarks being the fact that the Tories would evade tough choices with respect to service cuts and tax hikes by repealing their own "Fiscal Responsibility Act" in order to run massive deficits.

Within a matter of days after this press release, however, Albertans re-elected Stelmach, Morton, and the rest with a massive majority, effectively terminating Taft's mandate to indefinitely continue as Liberal leader. The government soon released its 2008 budget, and Taft gave his response to the budget on April 23:
...[o]n a per capita basis Alberta has 51,900 barrels of recoverable oil reserves, tops in the world. In other words, for our small population, per capita we have the largest oil reserves in the world. Second is Kuwait, then the United Arab Emirates, and then Qatar. Saudi Arabia, which we always assume is incredibly wealthy in petroleum, actually ranks fifth on a list of petroleum wealth per capita. Alberta ranks first. I think that’s something we should all remember when we’re weighing out how we manage this wealth. Now, that’s just oil reserves. If you add in natural gas reserves, our wealth rises even higher. Natural gas reserves are almost 57 trillion cubic feet, and there’s perhaps another 500 trillion cubic feet of coal-bed methane....

But in this budget it’s the same approach that we’ve seen for far too long from this government, which is no plan for savings, and the results of that are shocking. I think the most obvious result of that is the value of the heritage trust fund, which was set up over 30 years ago. It was set up to be a savings vehicle for the people of Alberta, and in real terms the Alberta heritage fund today is worth less than it was 20 years ago. I think that’s shameful.

We are liquidating the wealth of this province just about as fast as it can humanly be done. You can see that in the overheated economy. You see that in the labour shortages. You see that in the consuming of the environment. We’re liquidating our wealth as quickly as we can do it. We can’t do it any faster – can we? – because we can’t get the people here, can’t get the equipment here. We’re selling our wealth as quickly as is humanly possible, and what’s the long-term result of that? Where are the savings? Where is the wealth that’s going to be there for our grandchildren and beyond?

Of course, it’s said many times that Alberta has fallen behind other jurisdictions on this measure, and it’s very true. I fully acknowledge that each jurisdiction is different and has different priorities, but when you look across the globe, you see that Alaska has a strategy for saving its petroleum wealth and converting it into something permanent, Norway does, Russia does, and several Middle Eastern countries do. Then you look at Alberta and you go through this budget and you don’t see that plan. That is, in my view, the fatal shortfall of this budget.

... it’s worth perhaps looking a little bit at the past. How much nonrenewable resource wealth has flowed through this province’s treasury since this government was first elected? It’s a staggering amount. It would now be well over the $200 billion mark. If you go back, you can itemize it through the years, starting in the 1970s and moving up. There are many individual years when as much as $10 billion or more in one year of nonrenewable resource wealth flows through this government’s hands. Yet the Heritage Fund today, if you liquidated it entirely, wouldn’t finance six months of government operations.

It is very much, Mr. Speaker, like this government believes it won the great big lottery of all time, and in many ways it did, but instead of doing what every reasonable and well informed financial adviser would recommend, which is to save some of that, we’re spending it as fast as we can, and that is a mortal danger to the future of this province.

What this budget indicates is that we have become addicted to the process of liquidating our capital. This government has become addicted to it. There is actually an enormous gap, which we call a sustainability gap, between what this government brings in in reliable sources of revenue – I’m talking there about taxes, federal transfers, fees and premiums, and so on, things that every other provincial government has to rely on so heavily – a gap between all of those permanent and secure sources of revenue and how much is being spent. We haven’t had time, since this budget just came out yesterday, to work out the size of the gap in this budget, but based on previous years, I’m sure that it’s grown. It’s probably over $2,000 per person, the gap between what we’re spending and what we’re bringing in in sustainable revenue. The only way we’re able to cover that gap is by spending our petroleum wealth, our nonrenewable petroleum wealth.

This is a dangerous, dangerous pattern, and it’s a pattern that’s been building now for many years with this government: spend more than you bring in and make up the difference by selling part of the farm. Well, at some point we’re not going to be able to do that, and we’ve learned that lesson historically. The Minister of Energy is snickering at this analogy. Well, maybe that’s the difference between your government’s position and mine and this caucus’s position.

History will tell us that, in fact, there’s a real danger here. We learned that lesson 20 years ago when the world price of oil dropped below $10 and we were as a government massively dependent on those nonrenewable resource revenues. When they dried up, what did we have to do? We had to make dramatic cuts to public services, we had to increase taxes, we had to lay off thousands of people, and we went into a prolonged economic slowdown. We’re on the same course again, and this budget reinforces and, in fact, amplifies that course. That’s my single biggest concern with this budget, Mr. Speaker.

At the time that Taft made these remarks in the Legislature, there was no Wildrose Alliance representation, the party having been wiped out in the election of the previous month. But just the day before, April 22, the Liberal leader opened with following remarks:
It’s a great pleasure for me to introduce a person who many of you will know and many of you won’t have known. He’s seated in the Speaker’s gallery today, the former Member for Cardston-Taber-Warner and the current leader of the Wildrose Alliance Party, Mr. Paul Hinman. I would ask Paul to please rise, and let’s give him a warm welcome.


Anonymous said...

Great post. It's clearly time for at least a 50% cut in health care and education spending and more than that for other areas. I will be pushing for a resolution like this at the next Wildrose AGM.

Anonymous said...

I agree, A very good post indeed. And it is now to me why the Liberals turfed him - he wasn't left enough. Most of what you said here any socon would agree with. Too bad for Taft.

Anonymous said...

Actually the Liberals didn't turf him. The voters did. Then he resigned.

Tim Smyth said...

Although I am a bit of an outsider as an American who deals with Canadian/Alberta politics as part of my job. I'll make a couple of observations. Alberta to its credit for its level of petroleum wealth has not given into the temptation of most other oil rich jurisdictions of essentially giving away free gasoline and energy to the local population such as Kuwait, Saudi Arabia etc do. As many such as Jeff Rubin have said the policies of subsidizing energy consumption against declining production by the likes of Saudi Arabia will fundamentally destroy their economies at some point. Alberta on the otherhand has some of highest local prices for energy consumption in Canada.

While not as bad as what the likes of Saudi Arabia are doing provinces such as BC and Quebec are making a huge mistake in terms of opportunity cost in selling their Renewable Hydro Power at below market rates in province vis a vis exporting it the US. Remember Hydro facilities do depreciate over time and need to be rebuilt and maintained. Ontario to its credit has tried to move away from subsidizded hydro over the last ten years but faces a similar problem as Quebec and BC do which is that previous goverments encouraged poor consumption of electricity by encouraging the installation of electric heating systems for example on the basis the homeowners will ALWAYS have below market electricity.

Back to Alberta, I don't it is necessarily bad for the provincial government to invest in infrastructure that will outlast its non renewable energy resources, the bad thing though is when government is using energy revenues to finance current consumption and doing things that prevent and make difficult a future reduction in consumption(ala Quebec putting in electric heat all over the province in the 1970s)

ace said...

"Great post. It's clearly time for at least a 50% cut in health care and education spending and more than that for other areas. I will be pushing for a resolution like this at the next Wildrose AGM."

Please do--then you can kiss your right-wing butts good-bye.