While it’s been known for many years that the province could not continue to spend royalty revenues to fund their day-to-day operations without eventually having to enforce deep spending cuts or massive tax hikes, we didn’t know how much or how soon.
Thanks to a recently released report on provincial savings by a committee led by Dr. Jack Mintz, we now have some numbers.
$5,800.
That’s how much (in today’s dollars) the average two-income family in Alberta will have to pay in additional taxes each year by 2030 if the Alberta government does not start saving today.
As ably described in the Mintz report: “If current rates of spending on public services are maintained… and if additional public savings are not put aside, Albertans could face an approximate 40 percent increase in the average provincial tax rate by 2030.”
That’s right, a 40 percent tax hike. Certainly not chump change for most families
And while the Mintz report was held for nearly ten months after receipt by the government, the timing of the release was very apt.
Only 21 hours prior, Finance Minister Iris Evans announced the expected surplus for the province had dropped from $8.5-billion to $2-billion in just three months. The current downturn heightens the importance of Mintz’s conclusions for the short-term, as well as future decades.
This past August, when the province released its first quarter budget update, resource prices were flying high, and threatened to soar to new heights. Oil prices hit their peak in July at $147US per barrel. At that time, the Alberta government projected revenues for the year would be a whopping 21 percent higher than expected – an $8.5-billion surplus.
Three months later the province looked like it hit the wrong square in Snakes and Ladders. Alberta was almost back where it started as resource prices plummeted and oil hit its lowest price of the year at $50US per barrel. Current government projections place revenues to be just three percent higher than budget (and 14 percent below first quarter estimates). This leaves a surplus of $2-billion.
Just like that, more than $6-billion in expected revenues vanished. Foolishly, the government is maintaining its commitment to spend $3.8-billion of that $2-billion surplus on carbon capture and green transit.
Since that math obviously doesn’t work, the remaining $1.8 billion will apparently be funded from the 2009-10 surplus. Unfortunately, taxpayers may not know the size or even the existence of the next surplus until the summer of 2010.
Clearly this government has a spending problem, and this problem is being compounded by wild swings in royalty revenues. This problem has become so bad that the only solutions are to start cutting spending or start saving.
In the past, the pitch for increased savings has been framed around the idea that we need to “save for a rainy day.”
Building up a savings account today so that we can draw it down in the future when oil and gas revenues evaporate, is a stupid idea. A real savings plan wouldn’t withdraw money ever. Albertans need to look at savings like an income generating investment, not a nest egg. The goal should be to replace oil and gas royalties as a source of revenues to fund spending, with a stable, steady stream of revenues from a long-term investment fund.
And this is precisely what Dr. Mintz’s commission suggests. While not as aggressive as the Canadian Taxpayers Federation’s recommendations, the Mintz commission suggests the Heritage Fund needs to reach a balance of $100-billion by 2030. The report demonstrates this modest target can be reached without cutting spending or hiking taxes.
If Albertans aren’t enticed by the positive prospect of sustainable future revenues, the negative alternatives are bad enough on their own. A $5,800 annual tax hike is one; drastic program slashing is the other.
The choice is ours: start saving today or start paying tomorrow.
Scott Hennig
Alberta Director
