Feb. 15, 2012 - Issue #852: The Coffee Issue
Missing the middle
The Alberta budget fails to capture the truth in numbers
Ralph Klein. It may sound counter-intuitive, but that's who first came to mind last week as Alberta's Finance Minister Ron Liepert tabled the 2012 Provincial Budget in the Alberta Legislature. Not because it inspired the kind of anger and frustration that Mr Klein's numerous provincial budgets inspired in so many of us, but because it used the same accounting trick, albeit in reverse, that Mr Klein used so effectively throughout the 1990s to achieve his political goals.
The most consistent element of provincial budgets during Ralph Klein's heyday of slash-and-burn finances was the extreme low-balling of projected oil and gas prices. Mr Klein's team would regularly scan the very crowded world of energy price forecasting and cherry-pick the most ridiculously pessimistic of those forecasts. Those are the numbers that would inevitably find their way into the projected revenue lines of the provincial budget.
The results, of course, were obvious: choosing the most pessimistic of forecasts made the natural resource revenue lines of the budgets look very small. Given that over the last 20 years or so natural resource revenues have accounted for anywhere between 25 and 35 percent of provincial revenues, this also achieved the goal of making overall provincial revenues look incredibly meagre. And this, in turn, enabled Mr Klein and his government to publicly justify cutting public services, encouraging government workers to roll back their salaries, and not spending money on essential infrastructure.
This is why by the end of Mr Klein's tenure as Premier our public services were understaffed and in a shambles, and our infrastructure was completely inadequate for a province of our size in the midst of an economic boom. That was Ralph Klein's political goal from the start, and it was accomplished through a combination of creating deficit hysteria and low-balling provincial revenues.
The 2012 Alberta Budget was also a highly political document. It is meant to form the basis of the Conservative platform for the upcoming provincial election, and its triple focus on stable funding for public services, increased funding for the most vulnerable, and elimination of the deficit within two years highlights where Ms Redford wishes to position herself and her party during the campaign: as a party much more interested in public services and the poor than the Wildrose Party, but one that still carries an obsession with balancing the books and not raising taxes.
The problem is that the only way she could achieve that highly political objective was to take a page out of the Ralph Klein book of budgeting, and turn it on its head. The budget numbers work only because of the highly optimistic projections for the price of natural resources used by the government.
Like in Mr Klein's days, the numbers are not so far off as to be entirely inconceivable, but they certainly do not represent the middle ground of what experts and industry are forecasting. The budget includes a projected price for oil of $99 per barrel this year, $106 next year, and $108 the year after that. These projections are entirely possible given where oil is today, but they very much represent only the most optimistic of forecasts.
Likewise, the budget projects natural gas prices of three dollars this year, $3.50 next year, and $4.25 the following year. Given that the price of natural gas is currently south of the three dollar mark and dropping, it's difficult to imagine how the government's scenario could be considered anywhere near likely. One energy forecaster recently dropped their 2012 price projection for gas to $2.27—that alone would result in the government missing its revenue forecast by over $200 million.
Add to this an incredibly optimistic forecast for bitumen production and revenues as well as for the US dollar exchange rate, and you begin to get the picture. Politically, it would have been impossible for Ms Redford to present a budget based on realistic projections while covering her left and right flanks in the provincial election. Realistic projections would have meant drastically cutting services, increasing taxes and royalties, doubling the size of the deficit, or some combination of all three. So like Ralph Klein in the '90s, she chose instead to fudge the numbers for the sake of political expediency.
It worked well for Ralph Klein year after year, and early indications seem to be that it will also work well for Alison Redford. Apparently, you can fool Albertans a second time. And a third and fourth too.
Given how dependent our provincial budgets have become on natural resource revenues (a topic for another day), it is essential to Albertans that we be able to trust what's being put forth by our government rather than having to second-guess their projections year after year. Putting in place a set of clear guidelines and protocols for how the government forecasts energy prices and exchange rates would go a long way to restoring faith in provincial finances and removing provincial budgets from the realm of rhetoric and political manipulation. It’s time we demanded some truth in budgeting in this province. V
Ricardo Acuña is the executive director of the Parkland Institute, a non-partisan, public policy research institute housed at the University of Alberta.
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