Alberta Election 2019: Jason Kenney’s Magic Act
“This campaign is not about politics,” Jason Kenney declared gallantly to kick off his United Conservative Party’s (UCP) 2019 Alberta election campaign. “It’s about people.”
Good one. If he wants to live in a land without politics, he should move to Narnia. But he knows that already.
Mr. Kenney’s holier-than-thou proclamation is a textbook manoeuvre from a master of the political dark arts. Alberta’s election commissioner and the RCMP are currently investigating whether Kenney colluded with Jeff Callaway during the UCP’s 2017 leadership race to sink the candidacy of Kenney’s main rival, Brian Jean. Not only is there suspicion that Kenney’s campaign orchestrated Callaway as a “kamikaze” candidate, but the whole affair may even have been funded illegally.
Jason Kenney denies financial wrongdoing as new details emerge on 'kamikaze affair' | The Star
Over the weekend, the Star reported on a set of leaked documents that cast doubt on Jason Kenney's previous denials…
But remember, children: Mr. Kenney is much too noble to engage in sordid, backroom politics. He’s above all of that. He only cares about you, the people.
So far, the apparent scandal doesn’t seem to be affecting Mr. Kenney’s electoral prospects. In fact, with voting day around the corner, polling data suggests he will soon become premier of Alberta unless Rachel Notley manages to pull a rabbit out of her hat.
A Rising Tide
It’s not for a lack of trying. Ms. Notley has gone to the mat for pipelines, both for political survival and because the government’s books are desperate for new revenue since the price of oil collapsed in 2015, at the beginning of her term. She has already tested the patience of the province’s fiscally-conservative electorate by implementing a federally-mandated carbon tax, raising the corporate tax rate, and raising income taxes on high-earners.
In a sleight-of-hand that swaps out economic realism for populist expediency, Mr. Kenney seeks to reverse the first two policies, and balance the budget, should he win the legislature. Given the legal struggles to increase resource revenue using new pipelines — which would confound any Muggle — against the backdrop of an aging population with burgeoning healthcare demands, one wonders what spell he plans to cast that could keep those electoral promises without making important public services disappear.
Alberta’s unholy trinity looks like this: a) robust public services; b) low taxes on high earners; c) low public debt. Pick two.
Kenney has pledged to freeze public spending on healthcare and education without diminishing the quality of frontline services. He says that any reductions in spending, if any, will be modest.
Reductions — not cuts. He hates the word “cuts.” (Unless they’re the tax kind.) Like Big Brother before him, Mr. Kenney would like you to use his preferred nomenclature.
Yet as any owner of waterfront property knows, if you don’t stack sandbags before the river rises, your house will flood. Alberta’s population is at once growing and aging, meaning more students occupying the school system and even more elderly citizens with expensive healthcare needs. Roughly 15,000 additional students fill Alberta classrooms each year. Greg Jeffery, the president of the Alberta Teachers’ Association, says that class size is already the number one issue for teachers. Ms. Notley’s government has increased spending in these crucial areas to keep pace with those rising demands. Mr. Kenney’s proposed spending freeze, on the other hand, would indeed amount to a cut relative to what’s needed. That would make these pressing problems worse, not better.
Too Many Eggs in One Basket
Ah, but Mr. Kenney, with rolled-up sleeves and a twinkle in his eye, plans to raise more revenue…by reducing corporate taxes from 12 percent to 8 percent.
“Wait, wait!” he stammers. Cutting taxes will attract more business, create new jobs, and stimulate economic growth to compensate for lower tax revenue. We’ll get that Alberta Advantage back in no time!
Yeah, maybe. Or maybe it will just amount to a hand-out for the rich without boosting tax revenue — big oil companies could just as easily sit on their new money because unpredictable oil prices make new investment too risky. As the saying goes, you can lead a horse to water but you can’t make him drink.
Governments have far less influence over the economy’s performance than people think. That’s especially true in Alberta, whose fortunes are tied largely to energy prices dictated by global markets. New pipelines can help raise the price of Western Canadian Select a little, not a lot. When politicians promise otherwise, it’s desperation talking. Albertans must manage their expectations, and be skeptical of politicians who promise the moon.
For good measure, here’s some data on corporate tax rates in Alberta. The NDP raised the general corporate rate by two percentage points while reducing the small business tax rate from 3 percent to 2 percent (Figure 1). (That’s right, small-business owners reading this: the NDP did you a solid, and rightly so!)
As for the Alberta Advantage, it’s doing just fine. Alberta still has among the lowest corporate tax rates in Canada (Figure 2), and is now aligned with all the western provinces at 12 percent.
Uh oh, but the NDP raised it marginally above those of Ontario and Québec. What if energy companies flock to those provinces to extract their massive oil reserves instead?!
But Mr. Kenney’s not done yet. The UCP points out in its platform that “government revenues declined when the NDP increased taxes.”
Sigh. Hopefully this magic show is almost over.
Notice the statement is “declined when,” not “declined because.” It’s a case of correlation, not causation. Tricky. (See what I mean about Kenney and the dark arts?) Figure 3 below shows that Alberta Government revenues track natural resource revenues. Had the UCP been in power when oil prices tanked in 2015, their government revenues would have declined, too. It’s that simple.
Writing for the Fraser Institute, Livio di Matteo points out that:
It’s no coincidence that Alberta’s government budgets tend to surplus when natural resource revenues surge as a share of government revenues and go into deficits when those resource revenues sag.
An Unholy Trinity
The government’s balance sheet is at the mercy of something called a trilemma, in which, given three desirable outcomes, one must always be forsaken. Alberta’s unholy trinity looks like this: a) robust public services; b) low taxes on high earners; c) low public debt. Pick two.
Survey data show that Albertans overwhelmingly oppose both the carbon tax and the idea of introducing a provincial sales tax. Yet a large majority also rejects cutting healthcare or education spending, and most would sooner balance the budget than run a deficit. So long as oil revenues remain subdued, you don’t have to be a wizard to see that these three positions together are incompatible.
Only the richest 10 percent of Albertan earners would benefit from a return to the flat tax.
Money to keep the lights on has to come from somewhere. The income tax regime implemented by Ms. Notley preserved the existing 10 percent flat rate up to $128k, but added four progressive tax brackets on incomes above that level (Figure 4). Despite the hollering from conservatives, Alberta still has the lowest income tax in Canada — only in Alberta does someone making a paltry $25k a year pay the same tax rate as one making five times as much. In addition to precluding public revenue, that policy is also unfair. $2,500 is more valuable to the first person than $12,500 is to the second.
Although Mr. Kenney has ruled out a return to the flat tax in the short-term, you can bet it’s in the cards at some point, as outlined in the United Conservative Party’s 2018 Policy Declaration. When he does go through with it, Mr. Kenney will, with a bit of smoke and mirrors, try to convince Albertans that they’re all receiving a tax cut. He’ll be counting on them to ignore the fine print: in reality, only the richest 10 percent of earners would benefit from a return to the flat tax. The rest of Albertans are counting on whomever is at the wheel to maintain quality public services and infrastructure while keeping public debt under control. That’s hard to do if the candidate for premier plans to someday forsake $700 million of annual revenue just to please his wealthy donors.
Conjuring new funds through swift pipeline construction is also no easy thing. In August 2018 the Federal Court of Appeal (full text below) ordered the Government of Canada to redo Phase 3 of the Trans Mountain Pipeline Expansion consultation process. The court ruled unanimously that the Government had failed to adequately consider both the rights of certain Indigenous peoples, and the environmental impact of increased tanker traffic on the endangered Southern resident killer whale population. As much as opposition leaders like to cast aspersions for the pipeline’s delay, it is farcical to think they would have done any better on the matters cited by the court. If anything, given conservatives’ comparable lack of concern for marine mammals and Indigenous rights, a UCP government likely would have done worse. It is always easier to criticize than to govern. The grass isn’t always greener on the other side.
Mr. Kenney’s UCP is favoured by a majority of all decided and leaning voters. Most of those people will be disappointed when they discover that not only have their income taxes remained the same, but that their children are schooled in more crowded classrooms, their elderly parents cannot find affordable long-term care facilities, and there are more potholes in the roads. Maybe then they will finally realize that although economic voodoo is tantalizing as a campaign platform, it makes for poor public policy.
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