Shifting Priorities: From Deficit Spending to Paying down the Debt and Lowering Taxes - Evidence from the Alberta Advantage Surveys: 1995-2000

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Shifting Priorities

On 11 February, 1997 the Lieutenant Governor delivered a short, bland speech from the throne; the next day Jim Dinning delivered his last budget. Two minutes after Dinning resumed his seat the Speaker dissolved Alberta’s twenty-third Legislative Assembly and the Tory caucus retired to the Pioneer’s Cabin in Edmonton for a major party. They had every reason to celebrate. For the previous year their approval rating had floated between 60% and 70%. One obvious reason was because in a little over three years a $3.4 billion deficit had become a $2.2 billion surplus. Government expenditures were down 20% and oil and gas prices had rebounded. Alberta had the lowest minimum wage—and Albertans had grasped that legislating high minimums was a sure-fire job-killer. The province also had the lowest per capita costs in healthcare, which the government said meant that others were wasteful, not that Alberta was stingy. Alberta had the lowest per capita costs in education, which clearly did not mean that high school students were ill educated: the provinces’ 13- and 16-year olds rated tops in the country on nation-wide tests in February 1997. Many people attributed the fine showing to competition introduced by Charter Schools to the traditional provincial monopolies. In nation-wide surveys asking Canadians if they were satisfied with their quality of life, Albertans again came first, five points above respondents living in Ontario, and nine above the national average. The premier was happy to point out, this was the "Alberta advantage" in operation. The electorate agreed and the Klein team coasted to victory with 63 out of 83 seats, up from 51 in 1993.

Following the 1997 election, it seemed clear, at least to some observers, that the government had become less interested in further creative fiscal reform than they were in administering their new fiscal regime. Jim Dinning’s last budget was mostly self-congratulation. Budget ‘97 "keeps us on track," he said. It "sticks with what works," to "build the right climate for growth in Alberta’s economy so business and industry will prosper and so Albertans will see more jobs—good paying, high quality jobs." From the start, economic prosperity had been the prime objective and expenditure reduction was the means. Some ten weeks later the new Treasurer, Stockwell Day, presented a "Post-Election Update" that in fact changed very few of Dinning’s numbers and, despite alterations in Dinning’s narrative style, the "Update" was essentially the same document as Budget ‘97.

Eventually, however, the government would have to face the question: what to do with the surplus? In FY 1996-97 Alberta would have a budgetary surplus of nearly $3 billion, despite a cut in transfers from Ottawa of $390 million. On the revenue side, the surplus resulted from higher than expected oil and gas prices ($1.4 billion in royalties), from high tax revenues ($463 million), and from Heritage Fund earnings ($932 million). On the expenditure side, a decline of $595 million was posted, but $572 million of that was a result of low debt-servicing costs and a drop in pension obligations, not deep cuts to program spending. Indeed, considerable improvization or "emergency funding" had been dispensed to "pressure points" in the Regional Health Authorities in order to keep the healthcare system intact. In addition, the 1995 Balanced Budget and Debt Retirement Act had been made more flexible through amendments. "Surplus" revenue on the books at the end of the fiscal year could not be carried over but, as in the original act, had to be applied to the debt. During the year, however, the government could increase spending provided it could still meet the end-of-year target of $450 million dedicated to debt reduction. In other words, the legal impediment against increased spending during the fiscal year had been effectively removed.

Editorial writers and other commentators elsewhere in Canada made light of the surplus problem. "How could spending extra money be a problem?" they asked. "What a wonderful problem to have! Wouldn’t it be great if Paul Martin had the same problem?" In fact, such derisory comments were misplaced. There may not have been much of a financial problem after 1997, but there certainly was a problem of direction. The issue no longer was whether to spend more money, but how? To deal with the question, the government recalled an administrative process similar to the one they had used early in the first mandate: they organized a carefully structured public consultation process that led eventually to the "Growth Summit" of September, 1997. The Premier indicated that the recommendations of the Growth Summit would be refined into the next Throne Speech, scheduled for early 1998. In effect, the Growth Summit would replace both the fall sitting of the Legislature and meetings of the Tory caucus.

A total of 243 measures were adopted, but most of them were sufficiently vague that the government could pick and choose and do what it wanted. All, however, pointed to an obvious result: health, education, and infrastructure "needed" more government spending. Many of those who had once been inveterate opponents of program cuts were suddenly reluctant admirers of the Premier’s new-found statesmanship (AR, 13 October, 1997). On the other hand, many of those who had previously applauded the government’s fiscal conservatism were shocked and appalled. Writing in the pages of the Globe and Mail, for example, Calgary journalist George Koch speculated that the Growth Summit was a sign that Klein’s commitment to fiscal conservatism was exhausted and that he was now eager to spend the surplus. Koch viewed the new mood as a bad sign. "Leading from the rear is fine, as long as there is an obvious popular consensus. But now Albertans themselves appear unsure." In the absence of consensus, creative leadership, not phoney manipulative exercises, was needed. By squandering his moral leadership with a return to the easy "vote-grabbing" ways of his predecessors, Premier Klein, said Koch, was doing the entire nation a disservice. Instead of pushing ahead with substantial education and health care reform

after his one big achievement, balancing the budget, Mr. Klein has stalled. Privatizing campground operations hardly qualifies as major reform. That he refuses to follow up with the next logical step—comprehensive reform, and reduction of taxes—is a tragedy for overtaxed working families, and not just in Alberta (G&M, 30 October, 1997).

A week later the premier replied to the Globe and Mail that reinvestment was not big spending: "we have to reinvest in these systems [i.e., education, healthcare, and infrastructure] to accommodate the pressures of growth. That’s the government’s job. It’s that simple." Logically, of course, if the government’s goal remained prosperity, "reinvestment," particularly in education, and infrastructure might well be necessary. Klein did not single out these areas, however, but went on to reaffirm that there would be no deficit financing and no tax increases (G&M, 7 November, 1997). The Premier of Alberta does not usually answer his critics by writing a letter to the editor. It would appear that Koch had touched a sensitive issue. Still, a year later revenue projections were up 1.6% but expenditures had grown by 4.4%. Serious tax reductions seemed to have been temporarily banished from the agenda.

In the interim leading up to the spring 2001 election the government has not become derailed. It has, however, submitted to pressure and resumed spending, but the new approach to spending has been much more frugal than it was during the days of Lougheed and Getty, particularly when it comes to program spending. The tendency, more often than not, has been to rely more heavily on a strategy of relieving pressure points with "one-time" doses of spending. In FY 2000-2001, for example, the government offered a one-time Energy Tax Rebate in order to help Albertans with a steep increase in energy costs. Since being re-elected in 1997, the government has also held true to its commitment to make Alberta the first province to be debt-free. In that regard, they have eliminated the net debt and reduced the accumulated amount owing from $23 billion to an estimated $3 billion. They also passed the controversial Bill 11, the "Health Promotion Act," which was designed to provide the provincial Regional Health Authorities with sufficient flexibility to contract-out minor surgical procedures to private healthcare facilities (see Virani, Kanji, and Cooper, 2000). It should be added, however, that on this and related issues some leading Albertans think the government has not gone far enough.⁴ Taxes have also been cut. In January 2001, Alberta became the first province to move to a new single, flat-rate tax structure for provincial income taxes. According to the government "all Albertans will benefit from an average 20% tax cut and 200,000 more low-income earners will pay no Alberta tax at all" (Government of Alberta, 2000). Moreover, corporate taxes are expected to decline as well. And lastly, by deregulating electricity, the government has signalled its continuing commitment to "getting government out of the business of being in business," as was promised as long ago as the first Dinning budget.

As far as the Alberta public is concerned, the effects of the Klein government’s continued, though recently somewhat attenuated, efforts, have begun to pay off. The 2000 AAS, in particular, provides some interesting, if provisional, evidence to suggest that the priorities of Albertans have started to shift, chiefly as a result of the government’s continued priming. For several years, the government has undertaken to convince Albertans of the long-term merits of fiscal prudence and lower taxes. It now appears that the message has been received and understood, which is to say that long-term government priming has paid off handsomely indeed.

Figure 9 indicates that more and more Albertans (now more than a majority —57%) are of the view that the government’s top priority should be to pay down the debt or reduce taxes. In 1999, nearly two in every three Albertans (62%) said they would prefer to use the surplus revenue for targeted spending on priority programs. Today only 38% of Albertans feel that way. In contrast, a growing number of Albertans now favour paying down the debt (from 24% in 1999 to 31% in 2000) or reducing taxes (from 12% in 1999 to 26% in 2000). Tax reduction and debt reduction are no doubt linked in most Albertans’ minds: once the debt is gone, further tax reductions would be possible. Furthermore, the data reported in Table 2 seem to suggest that this shift is pervasive in the sense that it appears to be taking place across virtually all social and demographic groups, including those who have not previously been sources of strong government support, such as women and Edmontonians. And finally, increasing the size of the Alberta Heritage Fund, which is another frequently mentioned spending option, continues to remain at ground level with virtually no support. In sum, Albertans would rather keep more of their own money than have the government spend it for them. In Alberta, money spent to reduce the tax burden is considered money well spent.

Figure 9: Top Priority for Reinvestment

Table 2: Top Priority for Reinvestment by Socio-Demographics
	Targeted Spending			Tax Reduction			Pay Down Debt
	1999	2000	% change	1999	2000	% change	1999	2000	% change
Sex
Male	58%	32%	-26%	13%	26%	+13%	26%	37%	+11%
Female	64%	44%	-20%	11%	27%	+16%	22%	25%	+3%
Age
18-24 years	56%	34%	-22%	12%	29%	+17%	29%	33%	+4%
25-34 years	64%	41%	-23%	11%	32%	+21%	23%	23%	—
35-49 years	61%	44%	-17%	13%	28%	+15%	24%	25%	+1%
50-64 years	66%	33%	-33%	12%	24%	+12%	21%	40%	+19%
65+ years	61%	34%	-27%	12%	21%	+9%	26%	39%	+13%
Education
Primary/secondary	56%	35%	-21%	14%	25%	+11%	28%	36%	+8%
Some post-secondary	61%	36%	-25%	13%	28%	+15%	25%	31%	+6%
University degree	68%	46%	-22%	10%	25%	+15%	21%	26%	+5%
Income
20,000	54%	42%	-12%	20%	29%	+9%	24%	22%	-2%
$20-40,000	59%	38%	-21%	14%	26%	+12%	24%	33%	+9%
$40-60,000	62%	36%	-26%	11%	28%	+17%	24%	32%	+8%
$60-80,000	62%	39%	-23%	12%	27%	+15%	24%	30%	+6%
$80,000	65%	36%	-29%	11%	27%	+16%	23%	34%	+11%
Employment
Employed	61%	38%	-23%	12%	29%	+17%	25%	31%	+6%
Unemployed	51%	45%	-6%	19%	17%	-2%	29%	32%	+3%
Retired/Student/homemaker	65%	39%	-26%	11%	22%	+11%	23%	33%	+10%
Region
Calgary	57%	38%	-19%	16%	25%	+9%	26%	31%	+5%
Edmonton	59%	42%	-17%	13%	23%	+10%	25%	32%	+7%
Rural	69%	36%	-33%	8%	30%	+22%	22%	31%	+9%
Source: 1999-2000 Alberta Advantage Survey.

Even though there is considerable support for smaller government, this does not mean that Albertans are averse to government spending. Figure 10 shows that if the government were to spend more on priority programs, top priority for a solid four out of five Albertans would be to spend more on healthcare. On this point there has been very little change. It seems to make no difference how much money the government pumps into healthcare, people continue to remain anxious about it. Such anxieties are understandable: no one looks forward to injury or sickness nor to the infirmities that so often accompany old age.

Figure 10: Spending Priorities (% saying we should spend more)

What has changed, however, is that an increasing number of Albertans would prefer the government to spend more public dollars on education, mostly at the primary and secondary levels, but also in post-secondary education. In other words, there seems to be an increased emphasis on investing more in the young. On the other hand, the only program for which support for more public spending seems clearly to have declined is social services: only 36% of Albertans feel that the government should spend more in this area, down from 48% in 1999.

Figure 11: Spending Priorities beyond Social Programs (% say they strongly support and support)

When it comes to spending in other areas, four in five Albertans are in favour of using surplus dollars to spend in infrastructure. As with investing in education, there is a clear anticipation of a return for dollars spent. Indeed, the benefits of a robust infrastructure are obvious to anyone who drives across the eastern border of the province. Moreover, more than a majority of Albertans support spending surplus dollars to eliminate health premiums and provincial taxes, and to subsidize escalating gas and energy costs.

Finally, less than a majority (42%) of Albertans are willing to use surplus revenue to provide taxpayers with yearly rebate cheques as they do in Alaska. Albertans would rather keep their money to themselves than have the government recycle it.

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