Sometime toward the end of November, the Alberta government will release their 2nd quarter fiscal update. Finance Minister Robin Campbell will likely tell us that the second quarter was another good quarter but that the good news is coming to an end and the 1st quarter projection of a $3 Billion bonus will be revised. The reason of course is that oil prices are down again. The budget projected $95 oil (WTI) and today’s spot price is under $79. For every drop of one dollar in the price of oil (WTI) the government treasury loses $215 million.
As much as Premier Jim Prentice wants to paint the government as being under new management, I’m not willing to buy until I see changes to how the government manages our oil and revenue situation. He has already stated that he does not plan on raising taxes, which means we will continue to rely heavily on volatile revenue sources.
“Alberta relies heavily on revenue sources that can be volatile and unpredictable, including non-renewable resources, corporate income tax and investment income. Since 2000-01, these revenue sources have accounted for anywhere between 38% and 55% of total revenue.”
– Alberta’s Fiscal Plan 2014-17
An Alberta government truly under new management, would propose a comprehensive new plan for managing our oil resources, rather than approaching it the same mediocre way we have been doing it for the past 10-15 years. Here are 9 key features that should be part of that plan:
1. Restrict resource revenue to capital expenses, savings, debt repayment or economic diversification
Some like to say that taking on debt amounts to stealing from our kids and grandkids. I would argue that the rapid development of our oil resources is a similar form of inter-generational theft. That oil belongs not just to us, but also to our kids, grandkids and all future generations of Albertans. As we sell of that long term asset we are obligated to spend it on things that have long term benefits, Here are four things that would qualify.
First, we can spend it on long term investments like roads, schools, hospitals and other capital infrastructure. Second, we can save it like Norway has done (more on this later) so that down the road the interest on the savings can be used by future generations. Third, we can reduce our debt, but this only makes sense if the interest on debt is lower than the interest that can be earned by saving the money. Finally, we owe it to future generations to invest some of the earnings on economic diversification; our oil reserves are finite and we must make sure that the economy remains vibrant after the oil is gone and we must start work on that now.
2. Remove resource revenue from operational spending
With over 20% of our operational revenue coming from non-renewable resources we are stealing from future generations to pay for programs now. This must stop. Peter Lougheed said that we need to behave like owners. It is irresponsible to sell off part of the farm just to pay for more fertilizer.
3. Raise corporate and personal income taxes on the wealthy
We will need to replace that revenue, but fortunately we have a great deal of room on the taxation side to accomplish that. The Alberta government proudly acknowledges that we could collect an additional $11 Billion in taxes and still be the lowest taxed province in the country. We need to collect just $9 Billion more to stop the intergenerational theft of using resource revenue to fund current programs. A mix of new taxes on personal income over six figures, on corporate income and a small consumption tax can balance the books without losing our competitive advantage.
4. Raise Royalties
Simply put, royalties are what Albertans are paid when we sell our oil or gas in the ground to the company that digs it out and sells it or processes it. In 2009, a comprehensive report comparing jurisdictions found that other places, including Norway, collected much more in royalties despite having higher production costs and a similar business climate to Alberta. Despite having lower production levels and less time to accumulate, Norway’s oil trust fund is nearing $1 Trillion while the Alberta Heritage trust fund is at about $17 Billion and hasn’t grown in decades. We are similarly selling out our kids when we sell off their oil at a big discount.
5. Start a crown corporation to extract and develop oil here and abroad.
I mentioned earlier that some of our resource revenue should be used to invest in economic diversification. The best way for us to diversify our economy is to invest in alternate and green energy. Oil is finite, but the world will always need energy even after oil is gone. We are an energy super power now, we can be an energy super power in the future but we have to take some risks and use our current wealth to invest in research and development to become leaders in alternative energy sources.
7. Demonstrate a real commitment to the highest environmental standards
The death of 1600 ducks on an Alberta tailings pond in 2008 was a tipping point for how the world viewed Alberta’s environmental record when it came to oil. Rightfully or wrongfully Alberta gained an international reputation for bad environmental practice. We need to regain the social license for oilsands development and we must be leaders at environmental enforcement. To accomplish this we need an environmental regulator that is not just effective and stringent but is also seen to be effective and stringent. This means staying away from appointing energy lobbyists as chair of our environmental watchdog corporation.
8. Upgrade more bitumen in Alberta
The biggest benefit for general Albertans of having such a large store of oil here is the jobs that are created. But the bulk of job creation around the oilsands relates to the building and expansion of extraction projects. As the projects move from the construction phase into the production phase there are fewer jobs. It is in our interests to extract more value before the product is shipped out of the province. Also, processed product demands a higher price (albeit from more limited markets) than raw bitumen. We should get more value from our oil by upgrading more bitumen here than we currently do.
9. Get the products to the best markets in the safest way possible
Oilsands production levels are increasing faster than our capacity to get the product away from Alberta. This results in a glut of oil that stays here and, by the law of supply and demand, fetches a lower price. We should be supporting infrastructure investments that safely move the product to markets that generate higher revenue. If the safer method is pipeline then we should support pipeline development but we should also support research into technologies that will continue to make pipelines safer.
I think that as much as controversy over expenses, skypalaces and aircrafts sunk Alison Redford, so did the unnecessary cuts of Budget 2013. A common problem with the Klein, Stelmach and Redford administrations was a lack of a comprehensive long term financial plan – especially as it related to managing our oil resources. The 9 keys presented here are not just individual tips but are integrated with one another to create a coherent strategy. This plan may not be the one Premier Prentice wants to use, but an integrated and well articulated strategy is needed.
Last week, I wrote about the 7 things to watch in the four October 27th by-elections and now that the results are in, I thought I would revisit the questions.
1. How many ridings will the PCs hold?
The PC’s go 4 for 4! Despite the fact that these were Tory strongholds and that the PC vote share was down considerably, this is a big win for Prentice and demonstrates that the electorate is willing to give him a shot without making his party wear too much of the Redford stain.
2. Who will win Calgary-Elbow?
Alberta’s Education Minister will remain Gordon Dirks as he takes the riding with a comfortable 800 votes over the second place Alberta Party. It turns out that Calgary West was the closer call.
What’s interesting in Elbow is that the Alberta Party and even the Liberals grew their support here compared to 2012. In fact, a clear argument of vote splitting could be made here where nearly 5,000 people voted for these two centre-left parties allowing Dirks to win with only 4,200 votes.
3. Can the Wildrose demonstrate growth?
In 2012, the Wildrose took 20,000 of the 65,000 votes in these four ridings. In 2014, they took 13,800 of 50,000 votes. This is a really bad result for the WRP. Not only were they not able to attract discontented voters amidst Tory scandal, they actually lost vote share – from 31% of voters in 2012 to 28% in 2014. Not only did they not demonstrate growth, but they receded. I will argue that every party has something to be happy about in these results with the exception of the Wildrose.
To be fair, PC vote share went down from 61% to 44% over the past two years in these four ridings, but that was to be expected given the controversies – and the PCs still eked out the wins.
Just under 50,000 voters came out for by-elections in four ridings that attracted 65,000 voters in 2012. This amounted to a 38% voter turnout. I said that high turnout meant change; well, low turnout represents complacency.
5. Will Greg Clark be a difference maker in Elbow?
Greg Clark made a difference. He did not win in Elbow but he was a very close second. While the Alberta Party would have had a great advantage if they had a seat in the legislature, this result shows that they can be a credible threat for change in the future.
6. Can the NDP actualize their high poll numbers in Edmonton?
The NDP should not do well in Edmonton-Whitemud and yet they finished second. They nearly doubled the number of votes they received in 2012. This is a big win for the NDP and does demonstrate that they could be in play in a number of areas across Edmonton.
There is a footnote to the Alberta Party and NDP gains and that is that each of these parties were able to focus solely on one riding, whereas the other three parties had multiple split focuses. All of the NDP resources were directed to Whitemud and all of the Alberta Party effort was directed to Elbow. The gains will have as much to do with hard work as they do with changing mood of the electorate and so I would be cautious to extrapolate too much of this success into a general election where efforts will be split up again.
7. Will the Liberals maintain relevance?
I wouldn’t call tonight a big win for the Libs but it wasn’t a big loss either. They essentially got 1,000 votes in all of the ridings but Foothills. Their vote total in Elbow grew and they only dropped 300 votes in each of Whitemud and West. They will still have challenges ahead but these results were respectable.
Prentice is being given a fair shot and he is being viewed as an agent of change – that is important for his future success, but I still think the leash is short. These were after all some pretty traditionally safe ridings for the Tories.
The Wildrose still needs to do some soul searching. They worked hard to adjust their policy manual but they did not capitalize on some significant discontent that fit squarely into their core messaging around a tired old PC party that needed to be changed. There may be a glass ceiling and there may be some structural issues that need resolving.
We need a new dynamic for progressive voters in Alberta. There is a sense that Alberta is changing, but I can’t imagine any of the Liberals, NDP or Alberta Party coalescing the votes on their own.
Finally, we should give serious consideration to a system of proportional representation. The PCs got 4 seats tonight with just 44% of the total vote while shutting out all of the opposition parties. Despite some very close races there is no voice being placed in the legislature for the thousands of people who voted today for the Wildrose, Liberal, NDP or Alberta party.
By-elections are being held in four ridings across Alberta on October 27th. This mini-election, of sorts, is needed to elect Premier Jim Prentice and two of his cabinet ministers to the legislative assembly. More importantly, the four races will serve as a weather vane in the rapidly shifting winds of politics in Alberta today.
In my opinion, the surprise addition of Calgary-West to the slate of ridings up for grabs was meant as a buffer for Premier Prentice. Losing one of three ridings looks worse than losing one of four. So what result do the PCs need? 4 for 4 would be a pretty big win for Jim, yet 2 of 4 in these ‘safe’ areas should be viewed as a considerable indictment of Alberta’s natural ruling party. If they pull out 3 wins (the most likely outcome) then it is easily spun as a good mandate for the new leadership with only a little collateral damage (all Alison’s fault) along the way.
2. Who will win Calgary-Elbow?
Education Minister Gordon Dirks is in the toughest spot of the four PC candidates. Alison Redford’s old riding will be a magnet for discontent and many voters will be motivated to punish the PCs. At the same time, opposition parties have had a target placed here ever since she resigned as Premier. Calgary-Foothills andEdmonton-Whitemud will likely go PC, Calgary-West is more challenging but Calgary-Elbow is very much up for grabs.
3. Can the Wildrose demonstrate growth?
As much as these by-elections are a test for the PCs, they should also be a big test for the Wildrose. Much of their support province-wide is in protest to a tired dynasty that has become riddled with scandal in the past few months. Simply put, the Wildrose has to be attracting voters who are looking to finally oust the PCs. If the Wildrose are going to be a big threat in 2016 then they should be attracting lots of voters in these by-elections. Look to see how many votes they secure. In 2012, they secured almost 20,000 votes across the four ridings and despite likely low turnout in a by-election the Wildrose should be able to demonstrate growth across the board. If they can’t identify and pull more than 20,000 votes it may be an indication that the government-in-waiting will have difficulty breaking through it’s 2012 ceiling.
By-elections have little result on the makeup of government and so people are less likely to make the trek to the polls. This opportunity though includes some big names at a critical time. A little over 65,000 voters came out to vote in these four ridings in 2012 – expect fewer next Monday, but call it a big news story if turnout has grown. A low turnout will indicate more comfort with the status quo but high turnout will show motivation for change.
5. Will Greg Clark be a difference maker in Elbow?
Greg Clark is the new leader of the Alberta party and his campaign has some big fire power behind him in the form of former PC and Liberal provincial campaign managers Stephen Carter and Corey Hogan, respectively. The Elbow race is critical for the future of the Alberta party. After dismal showings from strong candidates in 2012 the new kids on the block need a win (or at worst a very strong 3rd) here to remain viable as a party. If Clark does take the seat, then the party gets an important toe-hold and could be well positioned to seriously change the political dynamic in Alberta in 2016.
6. Can the NDP actualize their high poll numbers in Edmonton?
I don’t anticipate the Alberta Liberals winning any of these seats, but a poor showing will be a disastrous signal for the party. In 2012, only their incumbent MLAs held their seats and since then the party has looked more like a group of individual MLAs that happen to have offices near each other. Two of those MLAs are about to jump to run federally and if progressive voters coalesce around other parties next week it will be a sign of big trouble for the grits. The saving grace, though, is that the party has attracted some good name candidates in Susan Wright (Elbow) and Donna Wilson (Whitemud). The Liberals should be getting around 1,000 votes in each riding and significantly less would be problematic.
So, you’re a former capital region mayor, who was popular as mayor, has good progressive credentials and now finds themselves on the inside of provincial government. You might be looking in the mirror today, thinking about the health portfolio and wondering how the world unfolded to put you where you are today. If this is you, then you’re not alone.
Sure, you might be Stephen Mandel, but you might also be Cathy Oleson, Ken Lemke or George Rogers, for that matter.
There is an important distinction however between Sherwood Park MLA Cathy Oleson and Health Minister Stephen Mandel. Oleson was elected to office by discussing her views on provincial healthcare (amongst other issues) with constituents as part of an election. In fact, Oleson had to discuss healthcare extensively with Sherwood Park constituents who were unhappy with not getting the hospital that they felt they had been promised – and still got elected.
The fact that Stephen Mandel was chosen by Premier Jim Prentice to be health minister over, say, Cathy Oleson, or any of 57 other PC MLAs raises an important question: what is the status of the mandate given to the Progressive Conservatives in the 2012 election?
That mandate was a progressive mandate. It is common knowledge that the PCs won the election because progressives all across the province, in ridings like Sherwood Park, coalesced around the PCs in an effort to defeat the lake-of-fire and anti-climate-change views that became emblematic of the Wildrose Party. Oleson, Lemke, Rogers, and most of the other PC MLAs were elected with that progressive mandate.
It is important to note that while the Alberta public has since come to reject Alison Redford, they haven’t necessarily rejected that mandate. Redford was tossed aside not because of her policy but because of her personal ethics (Indeed, it could be well argued that she would have been safer if she had stayed true to her original policy directions). In fact, a group of PC MLAs who were largely progressives and were instrumental in her downfall are all now on the outside of cabinet looking in.
In the days leading up to Redford’s resignation as premier, a group of10 rebel MLAs started clandestine meetings to discuss the growing spending controversies of the premier. They included Oleson and Lemke, but also included Janice Sarich, Matt Jeneroux, Moe Amery, Neil Brown, Jacquie Fenske, Mary Anne Jablonski, and David Xiao. Arguably, these people did more to bring down Redford than anyone else at that time. Most of them were very much elected on that progressive mandate.
I suspect that these MLAs were motivated by uneasiness amongst their constituents and growing disappointment with the Redford government. Not just disappointment over the spending controversies but also disappointment over the abandonment of the mandate that voters gave to the PCs in 2012.
So, does the appointment of outsiders like Mandel and Education Minister Gordon Dirks over these 10 MLAs speak to a rejection of the 2012 PC mandate or will the new Prentice government embrace that mandate that its caucus was elected on? Time will tell.
However, if Prentice wants to pursue a new direction then he needs to obtain it from the electorate. A set of by-elections may provide him with a limited new mandate, but then he has to fight those by-elections with a clear policy agenda and not just vague messages of change or accountability. Only then will he have the authority to change the policy directions given to government. If he doesn’t get that permission from voters, then he has an obligation to follow up on the commitments that got his MLAs elected.