Was Ralph Klein a Great Premier?

 I have three questions for Ralph Klein's admirers in both of our major provincial parties.


First, wasn't it a good investment for federal and provincial governments
to lavish money upon the City of Calgary for the 1988 Olympics, even though
they were both up to their eyeballs in debt at the time? Should they really have waited until they had paid down their debts first, as Klein would later say about public infrastructure spending (though not when he was the Mayor of Calgary and gratefully accepting this money)?

Second, why is it wrong to mortgage our children's future through fiscal
means, but perfectly okay to mortgage our childrens' future by using up the
revenue from their non-renewable resources to subsidize current consumption
through lower taxes and paying off debts incurred in the past?

Third, do Martha and Henry wait until their mortgage is completely paid off
before buying things that will advantage their kids' health, education,
welfare and happiness? Do they even sell many of their most precious assets in order to do so?  If not, then why should our government?

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Ralph Klein was one of those larger-than-life figures who emerges in politics from time to time, a populist politician with the common touch who respected everyone who was willing to do an honest day's work.  His strong personal conviction, his determination to do what he set out to accomplish and to brave  the political risks of doing so--and his deep personal humility, as when he confessed to his drinking problem after the unfortunate incident in an Edmonton homeless shelter--all point to the verdict that he was a great person.

But was he truly a great premier?  Preston Manning  and Danielle Smith certainly think so.  They point to his fiscal record and his willingness to cut services and experiment with health care in order to eliminate the debt without raising tax rates as a great achievement which "left  Alberta  stronger than when he found it".  (Did it?)They see him as second only to Ernest Manning as the greatest premier in Alberta history.  Premier Alison Redford also greatly admires Klein, both as a politician and as a human being, but has also implicitly criticized his  one-dimensional prioritizing  of deficit elimination in her references to the neglect of infrastructure spending during the past decade--a neglect that she is trying to remedy now, even at the cost of  once more going billions of dollars into debt.

Clearly then, the debate over Ralph's policies, and whether he was as good or better than Peter Lougheed as a model to follow, is more than just a parlour game for political junkies. For Alberta's choice of heroes lies at the very heart of what is currently at issue in Alberta public policy and politics.

My own view is that Klein's stress upon the single overarching goal of debt elimination, while impressive as an accomplishment and obviously beneficial in certain respects, was not the wisest strategy for the government, then or now. Debt reduction should be a predominant goal when debt-to-GDP is either comparatively or historically high. But once it is under control, other goals--such as building new infrastructure for Canada's richest and still fast-growing province, replenishing Alberta's Heritage Trust Fund for future generations, reducing dependence on energy revenue and investing in other potential sources of comparative advantage for the province--become relatively more important. Low taxes, low royalties, and low debt are important aspects of Ralph Klein's legacy. But so too are the depleted Heritage Fund,  half a billion dollars' worth of unrepaired and unrenovated schools in Edmonton; an un-twinned and potholed highway to Fort McMurray; and the current attack upon Alberta's universities.

Premier  Redford got off to a rocky start when she tried to combine a Klein-like dependence  upon energy revenues with a very un-Klein-like optimism about the price of oil.  Now she combines Klein-like flat income taxes along with no PST or medical premium, all the while insisting, pace Peter Lougheed, that billions must be spent on infrastructure  ("paying for schools without paying for teachers to work in them," as one friend of mine put it.) She cannot have it both ways, as Ralph Klein did when he was mayor and debt-ridden federal and provincial governments lavished infrastructure money upon his city for the 1988 Olympics; for the most part, she has to raise her own taxes.

She should realize that she cannot win the race with Danielle Smith to be a Ralph Klein -clone. Nor should she want to. Her task is to remind Albertans that it is Peter Lougheed, not Klein or Manning, who deserves to be remembered as its greatest premier.

A Calculated Incoherence: the 2013 Federal Budget

I have seen several federal budgets cause more commotion than the one that came down in Ottawa last week.   Yet there are several things about it that I find deeply disturbing.  One is its determination to swim against the historical trend by imposing a new top-down shared cost program on the provinces: a “Canada Job Grant” that will not be introduced until the election year of 2014-2015 (though you can be sure it will be frequently referred to in government ads between now and then).   Add to that a feature that has been called workfare for First Nations.    

                                                                                                                   

The self-contradictory and incoherent nature of this budget is most apparent when viewed in a larger context.   The government brags about “closing loop-holes” in the tax system. This may be a great way to claw back $4.4 billion in revenue, but it is ironic when you consider that for years this government was unusually guilty of putting loopholes in the tax code in the first place.  Indeed, Canada ‘s “Economic Action Plan”  added an additional $105 billion to the national debt not only  to build infrastructure, but in order to pay for things like GST cuts and tax expenditures for the middle-class on everything from children’s’ sports to daycare. Some of these expenditures were better than nothing, but they were not the most effective way to fight the recession, and they certainly did not create a very good national daycare system, as shown dramatically by a recent report from UNICEF, which placed Canada tied for last place among 25 developed countries for the quality of its early child care services.   And then there is the government’s breath-taking rush to sign so-called free trade deals, which will make drugs more expensive and even raise tariffs on imports from 72 developing countries--costing consumers hundreds of millions of dollars.  

But underlying each of these politically questionable policy judgments lies a simple, constant un-erring calculation: that this government will only need 37-38% of the popular vote in the next federal election in order to gain another majority government.  In other words, it knows that it can afford to offend the Quebec government, sell working class families short, and impose a job training scheme upon provinces and First Nations.   In that respect, at least, this government’s math is probably correct.

Will Dix Flip-Flop on the Northern Gateway Pipeline?

Regardless of who wins the next provincial election, the subject of the Gateway pipeline will not go away.

1.  Dix Will Need the Money. Current budget balance not assured of continuing.

2.  Let's Face it, the prospect of Bitumen Being transported in coastal waters is the real intractable environmental issue that horrifies  British Columbians, not the pipeline itself.  If Black's proposal for a refinery in Kitimat is feasible, that will be a non-issue--and a good number of well-paid jobs will be created in B.C.

3. Giving First Nations equity in the pipeline, perhaps as a condition of Treaty settlements along the pipeline route, would remove most other serious objections.

4. Environmentalists still don't like developing the Alberta oil (tar) sands. But if a commitment to funding some technological advances down the road (reducing the costs of carbon sequestration, thorium-fuelled nuclear power to reduce energy costs) is put in place, perhaps this objection too can be overcome in time.

So, will Dix  change his mind about the pipeline? If all of the above conditions are met, maybe we should  hope that he does.

Justin Trudeau on Proportional Representation

I am afraid that this may be the most significant result of the Liberal leadership contest: a leader who is not committed to changing the electoral system. As a young man, he may well be content to just be Leader of the Opposition after the next election and then win a big majority-by-default when Conservative support is finally exhausted in 2017-2019.

This implies a comfort level with a whole established style of government, a different set of policies but played according to the same basic political rules of the game.

See http://www.fairvote.ca/en/press-release/2013-03-05/justin-understands-you-want-proportional-representation-but-you-don-t-get-i

It may be that Trudeau and other Liberals are leaning toward the Alternative Vote because of the failure of  PR-List  (MMP) in the Ontario referendum, so they latched onto this idea in order to have a democratic reform idea to talk about.  But the Alternative Vote simply doesn't speak to the kind of national unity problems inherent to Canada's single-member plurality system.  Diffused preferences are still discriminated against under the AV.  It also doesn't speak to the principle of making every vote count equally.  Here's a quote from the Fair Vote website:

 "Our organization has been distracted lately by a conflict within our Toronto Chapter. Some of our members are also principals in a campaign promoting a preferential ballot in the current single-member wards for election of Toronto city council.

This would not be a proportional voting system, and would be an example of the system called Alternative Vote or Instant Runoff Voting, a winner-take-all system like our current first-past-the-post voting system.

Fair Vote Canada has always taken the position that this type of system, while appropriate for electing a single-holder office like mayor or party leader, is a false reform and unsuitable for electing any sort of deliberative assembly, where the purpose is not to pick winners and losers, but to ensure that every vote counts and all voters have a voice."

Has Alison Redford Lost Her Nerve?

Yesterday's awful Alberta budget, which pussyfoots around the deficit issue by dividing the budget into three separate accounts, avoided  both raising taxes and having massive across-the-board cuts by going  into debt. To be precise, $4.3 billion in infrastructure borrowing plus a $2 billion operating deficit.  Universities that had been  led to believe that there would be a  2% increase in their budgets this year instead face a 7.2% cut. Other non-health areas are basically frozen, although the threshold for achieving seniors benefits is being raised ( a move that Redford may end up regretting).

There is a consensus among economic experts  that we are overly dependent on energy royalties, and there is a near-consensus that the royalties themselves are too low.  We had already depleted our Heritage Trust Fund, and now we have drained the Sustainability Fund. And we need more revenue to build infrastructure for a province that is expected to add a million  to its population.  Redford knows this, and at various times has said as much. She has also been explicitly critical of Ralph Klein's neglect of infrastructure spending  and has invoked the memory of Peter Lougheed and the need to replenish the Heritage Trust Fund.  So why isn't she doing the right thing and raising some tax revenue?

The political calculation appears to be that the best way to minimize the political costs is to rack  up debt and put it in a separate capital account.  Perhaps this seems justified because  the Wildrose Alliance could score more points against the government in the short run if there were tax increases. But that does not address the real underlying problem.We won't wean ourselves off dependence on energy revenues through borrowing. Borrowing should be kept at a modest, manageable level by balancing them with revenue increases from a non-energy source. And I am willing to bet that Redford will do better politically if she does the opposite of this ridiculous tap-dance and  starts levelling with Alberta's citizens.

Redford should be able to effectively defend a progressive income tax, given that the flat tax is clearly a luxury that we can no longer afford, given that no other province has a flat tax, given that the majority of Albertans (those earning less than $70,000) would likely be better off, and given that there is such an impressive intellectual consensus from all corners of the ideological spectrum that either progressive  taxes or sales taxes should be re-instituted.

Of course, there is a problem caused by the messages sent by Redford during last spring's election campaign.  She may have painted herself into a political corner by predicting a balanced budget on the basis of only mildly conservative revenue estimates. This revealed  a flaw:  it doesn't make sense to have a Klein-like dependence on energy revenues without a Klein -like low-balling of revenues.  The resulting half-way house is an unstable structure, politically as well as economically.

This government still has time to get itself out of this unsightly mess. It may actually be politically wise to spend a year imposing restraint on the spending front so that Albertans can be made more aware  of the costs of cuts, before trying to persuade them of the need for a progressive income tax (or a medical care premium, higher corporate taxes, or higher royalties). So, perhaps this government will fully correct its course in next year's 2014 budget.

The premier should relish the thought of taking on Danielle Smith. The latter is more telegenic and possesses the more formidable personality, but she does not have the strongest arguments. The majority of Albertans can be made to rally behind Redford -- if she is willing to take a stand.   In my estimation, she has about a year to do this. At most, two years.

If she doesn't--and continues to send a mixed and confusing signal that pleases almost no one--she will almost certainly lose the next election to Danielle Smith and the Wildrose Party.  Alberta deserves a clear, fiscally lucid government that is as true to the legacy of Peter Lougheed as the Wildrose Party is to the legacy of Ralph Klein. 

If only Christy Clark had left sooner ...

Today's call by Gordon Campbell's former Chief of Staff Martyn Brown for Christy Clark to resign in order for the Liberals to rebuild raises an interesting question: how much difference could it make?

If Christy had left last year, George Abbott or Kevin Falcon would have made the upcoming election more competitive--but they had been fully committed to the HST, among other things in their closets full of baggage.

Clark had one big advantage--having been out of office during the formulation and implementation of the HST, she was better positioned to  have boldly braved the political and fiscal difficulties of jettisoning the HST altogether.

Had she done that, Bill Tieleman and Bill Vander Zalm would have had nothing to campaign about. Shop keepers would have been spared the ennervation, as would have their customers (you).  We would all view the Liberals differently--much as a bored spouse would,  instead of as an angry one itching for a divorce.

And SHE could have taken credit for getting rid of it--she could plausibly have claimed to have been the real change. Instead, she toyed with the idea of calling a snap election, which was legally and politically difficult. And then she starting modifying and fiddling with the HST, while her popularity plummeted and a snap election was no longer viable.

And she has looked weak and vacillating ever since. Her one big opportunity to turn things around was exhausted, and none of her little splashes could even hope to turn the tide.

As recently as last fall, she could have postponed the election, possibly under the cover of accepting  democratic reforms proposed by independent MLAs Bob Simpson, Vicki Huntington,and John Van Dongen.  And she could have used that time for big policy renewal, including name change and even merger talks with Conservatives (although she is too much of a federal liberal to seriously consider that).

On this latter point, someone else really would be better--Abbott, Falcon, or even former Vancouver mayor Sam Sullivan or prominent lawyer Andrew Wilkinson.

But it is way too late to avoid an NDP government if an election is held in May, as it is scheduled to do by legislation. Way, way too late.

A Progressive Consumption Tax for B.C. and Alberta?

Debates have been swirling in both of Canada's westernmost  provinces about how to fairly, efficiently and effectively tax citizens in a manner that is politically acceptable.  The fate of the B.C. Liberal Party, which became hugely unpopular because of the way that it handled the Harmonized Sales Tax (HST),  has no doubt informed Alberta premier Alison Redford's announced decision not to proceed with a provincial sales tax in that province--notwithstanding a $4 billion deficit that has arisen due to lower-than-expected energy revenues.

Academics and pundits are equally divided on how we should proceed.  Generally speaking, progressives oppose doing more of what Gordon Campbell did--replacing progressive income taxes with regressive consumption taxes--even though the latter arguably do more to promote saving and investment. Conversely, many economists also oppose raising progressive income taxes because of the effects on incentives to work and invest.  

That is why it is worth considering an option put forward by American economist Robert H. Frank as a way to tax that unlike income and capital gains taxes,  would discourage neither work nor savings; and, unlike a sales tax, would not be regressive. 

It is called the progressive consumption tax. It would work this way: 

"The progressive consumption tax would operate under a system similar to our current tax structure with a few key differences. You'd report your income and savings to the IRS. Then, using the formula "Income - Savings = Consumption," you'd calculate your total consumption for the year. After subtracting a deduction at the "basic necessities" level of consumption, you'd arrive at your taxable consumption. Rates would start very low and rise steeply from there."   ( Andrew Hanson, 2012.)

 Adrian Dix might want to ask his deputy-in-waiting, economist Donald Wright, about this idea.  But the person who should really be considering it is Alberta's premier Redford.   She is caught between a rock and a hard place due to a glut of shale gas, increased American oil production, and a lack of pipelines.  She has a bit of a spending problem, but mainly she has a problem that stems from being overly-dependent upon energy revenues. She risks being hammered if she introduces a sales tax, but a progressive income tax is not without its political risks as well.

A progressive consumption tax would be a way of steering between these two policy options in a way that would only penalize high income-earners if they engaged in ostentatious spending. It would capture badly needed revenue without burdening ordinary families in the way that a PST would.  And it would be an interesting policy innovation for the country as a whole.