Op-eds | February 23, 2015
Opinion: Klein’s policies got us into this mess
Budget cuts of 1990s did lasting damage
It’s curious how the proponents of the “cut first and ask questions later” approach to provincial budgeting continue trying to spread the myth Ralph Klein’s cuts in the 1990s were necessary, and that somehow Alberta and Albertans are better off because of them. It’s as if they believe that singing the same refrains over and over will make them true. But the reality is that these claims are as false today as they were back in 1993.
First among those refrains is the myth that Alberta’s debt and spending were “out of control” when Klein became premier. In 1992, Alberta’s accumulated debt (financial assets minus liabilities) stood at just over $8 billion, with most of that incurred after 1986. To put that number into perspective, combined subsidies to agriculture and oil and gas totalled $11.2 billion between 1986 and 1992. In other words, had Klein eliminated those subsidies, the debt would have disappeared in six years. Not much of a crisis, right?
Likewise, spending on public services in Alberta had already been steadily declining for six years when Klein took office. As late as 1992, the Don Getty government was boasting about having cut spending, in real terms, by close to $3 billion, or 15 per cent, between 1986 and 1992. Again, after six years of significant cuts to spending, it is difficult to fathom how anyone could realistically claim that spending was out of control.
It is important to highlight that all of this happened in the context of the price of oil having completely collapsed, going from a high of $40 in 1981 to a low of just $10 in 1986. It’s also important to remember that Alberta was by then already collecting a lower portion of its budget from corporate and individual taxes than any other province in the country.
So, with revenues from oil and gas dropping by more than 50 per cent practically overnight, the lowest taxation rates in the country, a 15-per-cent reduction in program spending over six years, and over $11.2 billion in subsidies to agriculture and oil and gas over the same period, we are expected to believe that, somehow, the best way to move forward in 1992 was to gut public spending and decimate public sector salaries.
All this is aggravated by the myth that Klein’s austerity policies were responsible for paying down the provincial debt. What this argument conveniently fail to remember was the fire sale on provincial government assets that Klein and his government oversaw, beginning with approximately half a billion dollars from the sale of Alberta’s remaining stock in Alberta Energy Company, followed quickly by the sell-off of Alberta’s registry offices and liquor stores.
All these public assets were sold at well below market value in order to get the cash into the province’s books as quickly as possible and make the bottom line look good. Of course, all of those assets were also sources of reliable and predictable revenue streams for the government, and AEC had the added benefit of providing Albertans with a direct stake in the province’s energy sector.
As for the long-term impact of Klein’s policies on Alberta, there can be little debate. Just as the international price of oil was starting to climb and the economy was recovering in the mid-1990s, Klein actually slowed down the economic recovery by putting thousands of people out of work and greatly reducing the purchasing power of those public servants who got to keep their jobs. Then to top it off, by refusing to invest in needed infrastructure, Klein successfully kept thousands of tradespeople and construction workers out of work while running up a multibillion-dollar infrastructure deficit.
He then further reduced the revenue Albertans were receiving from their natural resources by reducing government’s take and creating penny-on-the-dollar oilsands royalties, while simultaneously making us more dependent than ever on natural resource revenues by instituting the flat tax, which took more than $2 billion a year in tax revenue out of government coffers.
Ultimately, despite the chorus of ideologues arguing the contrary, Klein’s policies in the ’90s did permanent damage to our public services, hurt the economic recovery, made us more dependent on volatile oil prices, gutted government revenues, created an infrastructure deficit we’re still working to recover from, and left Albertans with next to nothing to show for our natural resource wealth. In other words, it is those policies that directly led to the economic and financial issues our province is grappling with today.
If Premier Jim Prentice is serious about securing Alberta’s future, the thoughtful evidence-based approach would suggest doing the exact opposite of Klein in the forthcoming budget.
Ricardo Acuna is executive director of the Parkland Institute, a public policy research institute in the faculty of arts at the University of Alberta.
Links to Media:
- The Way Forward: Progressive Income Tax in Alberta
- Stabilizing Alberta’s revenues: A common sense approach
- Room to Move: Alberta's taxes are too low
- Fixing What’s Broken: Fair and sustainable solutions to Alberta's revenue problems
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