It's Ralph vs. Rachel in Alberta this election


National Post, 28 March 2019

Alberta can't tax its way back to fiscal health. Spending restraint a la Ralph Klein is the answer, argues author Mike Milke

Albertans go to the polls on April 16, choosing between Don Getty and Ralph Klein for premier. Or close enough. The incumbent New Democrats are Don Getty come back to life, with a side serving of Trudeau-esque identity politics. The United Conservative Party might be the return of Ralph Klein.

That’s more or less the message of one of the most interesting books on fiscal policy I have read. Yes, I grudgingly concede that it is possible that some of my readers may not find fiscal policy quite as interesting as we economists do, but I would recommend giving Mark Milke — an old Calgary friend of mine — a try. His latest, Ralph vs. Rachel: A Tale of Two Alberta Premiers, is a relatively easy read; it is not impenetrable academic prose. A newspaper columnist who can write for a wide audience, Milke challenges a lot of what we think we know about recent fiscal policy.

The heart of Milke’s argument is that historically profligate Alberta — which still has the highest per-capita government spending in the nation — cannot, when energy revenues fall, tax its way back to fiscal responsibility and greater business investment. Spending restraint is the answer.

Milke submits that Getty’s Progressive Conservatives, 1985-1992, attempted the former and failed. Klein, 1992-2006, implemented the latter and succeeded. The Rachel Notley New Democrats have followed the Getty model, Milke argues, with the same results.

“In 1993 and 2015, two Alberta premiers faced similar economic and fiscal challenges: low or declining energy prices, a weak economy and relatively high government spending by their predecessors,” writes Milke of the situations facing Klein in 1993 and Notley in 2015. “The differences: Notley was forced to grapple with a steeper oil-price drop just as she entered office and anti-Alberta policies from politicians elsewhere in the country; Klein played cleanup for every fiscal problem the Progressive Conservatives let lapse or exacerbated since 1986 and faced significantly higher interest rates.”

Klein and Notley provide about as close a comparison as one can get in the real world of economic fluctuations. Klein was helped by modestly recovering oil prices but hammered by high interest rates on accumulated debt; Notley’s deficit spending has been with cheap debt and more slowly recovering oil prices. Call it a wash and compare the results.

Klein introduced deep spending cuts, as much as 20 per cent. Many Albertans howled, though Alberta’s cuts were simply a return to what most other Canadians, per capita, had long been accustomed to. The fiscal results were impressive.

“Candidate Klein promised a balanced budget in four years and Premier Klein delivered in two,” notes Milke. “Candidate Notley promised three deficit years and then a $25-million surplus by 2019. Premier Notley’s commitment was dead on arrival once the NDP gained power. In power, the NDP modified their balanced budget promise to 2020 and then 2023. It was the late 1980s Progressive Conservative Getty government all over again.”

Klein’s balanced budgets and then surpluses permitted the government to go debt-free by 2005. A government free of debt-service costs can keep taxes low, attracting investment and economic growth, or expand spending. In his first years as premier, Klein faced annual debt-service charges of close to $3 billion. When Alberta became debt-free, that was $3 billion more that Albertans had in tax savings or new spending.

The extravagant spending of Klein’s PC successors — Ed Stelmach, Alison Redford and Jim Prentice — left Alberta with a debt service cost of $722 million in 2015. By 2018, with expanded NDP spending and higher taxes — corporate taxes and carbon taxes — the debt service was up to $1.9 billion. By 2021, it is projected to reach $3 billion. By way of comparison, that would be 15 per cent of health spending, or nearly 50 per cent of social service spending in 2021.

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