CALGARY— Steep spending cuts and refusing to consider tax increases aren’t the answer to Alberta’s finance woes despite the stark findings of a government panel’s report, according to a paper from the Parkland Institute.

Raising taxes was explicitly ruled out-of-bounds by the United Conservative government when they appointed the panel. Charged with examining Alberta’s financial situation, the MacKinnon report — named after chair Janice MacKinnon — argued the province must make substantial budget cuts in a report made public last week. But both their findings and the Parkland Institute’s alternative point to the same problem: Alberta’s coffers rely too much on volatile resource revenues.

Broadly speaking, there are two ways to balance Alberta’s books: cut spending or raise revenue. The Parkland Institute report’s authors argue the latter — and weaning off resource royalties to handle provincial expenses — are the keys to addressing Alberta’s debt.

“The MacKinnon report’s failure to provide a comprehensive view of Alberta’s finances spills over into an alarming depiction of Alberta’s debt situation,” they wrote. “While we view it prudent to heed the warning signs, and there is some reason to worry about the debt in the medium-to longer-term, Alberta’s current debt is manageable. The key to addressing the debt, once again, is to deal with the province’s chronic revenue problems.”

Their report argued Alberta’s revenues simply aren’t enough to sustain the government services Albertans expect. Historically, the province’s coffers depend on resource royalties. During the last 40 years, they’ve accounted for anywhere from under 10 per cent to nearly 50 per cent of the province’s revenue. Thanks to falling global oil prices in 2014, personal income tax revenue is now Alberta’s largest source of revenue.

But Alberta has the lowest overall tax rate of any province in the country — and no provincial sales tax. As was seen in 2014, resource royalties can fluctuate widely during the oil and gas sector’s well-known boom and bust cycles, a fact even the MacKinnon report acknowledges. When times are good, it noted, the Alberta government’s spending increased — but downturns did not produce a corresponding cutback.

“Alberta has a structural budget problem, driven primarily by the volatility of resources revenues,” read a line from the MacKinnon report.

In response to grim warnings by the MacKinnon panel about the looming provincial debt, the Parkland Institute’s report said Albertans shouldn’t worry — at least, in the very short term. Alberta’s economy remains vibrant, its authors argued (although they acknowledge its main driver, the oil and gas industry, is in decline). The provincial government retains high credit ratings with ample liquidity.

Servicing Alberta’s debt in the medium-to-long term will be an issue if the economy doesn’t grow accordingly, they acknowledge.

However, they described the United Conservative government’s rhetoric about the province’s debt following their April election win as hyperbolic. They pointed to the situation facing former premier Ralph Klein on the eve of his first election win, especially given the high interest rates of the early 90s.

“Relative to the situation of the early 1990s, and contrary to some current rhetoric, Alberta’s debt is not currently an overwhelming problem,” they wrote.

The MacKinnon report’s breakdown of the Alberta government’s spending put a magnifying glass on health-care, education, and social services spending — typically among the most expensive ministries in a province. Alberta is overspending on all of them, the panel concluded, particularly health-care.

By contrast, the Parkland Institute report’s authors insist social services spending has been “relatively flat,” with education marginally higher. They admit health spending has increased the most, but took issue with the MacKinnon report’s notion that Alberta spends excessively on programs. In fact, it argued Alberta had the lowest relative expenditures compared to Ontario, B.C., and Quebec between 2000 and 2018.

“The impact of the recent economic slowdown and the increase in total expenditures since 2014 are obvious, but even taking this into account Alberta is still below all three comparator provinces in the most recent fiscal year,” the authors wrote.

The Parkland Institute’s report also said Alberta is a rich province despite a slowdown in oil and gas investment. In the last decade, the report’s authors concluded, Alberta’s earnings have consistently been the highest in Canada on average. Despite the most recent recession, average weekly earnings made by Alberta workers were about 10 per cent higher than those in May compared to the next-highest earning province — Saskatchewan.

Yet Alberta’s current reliance on the oil and gas industry to pad its coffers is a serious liability, the Parkland Institute’s authors warned. If resource royalties are taken out of the province’s historic revenue calculations, they found, Alberta would have run a deficit since 1965.

Instead, the Parkland Institute’s report concluded with two proposals. First, stop funding social programs with oil and gas royalties. Second, raise taxes. Neither idea was popular with either the United Conservatives or the NDP in the recent April provincial election as both NDP and UCP party leaders shot those possibilities down when asked on the campaign trail.

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The report suggests a four per cent provincial sales tax alone would bring in an additional $4 billion in revenue a year. Other taxes should also be raised, it notes, although the report’s authors recommend exceptions for low-income Albertans.

“While a sales tax is not a panacea for Alberta’s fiscal woes … such a consumption tax would reduce the vulnerability of Alberta’s public programs to the wild swings of borrowing, expenditure cutting, then rapidly increasing spending,” it read.

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