With Ralph Klein’s passing, many have tried to find a constant theme in his political life. The late premier was, to be sure, a populist. What else explains his reputation as a big spender when mayor of Calgary and then his switch to a prudent premier?
The explanation is not complicated: once the bills come due, even a populist politician will change course when the public sours on policy gimmicks, when they demand a government focus on the basics. That includes not bankrupting public finances or assuming taxpayers can be increasingly gouged to pay for political vote buying.
In late 1992 when Klein assumed the Alberta premier’s chair, here’s what he faced: the province hadn’t balanced its books since the budget year that ended in March 1985. Also, since the mid-1980s, interest rates set by the Bank of Canada ranged from a high of 14 per cent to a “low” of just over five per cent. In other words, looking forward, more government borrowing was reasonably thought to be fiscal suicide.
In 1993, Klein’s first full year as premier, interest on the provincial debt hit $1.4 billion. To put that in context, let’s contrast debt interest with program spending. That year, $1.4 billion in debt interest was equivalent to 33 per cent of Alberta’s health care expenses or 75 per cent of the cost of social services.
That reality is why Klein’s government cut spending as its first priority; interest payments increasingly prevented other options, be it on programs beyond just the immediate years, or on the opportunity for tax relief.
The last Klein-era deficit was in fiscal 1994, the reduction in debt started in 1995, and the resulting decline in interest payments (beginning in 1996) allowed Klein, his Finance Minister Jim Dinning and their colleagues, to create what the government tagged as the “Alberta Advantage.” It included a reduction in business and personal taxes and a move away from punishing multi-bracket personal tax rates to a single tax rate on Albertans.
Also useful in the creation of the Alberta Advantage was how the Klein government exited the business of being in business. Starting in 1993, the Klein government privatized all government liquor stores. In 1994, every single vehicle license registry was turned over to the private sector. In 1996, the past practice of government loan guarantees to corporations started under Peter Lougheed and which cost taxpayers $2.2 billion by the early 1990s, was mostly stopped.
Fast forward to the year Klein retired from politics, 2006; Alberta’s books were in tremendous shape. In Klein’s first budget year (1993/94), Alberta’s net financial debt stood at $8.3 billion. When the final numbers were in on Klein’s last budget, the 2006/07 budget, Alberta possessed net financial assets of $36 billion, a $44.3-billion turnaround in Alberta’s finances in 14 years.
By the end of the Klein era, Albertans thrived. This was not what the critics expected. They thought when governments withdrew from parts of the economy—from borrowing, from public spending as the presumed remedy to every private problem, from corporate welfare—that Alberta’s economy would crater.
But Alberta’s didn’t. In the 1990s, in the years immediately following the budget cuts, Alberta’s economic growth was stronger than the Canadian average with in every year but one. Also, in 1992, the year Klein became premier, Alberta’s unemployment rate was 9.5 per cent; that dropped to 3.4 per cent by the time Klein left office in 2006.
No person or politician is perfect. The late premier never took on the vested interests that have a quasi-monopoly grip on health care delivery. In education, the province did allow for experiments in charter schools but enacted few substantial reforms beyond that. That left a problem for future governments given how those two sectors represent two-thirds of provincial program spending.
Some argue Klein and his colleagues were lucky, that oil and gas allows any politician to look good. Not so. Plenty of politicians in other resource-rich economies from Russia to Argentina and from California to Quebec can and do torpedo prosperity. They do so with ill-advised policies, ones that hinder people from getting a job and which prevent families from building a prosperous life.
In Alberta, Klein was a memorable premier because he had the humility to recognize that government cannot do everything. Governments can and should set the basic “rules of the game,” enact sensible and not punishing regulations and tax rates, and then allow everyone to prosper.
So what was Klein’s legacy? No debt, moderate taxes, neutrality in the marketplace and thus policies that benefit families most of all. That is why so many of them moved to Alberta, found work, and prospered.