Which path will Alberta’s NDP government take?
Once the euphoria of the Alberta NDP’s historic election victory subsides, Premier-elect Notley and her leadership team will have to make a fundamental decision about the fiscal-policy path the new government will pursue. This decision will shape the immediate and future prosperity of Albertans.
Too often people confuse political branding with the policies implemented by a government. For instance, it’s fair to say that the federal Liberals between 1995 and 2002 were one of the most fiscally prudent federal governments in modern history. Similarly, during their reign in the 1990s and 2000s, the Saskatchewan NDP implemented a series of fiscally prudent policies. Alternatively, there are many instances where Conservative governments across the country didn’t actually implement fiscally “conservative” policies.
Simply put: what matters are the policies that a government implements—not its political branding.
The Notley government must now decide what policies it will pursue over its tenure. When it comes to fiscal policy, the Saskatchewan NDP of the 1990s and early 2000s offer ideas worthy of serious consideration.
Consider that Saskatchewan’s NDP was the first Canadian government to seriously and genuinely tackle its deficit problem in the 1990s. In fact, it was the first government to actually reduce nominal spending to balance its books.
The Saskatchewan NDP government tabled a budget in 1992 that reduced the deficit by relying mainly on spending cuts (although there were some tax increases). Subsequent budgets maintained this commitment with additional reductions in nominal program spending, amounting to a seven per cent reduction over two years. These reforms led to a balanced operating budget in 1994/95.
Successive balanced budgets ultimately opened the door to major tax reforms in the 2000s geared toward making Saskatchewan competitive in attracting and retaining high-skilled workers, investors and businesses.
The first set of reforms, announced in the NDP’s 2000 budget, focused on personal income taxes. Shortly after, in the 2006 budget (following the recommendations from Saskatchewan’s Business Tax Committee Review) the NDP government announced major reforms to the business tax regime including elimination of the highly damaging general corporate capital tax and reduction of the corporate income tax from 17 to 12 per cent.
The alternative path for the Notley government is the model of the Ontario NDP or the British Columbia NDP. In both cases, these parties were much more ideologically driven in the 1990s with respect to policy than their more pragmatic brethren in Saskatchewan during the 1990s and early 2000s.
After a surprising election victory, the Ontario NDP pursued an ideological agenda. Spending and taxes increased dramatically, though not enough to balance the budget, leading to large-scale borrowing. There was very little fiscal discipline applied in the province until the reality of budget arithmetic set in.
After several years of runaway spending and relentless tax increases, the Ontario NDP was forced to markedly change course. It restrained spending (remember Rae days) and even introduced some targeted tax relief. But it was too little, too late. The fiscal fiasco of the Ontario NDP laid the foundation for the reformist government of Mike Harris and the Conservatives in 1995.
The choice before the Notley government is whether to pursue pragmatic policies in a challenging environment with low energy prices, large deficits and the erosion of Alberta’s tax advantage.
The practical solution is to reduce and reform spending so that better results are produced with fewer resources. Incidentally, this is exactly what provinces like Saskatchewan and Alberta did in the 1990s—under two very different political “labels”—when they faced similar circumstances. It also means avoiding tax increases, particularly those that reduce competitiveness and the incentives for investment and entrepreneurship.
Such a combination would lay the foundation for a prosperous Alberta. The alternative path will have predictable results as demonstrated by the economic experiences of Ontario and B.C.
Sound policies based on real-world experiences can result in good economics regardless of political branding.
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