Fraser Forum

Government policy in 2019, particularly in Ottawa, will be crucial to resolving export constraints

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Albertans came into 2018 hoping for a continuation—or acceleration—of the province’s fragile economic recovery. With the province lingering below its pre-recession private-sector employment levels, economic growth is crucial to putting people back to work. Unfortunately, by many important metrics this was a lost year for Alberta’s economy.

The recent recession took a major toll on private-sector employment in Alberta. According to Statistics Canada’s Labour Force Survey, private-sector employment decreased by nearly 100,000 between January of 2015 and January 2016. That’s a staggering decline in a short period of time. Despite the fact that the provincial economy has been on the mend, private-sector employment was still down by 60,000 jobs by December of 2017, meaning that strong private-sector job growth was still needed to get Alberta back to where it was in January of 2015.

While private-sector employment in the province has indeed grown this year, employment among private-sector workers in Alberta was still down nearly 30,000 as of November compared to January 2015. This means that the province will need at least another year of employment growth just to get back to 2015 private-sector employment levels.

Given the size of the province’s natural resource sector, it’s not surprising to see employment volatility as global commodity prices swing, which is something the provincial government has no control over. But there are ways public policy has likely hindered job growth including the lack of export capacity for the province’s energy resources. In particular, a lack of access to international markets that keep Alberta reliant on the American market. The challenges of that reliance have been amplified by happenstance, such as the temporary shutdown of a major Midwestern refinery and by legal barriers to pipelines south of the border. The lack of export capacity lead to a major decline in the price of Western Canadian Select oil, meaning that the recovery in global oil prices had a muted effect in Alberta, causing many Alberta companies to voluntarily reduce oil production, and culminating in output restrictions by the provincial government.

The energy sector will get a bit of relief when Enbridge’s Line 3 replacement comes online in 2019, but the province will still face export restrictions including a lack of access to international markets that could be resolved if the Trans Mountain Expansion project can move ahead in a timely manner. Government policy, particularly at the federal level, will be crucial in deciding whether these export constraints will be resolved in the future.

Less visible, but also important, have been increases to personal and corporate income taxes. High marginal tax rates reduce the incentives for companies to invest in the province, and for highly mobile workers to pursue opportunities here. Though tax policy won’t be a silver bullet, better incentives to invest would help.

To some, those tax increases might seem justified in light of the fact that the province’s string of multi-billion dollar deficits. However, those deficits have been driven largely by the province’s long standing habit of increasing program spending above the combined rate of inflation plus population growth—and the tax increases certainly have not stopped the province’s debt accumulation. Between 2007/08 and 2017/18, program spending increased by an average of 6 percent annually in nominal terms. By contrast, the combined rate of population and price growth was just under four per cent.

Coincidentally, the province has been running nearly uninterrupted deficits since 2008/09. While most of that growth was attributable to previous governments, the current government increased program spending by an average of 4.7 per cent between 2015/16 and 2017/18, while the combined rate of inflation and population growth was only 2.7 per cent. In other words, more of the same.

After a difficult few years, hopefully Albertans can look forward to a more prosperous 2019. Public policy will play an important role in determining whether or not that happens.