Alberta Prosperity: A Plan for Opportunity and Growth
Alberta faces substantial fiscal and economic challenges. The downturn in commodity prices that began in 2014 triggered a severe recession and exacerbated pre-existing fiscal challenges. Unfortunately, provincial government policy has made matters worse and severely impeded genuine recovery in several important ways. The deficit remains stubbornly high due to continued growth in government spending, substantial tax increases have undermined economic competitiveness, and Alberta has generally found it harder to attract investment because a growing regulatory burden has created additional costs and uncertainty.
For decades, Alberta has been one of the most prosperous jurisdictions in the world. To maximize its prospects for a prosperous future, the province needs a robust, comprehensive policy response commensurate to the magnitude of the challenges it faces. This publication summarizes a series of research papers conducted over the past three years that shed light on just what that policy response should be.
Before turning to solutions, it is important to answer the question: “How did we get here?” The Introduction explains the extent of the economic and fiscal challenges facing Alberta and shows how public policy choices have contributed to them over time. More specifically, it shows that rapid spending growth during better economic times and continued spending growth following the commodity price downturn are responsible for Alberta’s daunting budget deficit.
The rest of the essays in this collected series detail the policy road map Alberta needs to follow to return to economic prosperity. For instance, it’s clear that Alberta’s overall tax competitiveness has declined, which has negative implications for the province’s attractiveness as a destination for investment, entrepreneurs, and skilled professionals. The tax policy essays explain how and why personal and business income taxes should be reduced, the provincial carbon tax eliminated, and how personal capital gains can be eliminated at the provincial level.
The essays in Section 1 show how the province can balance its budget over a three-year period while offering substantial tax relief as summarized above. Specifically, the province will have to reduce nominal program spending by 10.9 percent over the next three years to achieve a balanced budget while implementing tax reductions. The spending cuts will likely be less than 10.9 percent as entrepreneurs, business owners, investors, and workers respond to the new economic incentives linked with lower taxes, which would improve economic growth and thus government revenues.
As the experience of the 1990s demonstrated, spending cuts coupled with reforms offer an opportunity to achieve more with less by thinking more innovatively about program delivery and better prioritizing existing spending. Currently, for instance, Alberta is a high spender on health care but its performance is modest, at best. Reforms such as contracting out services, pooled referrals, facilitating a parallel private system to alleviate stress on the public health system, and allowing physicians to work in both the private and public sectors, to name a few of the reforms discussed, offer real opportunities to improve the health care system based on observed policies in other successful industrialized countries that maintain universal health care.
Similarly, the essay on K-12 education policy reform shows how Alberta can improve its relatively expensive K-12 education system by expanding the use of charter schools, experimenting with teacher incentive pay, ensuring open enrolment between school boundaries, increasing subsidies for lower-income families to attend independent schools based on the Australian experience, and changing eligibility rules for independent schools to include for-profit schools as Sweden did in the 1990s. In addition, the essay outlines lessons Alberta could replicate from British Columbia, which has one of the country’s most successful provincial K-12 education systems.
Finally, the essays in Section 2 also document the continued compensation premium between government workers and comparable private sector workers for both wages and benefits. Given that over one-third of provincial spending is consumed by compensation costs, any spending reduction plan should include consideration of closing this gap.
Section 3 examines regulatory reform and how it can contribute to Alberta’s growth and prosperity. Worryingly, in their responses to the Fraser Institute’s annual Global Petroleum Survey, investors in the petroleum industry are now expressing a great deal of concern about the province’s policy environment and regulatory practices. The essays in Section 3 draw on insights from empirical evidence from around the world to illuminate best practices, showing how smarter regulation can produce a stronger, more prosperous Alberta.
Alberta’s challenges are daunting and require a comprehensive and energetic policy response. The research summarized in this publication shows the extent of the problems, analyzes their causes, and points the way towards a public policy framework that can contribute to growth and prosperity for Alberta’s current residents and for future generations.