Tip for Tories: a grownup conversation about debt will pay political dividends

The House that Ralph built. Alberta mismanaged by market fundamentalists may not appear exactly as illustrated, but close enough. Below: Peter Lougheed, Alison Redford, Ralph Klein.

As Alberta’s Tories gather today in Calgary to celebrate Peter Lougheed leading them out of the Social Credit wilderness 41 years ago, they will expend plenty of energy feuding over disinviting their federal Conservative brethren from future affairs of this nature.

In the past, federal Conservatives have been automatically entitled to cast votes at Alberta Progressive Conservative bunfests like the Cowtown annual general meeting today and tomorrow.

But so many of Prime Minister Stephen Harper’s Alberta caucus tilted openly in favour of the radically market-fundamentalist Wild Rosehip Tea Party during last April’s provincial election that moves are afoot to sever the ties that bound.

Judging from her comments on CBC radio this morning, notwithstanding federal Conservative candidate Joan Crockatt’s Calgary-Centre by-election sign on her home’s front lawn, the idea of a Tory v. Tory political divorce appears to have Premier Redford’s imprimatur.

Certainly the Harperites have come to be seen in Ms. Redford’s inner circle as a Wildrose Fifth Column that needs to be driven from the encampment before the government faces, as they like to say in conservative circles, an existential crisis.

This will be entertaining, but it is nevertheless a pity since there are topics that could be more profitably pondered by the gathered Redford Tory weighty ones – indeed, by all Albertans. Prominent among them would be a grownup conversation about debt, deficits and fair taxation, issues that are certain to bedevil this party in the months ahead.

For an awfully long time now out here in the New West, the only people we’ve listened to on those particular subjects have been pre-Wildrose market-fundamentalists like Ralph Klein, our (un)Progressive Conservative premier from 1992 to 2006 who through his government’s mismanagement did so much damage to Alberta’s infrastructure and social fabric it could almost be described as vandalism.

Mr. Klein has now passed from the political scene, of course, to be replaced in 2006 by Ed Stelmach, who realized that he needed to move his party toward the centre for it to survive, and last year by Ms. Redford, who confirmed and proved the wisdom of her predecessor’s assessment.

But Mr. Klein’s neoconservative nostrums and notions continue to be the conventional wisdom many in his old party and everyone in Wildrose circles, all of it amplified through the media echo chamber. These include:

  1. All debt is bad. Always.
  2. All deficits are bad. Always.
  3. Revenue may never be increased, except by happenstance.
  4. And, of course, we should run our province’s budget as if it were our family’s budget.

The problem with this dogma, tattooed on the back of Wildrose Party Leader Danielle Smith’s left hand for easy reference during public meetings, is that it is mainly baloney, and contradictory to boot. (The bit about the tattoo was a joke. I don’t know Ms. Smith well enough to know if she has any tattoos. But you get the idea.)

Since the same fundamentalists and their media acolytes have persuaded us all for the moment that any kind of fair taxation – or even bothering to collect 100 per cent of the ludicrously low taxes and royalties we levy against some businesses – is just not on, this means reducing benefits to citizens, limiting public services and doing without needed facilities are the only mechanisms available to eliminate the supposed evils of deficits and debt.

One result here in Alberta, notwithstanding our famous petroleum revenues, is that we end up paying cash for everything so as to avoid the horror of debt. But paying cash for everything, as should also be obvious to anyone who’s run a real family budget, is like burning up your RRSP to pay your rent!

Slashing expenses when you need to spend, as Nobel Prize-winning economist and New York Times columnist Paul Krugman famously observed, “represents a stunning failure of policy.”

What these Kleinite holdouts advocate is akin to not heating your house in December if your holiday bills outpace your income, never mind the lower heating costs in summertime. Some structural damage may result, not to mention hypothermia. When damage begins to threaten your house’s structural integrity, bet on it that the repairs will cost more and take longer!

This is essentially what Mr. Klein did to Alberta’s infrastructure as premier. He let it run down like a homeowner who refused to fix the roof so he could brag about having no debt. Eventually, the roof started leaking.

In the case of Alberta, roads crumbled, schools and hospitals started to fall apart and infrastructure didn’t keep pace with population growth. Municipalities set to feuding over scarce regional resources. Emergency repairs cost a fortune, because we couldn’t control the timing of the emergencies.

Of course, very few of us would have a house at all without a mortgage, that is, debt – which is why no family waits until they have100 per cent of the money in the bank, as the Kleinian “family budgeters” advocate. Their way, most of us wouldn’t buy our first houses until we were about 70!

That’s OK, though, because we wouldn’t have had the cash to buy a car either, so we’d have to live walking distance to work. Mind you, we wouldn’t have a very good job, because we wouldn’t have had the cash to pay for an education, so we’d live in a crappy part of town.

Thanks to the Klein Government’s negligent mismanagement of Alberta – which the Wildrose Party proposes to continue, presumably because that’s the easiest way to attack the government – this has become the principal political problem the Redford Tories face today.

If they want to invest in the future, even with cash flow that’s healthy by Canadian standards, they’re going to need to borrow money at the extremely low interest rates available to governments.

But if they borrow money, the Wildrosers are going to shriek, and when that happens the Pavlovian media will bark and proudly conservative Albertans will fuss. If the government doesn’t, though, their choice is either to steal from our retirement fund (because, people, that oil’s not gonna be there forever) or let the place run down like a Third World slum with a big bank account.

That might suit the Wildrosers, because it provides a bogus an argument for privatization, but it ought not to work for the Redford Tories, who insist they are committed to fair public services.

Then there’s the matter of Mr. Klein’s ridiculous flat tax – which is semi-sacred in certain circles around here – which benefits the extremely wealthy and penalizes the middle class at the cost of at least $1.5 billion a year in foregone revenue.

Well that – no matter what is written on the back of Ms. Smith’s hand, or wherever she keeps her notes – is just nuts, especially with interest rates as low as they are right now. We really need to stop doing it.

So if Ms. Redford and her Tories want to solve the biggest political problem they are going to face – which won’t be Rosehipsters yelling “culture of corruption” – they need to address the problem of how to build up this province, as the late Mr. Lougheed, Alberta’s first PC premier, unquestionably did.

So they really should pause a moment during their scrap over whether members of Mr. Harper’s Wildrose Party of Canada should keep their automatic influence over PC affairs to start thinking about how to encourage a mature discussion about debt, deficits, fair taxation and the way we run this place.

This post also appears on Rabble.ca.

11 Comments on "Tip for Tories: a grownup conversation about debt will pay political dividends"

  1. CuJoYYC says:

    Good stuff but do you really expect a grown up discussion about public finances in Alberta? We can dream.

  2. ABobserver says:

    And exactly which future taxpayer needs to pay back that borrowed money? What future services will need to be curtailed? What if interest rates will rise (and they will), what future services should be cut to fund those?

    Klein had his faults for sure, but managing what used to be the Alberta Advantage certainly isn’t one of them. We went through so much to beat that debt and deficit devil down, and now we have an administration that bases its budget estimates on oil prices that no economist supported. No wonder we have a deficit again.

  3. Tom in Ontario says:

    Being from Ontario and spending a good part of 3.5 years in Calgary until 2010 I was amazed by the many fewer dollars collected from me to pay for basic services. No health levy once Stelmach took office, lower provincial income tax and of course no nasty provincial sales tax. The consensus among the folks I met was that royalties on mineral wealth were very low, complex and incomprehensible to anyone except oil company executives, government insiders and a few gadfly authors who were told they didn’t know what they were talking about.

    The anti tax thing was beyond the pale. People would get apoplectic at the very thought of sales or health taxes. The oil companies would get equally enraged over any suggestion of Alberta claiming a higher revenue share. Coming from poor-cousin-oil-poor Ontario I thought I had struck it rich!

  4. Sam Gunsch says:

    Camrose publishes some Sun sourced historical perspective… some supplementary history and context for Climenhaga’s post found here:

    http://www.camrosecanadian.com/2012/09/13/alberta-lucky-to-have-lougheed

    excerpt: “A year after taking office, Lougheed set his sights on the taxpayers’ share of Alberta’s energy revenues, picking a fight with the industry many insiders now consider unthinkable today.
    Public hearings were held, where industry officials railed at the notion of granting owners of the resource — Albertans — higher energy royalties.
    “I think of all the flak and abuse from all of the corporate suits — they were as totally wrong as they could possibly be,” says Warrack, adding Albertans soon received far more of the corporate profits than they’d been accustomed.
    “We essentially doubled it from 17% — when you achieve economic justice for the owners, they you have the capacity to do other things that cry out like the medical and mental health fields,” said Warrack.
    Those tumultuous energy royalty hearings, recalls Ghitter, were also something that’s since become alien to Albertans.
    “I don’t think there’s been a public hearing since … the oil industry continues to do very well,” he says.
    He, too, recalls the industry push-back.
    “They called him sheikh and red Tory, the last one I’d wear proudly as a badge,” says Ghitter.
    In 1975, Lougheed’s Tories consolidated their gains by capturing a whopping 78.8% of the vote — essentially setting the stage for routine PC landslides over the coming decades.”
    =========
    excerpt: “But Warrack and other architects of the Heritage Trust Fund say his memory has been besmirched by the province’s shrinking take of energy revenues and the anaemic size of the fund that stands at about $15 billion after 36 years.
    Norway, by comparison, has collected near half a trillion dollars in far less time.
    “We’re a banana republic,” says Warrack of the province’s take of energy dollars that’s plummeted since Lougheed’s reign.
    “It cries out for justice.”
    ((( seems to me some relevant framing re Klein/market fundamentalist/Presto+Harper’s reformatories vs Lougheed’s approach: )))
    ======================
    excerpt:
    “It’s believed that, while toiling in an oil industry summer job in Oklahoma, he witnessed the fate of a town whose petroleum fortunes had run dry.
    Some say it’s possible that experience influenced Lougheed’s determination to leave Alberta a legacy fund for his home province’s post-petroleum days.”

    ((( Alberta’s possible dystopian future possibly considered by Lougheed.

    so… Will Redford and her supporters in the PC family reflect on this? Stelmach seemed to make a very similar attempt to Lougheed’s but lacked the political acumen/resources to prevail on behalf of the common good for the Alberta citizenry when he found himself up against a much more powerful entrenched corporatist phalanx in Calgary than Lougheed confronted.

    Can and will Redford and her supporters in the PC family emulate Lougheed?

    Or will they continue the “Corporate Province” Klein approach as per Mark Lisac’s Chapter 9, The Klein Revolution, where the leading corporate private sectors actually are expected to jointly govern with the PC’s and set public policy ? A corporatist model by definition where PC’s represent corporate groups’ interests rather than the citizens ( see quaint notion of ‘citizen-based democracy, circa Athens).

    When Stelmach attempted to challenge the oilpatch like Lougheed did to raise revenues, it seems to me the Calgary/USA caucus in their corporatist joint venture with the oilpatch and Calgary financial class took Stelmach out by propagandizing AB’s and funding a telegenic property rights/markets rule alternative. With plenty of assistance from AB’s Heralds and Suns in MSM, those freedom loving, neutral point of view from nowhere, courtiers of corporatist governance. But that’s just a citizen’s perspective. S. G. )))

  5. jeff says:

    Forcing the government to live within it’s means is not unreasonable. The less money they have, the less money they waste. By advocating against debt, we keep the government frugal and efficient.

    Do you really want Canada to end up like the United States? Out of control red ink? It always ends horribly.

  6. jerrymacgp says:

    There is debt, and then there is debt… there is debt incurred to pay for expensive permanent infrastructure, which will be used long after it is paid for, like a school, hospital or highway; then there is debt incurred to pay for annual operating deficits. Debt to pay for capital infrastructure is a reasonable public policy: who builds a house with cash? Debt to cover operating deficits can be necessary in an economic downturn, to avoid further contraction of the economy by slashing government spending at a time of reduced revenues. but it needs to be paid off when the economy recovers and government revenues increase once again. Operating deficits should be avoided at all costs when the economy is healthy; stable, predictable revenue sources can help with this.

  7. Melodie says:

    People need to consider the cost of borrowing vs the cost of of construction inflation if a project is delayed. Today and for the past few years the Province has irrationally not taken advantage of interest rates because of the debt is bad storyline they told. Construction inflation costs have hit highs 2.5- 3% per MONTH . A 5 million dollar school project delayed one year suddenly costs 6 million dollars the following year. You haven’t saved ANY money, and you have done without a school. And better yet, your old school costs an extra 300,000 in operating and maintenance costs because its full of old leaky windows that drive up heat costs and every year you have to hire a company to tar the roof again due to leaks.

    The government also has the ability to do things with creativity. We don’t need to borrow money for tranditional 25 or 30 years terms. The Province can go with 10 or 15 year terms which will get the province the infastructure it needs now at the best pricing and the amount of interest paid will be less then the construction inflation amounts. Further, we could self finance. Think about it. The Heritage Savings Trust Fund is earning a whole 1.5% interest in its current form. If we took 3 billion for infastructure and repaid the fund with 3% interest we would be paying ourselves!!!!

    Do you know when government shouldn’t build stuff – DURING BOOMS. The construction costs skyrocket even higher and we drive up cost for business investors as they compete for the same darn building companies and workers. Which inturn stalls investment of the private sector.

    My final word on those who wring their hands and bemoan but the future generation will to pay – quit it. My husband and I borrowed money to purchase a home. Our kids didn’t suffer because of the this debt – they thrived. The province can borrow money and invest in capitol construction of schools and hospitals and the next generation will thrive too.

  8. Ken L. says:

    Government debts and deficits are more apparent than real. For example, each time you or a bank buys government bonds, or any other financial instrument for that matter, those interest payments become taxable. So every January the government pays out interest payments and then every April they reach out and take (usually) 40% of those payments back. What you have left over and spend becomes taxable income in someone else’s hands. Do the math: it does not take long for most of those so-called deficit payments to come back to the government.

    Most of those government operating deficits are payments for goods and services like labour. With a progressive income tax system (which the religious fundamentalist Day undermined), each April about one third of those come back into government as revenue.

    Add in some accounting sleight-of-hand to make the deficits appear worse than they actually are and you have a perfect smoke screen to hide the on-going wreck in resource revenue and management started by Klein.

    Reducing these issues to a “debt and deficit devil” underlines the need for a complex discussion the subject. Obviously the Norwegians with less oil revenue and a heritage fund roughly 50 times larger than Alberta’s have a thing or two to teach us.

    African countries which squandered their post-colonial wealth by using P 3’s for government projects also have a lot to teach us as well.

  9. david says:

    In answer to CuJoYYC’s question, do I really expect a grown up discussion about public finances in Alberta? Actually, I think that’s possible. Any reader of this blog will know I am not a fan of the Alberta Tories, but I don’t despise them either and I think there are real signs that under Alison Redford they are prepared to be more responsible in some policy areas and debts, deficits and possibly even taxation policy are among them. They are also in my opinion still far out to lunch in other policy areas, such as the appropriate economic and ownership model for seniors’ care. Still, with the Redford crowd, unlike the federal Conservatives and the Wild Rosehipsters, I feel as if I am living on the same planet. For that reason, I think genuinely progressive groups should try to work with them rather than just standing in the street and yelling at them through a megaphone.

  10. Filostrato says:

    An article from Reuters this morning made the alarm bells start ringing. We’d all better acquire a taste for cat food – and we might have to fight with the cats to get it.

    Canada Pension Plan looks for big, global deals

    The Canada Pension Plan Investment Board, one of the world’s biggest pension funds and global dealmakers, said it was looking for big, complex acquisitions to boost its portfolio and outmaneuver rivals as the world’s economy improves…[Wiseman] said the fund, which invests on behalf of 18 million Canadian contributors and beneficiaries, was still trying to diversify geographically out of Canada. He said it is focusing on emerging markets where the pace of growth was higher than the rest of the world.

    If anyone remembers the series of bubbles we’ve gone through over the past twenty-something years, emerging markets can plunge much more quickly than any other sector, too.

  11. Lorne Benedict says:

    Ra;ph Klein’s success in bringing down the debt was NOT mainly cutting expenditures but he got in at the right time. Revenues from oil and gas was riding high and really was the major reason for overcoming the deficit.

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