Oil prices were considerably lower than expected last year and left Alberta with a pretty significant deficit in the budget. What to do about it?
The Government of Alberta recently released a fun application where you get to decide. Go through the budget, take a look at the various options for cuts to expenditures and increases to revenues, and decide for yourself.
As you begin on the main page of the link posted above, you are greeted with the opening message: “Alberta is planning its budget for 2013-2014, with the goal of reducing our deficit. Difficult decisions have to be made – what choices would you make?” In going through these ‘difficult decisions’ I learned a number of important things about budget setting and decision making.
1. The decisions you make will be based heavily on the things you know.
Under Advanced Education, the option exists to cut the operational budgets of post-secondary institutions by 3%. Being an involved member of a post-secondary institution in Alberta, I know how dramatic an effect this will have. For the University of Alberta, a 3% cut to the operating budget after several years of continued cuts will not ‘streamline operations’ or ‘create a more efficient system for managing business’ because there is nothing left to streamline, especially for faculties that don’t have large corporate donors, like the Faculty of Arts. They are already operating with the bare minimum. Tuition will be increased, non-academic staff will be laid off, and professors who retire won’t be replaced. It’s not a good situation for the U of A.
However, a 3% cut to Alberta Innovates corporations, something I know almost nothing about, doesn’t seem too bad. 3% isn’t that much, after all…
2. Some things just aren’t worth considering.
Seriously, some of the proposed cuts in this budget exercise are absolutely ridiculous. Sometimes, you need to consider the utilitarian value of a decision. How much will I gain by this, how much will they lose? If they are losing a lot, and I am gaining next to nothing, why even consider it in the first place?
For example, under Culture you are given the option of eliminating the Francophone Secretariat. This decision will save you a measly 1,311,000, while causing considerable harm to government relations with the Alberta Francophone community of around 70,000 or more and limiting their access to political participation. A million dollars might sound like a lot to your wallet – perhaps it’s more money than you will see in a lifetime – but you have to consider it against the entire deficit, and the entire budget. Using the numbers given in this budget exercise (after putting the price of oil at $73/barrel on the assumptions page) that sum only represents about 0.06% of the 2 billion dollar deficit, and about 0.003% of the 42 billion dollar expenses.
Even more ridiculous is the option under Intergovernmental to cut funding to Aboriginal economic capacity programs, which would save $230,000. That’s it? Are you kidding me? Once again, this is a choice that could seriously degrade the province’s relationship with Aboriginal governments, and could make it more difficult for them to create and maintain programs that improve their economic and social lives. This cut represents (once again, using the numbers given in the budget exercise) 0.01% of the deficit, and 0.0005% of total expenses. What’s the point? We could give them an extra $230,000 without it making an appreciable difference to overall budget outcomes, so why was this cut even mentioned in the first place?
3. Your personal biases matter.
When the option came up under Energy to eliminate funding for bioenergy programs to save $66,000,000 I checked it off without even reading the description under the ‘Learn More’ tab. I won’t go into why I have such an extreme bias against bioenergy (that is worth an entire post on its own, and you may get to see that post in the future), all you really need to know is that because of that bias, I was immediately willing to destroy all funding for this area. As you go through the budget yourself, what sections do you have biases for/against, and how do they affect the decisions you make?
4. The government’s biases matter.
It was interesting exercise, going through all of the ‘Learn More’ tabs, because it gave me a bit of an idea of what the government sees as being really important. For example, under Agriculture the option to eliminate agricultural income support programs warned that food prices could go up, farmers could cease operations, and the economics of an ‘an industry that directly employs 2.5% of all Albertans’ could change dramatically. There was no attempt to put a positive spin on this option, as there had been in the option to cut post-secondary operational budgets (see above).
However, under Healthcare the option to cut dispensing fees for prescription drugs tells us that the system would be streamlined and money would be saved, and then gives us some basic information about how the dispensing fee system works. It doesn’t mention any of the possible negative side effects of making this cut.
There is no set formula for the information found in the ‘Learn More’ tabs. Some of them speak of huge negative impacts (like in agriculture), some tell us the cut could possibly have a negative impact but don’t commit quite as strongly to the idea (post-secondary education), and some make it seem like money can be saved without any serious effect on the department in question (healthcare). As we saw with post-secondary operating budgets (above), the possible consequences of a particular cut are not always outlined with total accuracy in these Learn More tabs, so it becomes necessary to ask yourself, “why is this particular cut being portrayed differently than another one?” before making your own decisions on what to cut and what not to.
5. Taxes aren’t that bad.
By introducing a 2% sales tax the government would gain about 2 billion dollars in revenue, pretty much solving the deficit problem. Remember back when the federal sales tax was 7%? Was it really that bad? Because that’s all Albertans would be paying. We would still be paying less than every other province (territories not included because their government/taxation systems are somewhat different), the end difference for the average Albertan would not be a massive one, and the deficit would pretty much disappear without any cuts to expenditures. Why do we fight the implementation of a tiny tax that could prevent the programs we are proud of in this province, like our healthcare and education systems from being degraded due to budget cuts?
Another revenue increase we could consider here is introducing a second tax rate on incomes over $250,000/year, which would see income over $250,000 taxed at 14%. According to the ‘Learn More’ tab, only 1% of Albertan’s would fall into this new tax bracket, but it would create an additional $500,000,000 in revenue. Further, because this would be a progressive tax bracket, people making $249,000/year will be taxed at 10% as usual, and people making $251,000/year will be taxed at 10% for the first $250,000 and at 14% for the 1,000 they made after that. That way, advancing into a new tax bracket doesn’t mean you will have less money in your pocket after the taxes are taken off, it just means you pay a small amount more out of every dollar you earn after the first $250,000. Not a bad system, all things considered, and Alberta would still have some of the lowest income tax rates in North America.
6. Dealing with the deficit doesn’t have to involve any ‘difficult’ choices.
Without cutting any expenditures (except for funding to bioenergy programs), raising the flat income tax rates, introducing higher corporate or fuel taxes, or reintroducing healthcare premiums, I not only solved the deficit problem but created a $0.4 billion dollar surplus. All it took was the introduction of a second tax rate, something that most provinces/states that have income taxes have had in place for a long time already, as well as the introduction of a very small sales tax.
Why hasn’t this been done yet?! I guess there is always the concern that a provincial sales tax will kill support for the Conservative Party. However, as a body that is meant to represent what’s best for the people, a slight increase in select taxes to maintain the quality of life in the province might have to come at the price of a slight drop in the polls. Your job isn’t to keep yourselves in power; your job is to do what’s right for the people who elected you.