OPINION | Yes, Alberta’s budget raises taxes. Yes, it cuts AISH. No, it’s not ‘austerity.’
Alberta’s latest provincial budget — released last week — is perhaps the most consequential budget in years. But in many important ways, it’s widely misunderstood.
Like any budget, it contains thousands of individual decisions. Each comes with tradeoffs, and each should be subject to examination and debate.
Unlike other budgets, there’s disagreement over what exactly just happened. Some say benefit programs were slashed; others say no. Some say income taxes went up; others say no. Some label it an austerity budget, others a compassionate one.
And there were even some significant changes in Budget 2019 that went completely unnoticed — even, it seems, by the government.
Budget 2019 is, if nothing else, a budget of contradictions.
With the benefit of time to reflect on the changes, it’s possible to sift through competing claims and, hopefully, open the door to a more productive discussion.
Let’s start with income support programs. They’ve been cut. Here’s why.
Currently, benefits increase as prices increase, so the “real” value of benefits remains stable. The goal — an entirely sensibly one — is to ensure recipients can buy next year what they could this year.
The government chose to “de-index” benefits from inflation. This fixes the dollar value of benefits, but what those dollars can buy will now fall over time.
Consider a concrete example: “de-indexing” benefits to Albertans with permanent disabilities, through the “Assured Income for the Severely Handicapped” program, AISH for short.
The move shrinks the purchasing power of AISH monthly benefits by roughly $35 next year (depending on inflation), by $65 the year after, by $100 the year after that, and so on until indexing resumes.
t’s a puzzling move by the government, since the savings are minuscule; at first, only $10 million. But this places very real burdens on individual living standards. There may be merits to the choice, and if so the government should make the case openly and honestly.
Pretending the choice was not made at all is not helpful.
Budget 2019 increases income taxes, but in a very subtle way. Like benefit payments, the government is “de-indexing” tax credits and tax brackets.
Effectively, the value of tax credits are frozen at their 2019 levels. The dollar value remains unchanged, but their real value to families was cut because they will no longer keep pace with the rising cost of living.
In addition, these changes make it easier to fall into higher tax brackets even if you and your family’s standard of living has not changed. So-called “bracket creep” is back in Alberta, costing taxpayers nearly $200 million per year.
Combined with other changes to tax credits, the cost is roughly $150 per year for the average family. (Which, I can’t resist saying, is essentially the same as the average cost of the $30-per-tonne carbon tax, net of rebates. Although the rage-factor-per-dollar differs widely between the two.)
To be sure, it’s fair enough to increase revenue to help lower the deficit. There are two sides to the budget, after all. But there are other ways.
Raising the GST to 5.3 per cent, for example, would generate the same revenue as the personal income tax increases will. Either way, Alberta is (by far) the lowest tax jurisdiction in the country, so there is room to increase taxes as the government did.
To debate the pros and cons of this choice requires we first recognize the choice was made. The government’s advertisements suggesting no taxes were raised are disingenuous at best and Orwellian at worst.
An austerity budget?
Turning to the big picture, Budget 2019 proposes to shrink the size of Alberta’s government by roughly $1.5 billion — or 2.8 per cent — over four years. That’s roughly equivalent to 0.5 per cent of Alberta’s economy. This is modest, and far from austerity.
True austerity budgets, of which we have seen many examples, are massively more restrictive than this.
Among the major OECD countries, average spending reductions and tax increases in periods of austerity are over four per cent of GDP. After the financial crisis, some went even further.
Portugal and Ireland, for example, went through restraint totalling four per cent of GDP per year for four years. In Alberta, that would be nearly $15 billion per year in spending reductions and tax increases each year for four years. That’s austerity.
Or compare Budget 2019 to Alberta’s own history. Premier Ralph Klein reduced program spending by more than 21 per cent over four years in the early and mid-1990s. Today, that would be equivalent to a $12-billion reduction. Nowhere close to the $1.5 billion reduction the government proposes.
We should reserve extreme language for extreme situations. And a 2.8-per-cent reduction is not extreme.
Of course this doesn’t imply the budget was “good” — that’s a value judgment we each need to make for ourselves. And yes a 2.8-per-cent spending reduction, in the face of rising prices and population growth, is not trivial. But we should focus on the specific decisions taken, and not be distracted by sweeping and inaccurate generalizations like “austerity”.
A decision no one noticed
Finally, Budget 2019 contains an important decision that no one seems to have noticed. It is gradually — but clearly — easing Alberta off the resource royalty roller-coaster.
Over the past few years, Alberta needed over one quarter of the budget to come from resource revenues in order to balance. By 2022, that reliance will fall to just 12 per cent. The previous government’s “Path to Balance,” for comparison, required nearly 19 per cent of the budget to come from resources.
Getting off our addiction to resource revenues is important.
Royalties are risky. Oil prices rise and fall, and so too do our provincial revenues. Less reliance means less volatility. And while there is still work to do after we balance, that’s a significant start.
A clear path to balance, but one you can disagree with
None of the above implies the budget is either good or bad. One should look at each individual decision and evaluate them on their merits. If you disagree, be clear why and then propose alternatives.
In my view, Budget 2019 is a clear and credible path to balance.
It’s clear because there is detail behind the choices made. It’s credible because it does not rely on unreasonable assumptions.
Some choices I oppose — such as cutting AISH benefits — and some choices I support — such as increasing taxes and restraining spending growth. But that’s just me. We must each weigh the pros and cons for ourselves.
This budget is an opportunity to think deeply, clearly, and responsibly about the options before us. There are hard choices here, whether we admit they exist or not.
Trevor Tombe is an associate professor of economics at the University of Calgary and research fellow at the School of Public Policy.