10 Moving to a Sustainable Fiscal Future Addressing Alberta’s Legacies of Denial

Alberta’s Burning Economic Platform

For David Dodge, former governor of the Bank of Canada and member of Ed Stelmach’s Premier’s Council for Economic Strategy, Alberta is standing on a burning platform when it comes to its resource-revenue-centred fiscal policy. Speaking of his time on the Premier’s Council, Dodge told me, “We had to get people to understand [. . .] that this essential platform on which the Government of Alberta had operated really wasn’t going to be viable over the long run.” For Dodge, the economic argument around resource revenue is not that the resources themselves will run out, but that “the economic value of the resource will come down because there would be alternatives developed.” To maintain the income and lifestyle to which Albertans have become accustomed, Alberta needs to figure out another plan (interview with author, 7 February 2019).

The confluence of financial, economic, climatic, and technological changes in the twenty-first century does not augur well for Alberta. The “burning platform” is evident in the desperation of successive Alberta governments and fossil fuel and pipeline industries to obtain access to tidewater through projects such as the Trans Mountain pipeline. Looking through the lens of current and historical fiscal and economic policy in Alberta, the province seems to have no obvious Plan B beyond more pipelines and another oil sands plant—no other resource to extract, no rabbit to pull out of the hat. In addition to Alberta-specific questions of quickly rising debt and declining resource revenues, our planet is facing an existential crisis: the climate crisis. Among many other consequences, this has the potential to undermine Alberta’s economic foundation, which has until now produced one of the highest standards of living on the planet. Even if Trans Mountain is completed, the inexorable and cumulative toll that greenhouse gases are occasioning upon the planet and its climates and weather, let alone the balance sheets of insurance companies and governments, will limit future economic growth in Alberta.

As the effects of global heating become more pronounced, Alberta’s black gold is arguably not just losing value; it’s becoming a liability.1 Although demand for fossil fuels could grow modestly for several more decades, all Albertans should be worried about the long-term prospects for these non-renewable resources.2 The fossil fuel industry is being challenged by some Indigenous communities and what Kenney’s government calls “foreign-financed activists” (Kenney, Savage, and Schweitzer 2019), yes—but it is also feeling the pressure of strategic decisions being made in the auto industry, the courts, and the financial industry (Task Force on Climate-Related Financial Disclosures 2017).3

Regardless, Alberta’s economy remains dominated by the extraction of three major staples or commodities—oil, bitumen, and natural gas—which it trades for manufactured goods. Indeed, from the time of the province’s first European settlers, Alberta’s economy has been commodity based and trade oriented. As figure 10.1 shows, Alberta has run and continues to run a very large surplus on trade.

Source: Statistics Canada, “Table 12-10-0098-01: Trade in Goods by Exporter Characteristics, by Industry of Establishment (× 1,000),” released 18 May 2021, https://doi.org/10.25318/1210009801-eng.

The dominance of the oil, gas, and mining sectors in Alberta’s exports is laid out in table 10.1. The energy sector leads all sectors in terms of exports even when commodity prices fall precipitously, as they did in 2015. Agriculture, forestry, and construction exports remain relatively infinitesimal as export sectors needed to support the balance of trade. Manufacturing, Alberta’s second most important export, sits at roughly one-third the value of oil and gas. Notably, the only manufacturing segment that is substantial is chemical manufacturing, mainly derived from petroleum by-products. The next largest manufacturing sectors are machinery and primary metals, which languished between 2014 and 2019. This may be explained by the fact that these sectors serve local markets. Without export markets, they do not have the scale to enter into highly competitive global markets dominated by global corporations.

How does Alberta get off this burning economic platform? The obvious answer is economic diversification. The United Nations Framework Convention on Climate Change (2016, 13) defined economic diversification as “a strategy to transform the economy from using a single source to multiple sources of income spread over primary, secondary and tertiary sectors . . . to improve economic performance for achieving sustainable growth.” For governments, a diversified economy means a diversified revenue base. Alberta has intermittently been infatuated with the idea of economic diversification during periods of low oil prices. Numerous initiatives have been undertaken, studies published, and trade missions launched.

Over the years, the Alberta government has announced millions if not billions of dollars in different economic diversification incentives in the forms of tax incentives, grant programs, royalty holidays, and loan guarantees. In September 2018, the Alberta government pledged $300,000 annually to Alberta book publishers over four years. According to the news release, “the funding is from the Capital Investment Tax Credit, which helps stimulate job growth across Alberta” (Government of Alberta 2018, para 1). More recently, the Kenney government announced a $9 million “funding boost” to artificial intelligence (AI) research and development to “showcase Alberta’s AI Advantage” (Alberta Advanced Education 2020). However, it is “energy diversification” that has really captured the imaginations of Alberta policy makers (see, for example, the Energy Diversification Advisory Committee’s [2018] report on the topic). The government’s largesse for energy diversification far exceeds its financial commitments to other diversification projects. Take, for example, the $3 billion put towards oil tanker rail cars (Government of Alberta 2019a),4 the potential $2 billion backstop guarantee for the Trans Mountain pipeline project (Woods 2018), and the petrochemical plant being completed by Inter Pipeline in Fort Saskatchewan (Reuters Staff 2017). Not to be outdone by Rachel Notley’s NDP, Kenney’s UCP government has bet heavily on TC Energy’s Keystone XL pipeline with a $1.5 billion equity investment and $6 billion loan guarantee. This incurred a write-down of $1.5 billion when President Joe Biden cancelled Keystone’s export permit.

It should be acknowledged that such “energy diversification” projects do generate thousands of well-paid construction jobs for a few years, and perhaps a few hundred permanent jobs. The issue here is not that these projects have no positive economic impact for the province. They do. But the contrast between “energy diversification” efforts focussed on oil and gas and real economic diversification away from oil and gas (such as the publishing and AI examples cited above) is striking and invites the question: Is Alberta really diversifying in a way that will protect its economic future, or is it just deepening its reliance on the non-renewable energy sector?

Given the uncertain long-term prospects for fossil fuels, it is difficult to imagine diversification within the oil, gas, and petrochemicals sectors as an effective strategy in underwriting a sustainable and future-oriented economic and fiscal plan. Yet the province seems to have no qualms about placing billions of taxpayer dollars at risk for oil and gas projects instead of investing in real economic diversification.5 Meanwhile, recent announcements about a strategy to use existing natural gas resources and pipelines to harvest “blue hydrogen” are being touted as having the economic potential for the province that the oil sands used to have (Varcoe 2021).

It is also worth asking how many jobs would be created if Albertans did more than just supply the labour for foreign-owned energy projects and began focussing on locally generating the engineering and design work for them. While this would clearly still be an economy reliant on the importance of oil and gas in global markets, it would at least shift Alberta away from reliance on non-renewable resource revenues and towards the accrual of royalty payments related to intellectual property rights. But Albertans should think, too, beyond the energy sector. How many jobs could be created in Alberta in book publishing, machine learning, and other intellectual-property-based sectors with $100 million, let alone the billions of dollars in incentives we currently invest in fossil fuels? Such projects don’t just reduce Alberta’s dependence on non-renewable energy; they shift it away from its staple-heavy, commodity-trade-based system. Unlike the late nineteenth and early twentieth centuries when great individual wealth was created from resource processing (John D. Rockefeller) and manufacturing (Henry Ford), new wealth is accruing to those individuals who develop and patent intellectual property (Bill Gates). This is why it is essential to move away from resource processing and manufacturing and tack towards development of human capital.

Environmental Liabilities

Beyond the dim future prospects of an oil-and-gas-based economy, the provincial government also seems to be in denial about the looming unfunded environmental liabilities of the oil patch. Environmental liabilities are the by-products of and infrastructure associated with non-renewable resource development that eventually need to be cleaned up. Any serious analysis of how the economic base of Alberta impacts the provincial government’s fiscal sustainability must account for these liabilities (Ascah 2021b, 12–14). There are two central questions in this regard: First, how much cleanup is there to do? And second, who is responsible for this cleanup—that is, who should pay for it?

The first question can be answered by determining the province’s unfunded environmental liabilities. To do this, you must first calculate their gross value. This calculation depends on the number of oil wells, their locations, the estimated costs of their rehabilitation, the length and condition of relevant pipelines, and the size of tailings ponds. Assumptions about some of these aspects are made based on engineering studies and historic costs of similar past rehabilitation efforts. Next, the period over which the rehabilitation is to take place must be determined. Finally, a discount rate is used to determine the net present value of the gross liabilities. A suitable rehabilitation plan thus involves determining how much money must be put aside today to adequately fund environmental rehabilitation in the future. An unfunded liability is the difference between the determined liability and the actual funds that have been set aside. The question of when the liabilities are due—that is, when the rehabilitation costs must actually be paid—is central determining how much money needs to be set aside today.

Ryerson University accounting professor Thomas Schneider notes that liabilities have the potential to affect Alberta’s balance sheet and credit rating (quoted in De Souza et al. 2018). As we’ve already seen in this book, Alberta incentivizes private control of its public energy resources. As it turns out, these same incentives encourage private abandonment of environmental cleanup responsibilities before their liabilities are due. Thus, the select few who make their fortunes off of Alberta’s oil and gas are effectively incentivized to leave the cleanup costs of their operations—environmental and economic—for Alberta taxpayers. As Kevin Taft summed it up for me, there has been a transfer of “absolutely immense public wealth in the form of Alberta’s oil and gas resources into private hands” and now “there’s a massive transfer of private liability onto taxpayers and governments and it’s systematic” (interview with author, 26 November 2018).

This problem is exacerbated when environmental liabilities are inaccurately estimated, putting the province on the hook for more than it bargained for. In 2018, investigative journalists unearthed a presentation given in February of that year by the vice-president of liability management of the Alberta Energy Regulator (AER) to a meeting of oil and gas industry historians (De Souza et al. 2018). The presentation stated that the “official” number for environmental liabilities in the province was $58 billion (Wadsworth 2018, 13). Against this sum was a security deposit of $1.6 billion: 2.7 percent of the reported liability or 0.6 percent of the “worst-case scenario,” as it was officially understood. However, the investigative report revealed the presentation also said that the AER could be understating environmental liabilities by about $200 billion (Wadsworth 2018). It said, in other words, that Alberta’s oil-and-gas-related environmental cleanup was going to cost vastly more than any public estimates at the time showed, making Alberta’s security deposit a drop in the ocean of funds that would be required to pay for them.6 The AER’s (2018) attempt to disavow the findings and, a day later, the resignation of CEO Jim Ellis (a former Alberta deputy energy and environment minister) highlighted for the first time in the public eye the enormous costs of cleaning up oil and gas sites and tailings ponds.7 In a few short months, the credibility of Alberta’s regulatory system suffered badly.8 Alberta’s claims to be a responsible developer of energy resources have only been further damaged by the creation of the Canadian Energy Centre—better known as Alberta’s “energy war room”—and the dramatic flop of the Report of the Public Inquiry into Anti-Alberta Energy Campaigns (Allan 2021) it commissioned.9

The second question—Who will pay for the cleanup?—has been a heated legal issue in Alberta. In 2015, a high-stakes litigation on exactly this issue was brought by the AER and Orphan Well Association (OWA) against another provincial agency, ATB Financial. ATB, like other lenders, provides loans to a variety of industry borrowers. The case revolved around the insolvency of Redwater Resources, a small oil and gas company that had been petitioned into receivership by ATB, its lender. Redwater’s approximately one hundred inactive oil wells, which were by that time largely dry, had been licensed by the AER. Such a license requires the title owner to clean up their well sites—a process that can cost more than the land itself is worth—before they can transfer the title. When a company that holds this kind of title goes bankrupt, it leaves in question who is responsible for the cleanup. Grant Thornton Ltd., acting as receiver on behalf of ATB, attempted to disclaim the well sites in order to avoid paying the outstanding reclamation costs. Such requests normally mean the well sites would be “orphaned”—have no legal owner responsible for their cleanup—and consequently join a growing number of wells left for reclamation by the industry- and government-funded not-for-profit OWA.10 The AER sought to prevent the receiver’s renunciation of the unproductive assets to avoid further burdening the OWA. The Canadian Association of Petroleum Producers (CAPP) eventually intervened in the litigation on behalf of the OWA and the AER. CAPP was concerned that viable energy companies would face increasingly large bills from the OWA to be funded by CAPP’s solvent members.

At the Alberta Court of Queen’s Bench and the Alberta Court of Appeal, federal paramountcy in the field of bankruptcy and insolvency upheld the receiver’s and ATB’s position.11 However, on 31 January 2019, the Supreme Court or Canada ruled 5 to 2 in favour of the OWA, affirming the AER’s right to prevent receivers from disclaiming unproductive assets and the associated regulatory obligations such as reclamation costs.12 As a consequence, ATB and other lenders to companies in either bankruptcy or financial difficulty will probably end up writing off hundreds of millions in oil and gas loans.

Financial Implications for the Fossil Fuel Industry

As evidence mounts that the climate crisis is a growing factor in the Alberta government’s financial sustainability, it is becoming increasingly probable that the finance community will tighten further lending to the oil industry to avoid future risks of paying for environmental liabilities.13 This would have enormous implications on energy companies attempting to finance oil sands plants.

Although the Canadian banking and oil industry are at present generally allied, the medium term is cloudy at best, especially for Canada’s largest oil sands producers (Willis 2019). The biggest danger confronting Alberta’s oil patch and the Alberta government’s fiscal prospects is the environmental, social, and corporate governance movement (ESG). ESG has been increasingly adopted by institutional investors who have the capacity to choose where to invest. For instance, HSBC, Europe’s largest bank, made a controversial decision in 2018 to scale back oil sands financing.14 This decision, and others like it, signals a retreat by large international financial institutions and will be of great concern to Alberta’s finances. At the same time, Alberta-based institutions have purchased large oil sands holdings from major international players like Chevron, Shell, and Devon Resources. Increasingly, the bet on expanding the oil sands will depend on domestic and international capital markets, which are currently revising investment policies towards oil companies. This does not mean that capital will be unavailable, but it does mean that the cost of capital will be driven higher because of ESG investment policies responding to the threat of environmental litigation. It will also mean that there will be huge and costly regulatory delays. Ultimately, these are all consequences of the existential threat of the climate crisis.15 These shifts in global investment are already affecting Alberta’s economy, as Moody’s Investors Service’s (2019) downgrade of the province’s credit rating shows. As Moody’s put it, “environmental considerations are material to Alberta’s credit profile and we consider environmental risk to be elevated” (5).

More recently, the Auditor General of Alberta (2021) updated an earlier report on whether adequate systems are in place to ensure sufficient security for the rehabilitation of oil sands mines and other mines. In concluding that unsatisfactory progress was evident since the 2015 Auditor General review, the legislative auditor identified five technical loopholes that mines were employing to minimize the provision of financial security to the government for rehabilitation (33–34). The industry had been telling the government to trust them and the government was willing to pull the wool over their eyes and accept the status quo.

Taken all together, these factors raise the question of whether remaining oil sands owners (such as Suncor, Imperial Oil, and Cenovus) and the province’s mine security program together have sufficient funds to meet their regulatory land reclamation obligations. In short, will these asset owners ultimately pin bondholders, lenders, shareholders, and regulators (such as the Alberta government) with the bill for a huge environmental cleanup (Olszynski 2019)? One has to ask, too, whether all of these factors presage attempts by oil sands operators to pay the government lower royalties as a way of saving money to fund their massive environmental liabilities. In these circumstances, the case for a sales tax to support a government-led transition to a low-carbon future by replacing declining resource revenue has obvious advantages.

Sales Tax as a Means of Reducing Income Tax Rates?

Still, there is the challenge of making a sales tax a palatable option to tax-averse Albertans. Increasingly, this is being done by advertising a sales tax as a means to lower taxes on personal and corporate incomes—an argument advanced in Ferede’s and Dahlby’s (2019) analysis of the positive economic effects of reducing CIT, which has been widely cited by Jason Kenney’s UCP government. This approach is tantamount to “softening” the blow of a new set of taxes. In their study, Ferede and Dahlby use historical data such as growth rates of GDP and CIT rates to estimate the effects that changes to CIT rates might have on GDP and employment growth. The authors find that “a one percentage-point reduction in a provincial government’s statutory CIT rate increases the growth rate by 0.12 percentage points four years after the initial CIT rate cut and increases real per capita GDP by 1.2 percent in the long run” (Ferede and Dahlby 2019, 19). While acknowledging that many factors can influence long-term economic growth rates, Ferede and Dahlby subject the regression results to robustness checks by including additional variables such as commodity prices, US GDP growth, population growth, and export price indices. Using these tests, the authors conclude that these other factors do not support objections that commodity prices or US economic growth are more deterministic than CIT rate changes for Alberta (18–23).

While such positions on sales tax may well make a new sales tax conceptually easier to swallow, they also invite, from the perspective of fiscal sustainability, some pressing questions: Does using a sales tax in this way actually achieve the goal of fiscal sustainability that we need to be aiming for? Can we know with certainty that lowering CIT rates will increase long-term economic growth? And how much difference would a 1.2 percent long-term rise in Alberta’s GDP make for an average Albertan, anyway?

It is not, in fact, a foregone conclusion that reducing CIT stimulates the economy, and there are several criticism worth mentioning of studies that assume it is. First, although the results of empirical tests do show small increases in GDP, it is difficult to conclusively determine that lowering CIT is the variable most responsible for these increases. Since 2000, federal and provincial governments have been lowering CIT rates in response to arguments made by Ferede, Dahlby, and other economists (Bazel and Mintz 2013; McKenzie 2019). Up until 2015, when the New Democrats took office, Alberta had been the most aggressive of the big four provinces in lowering CIT rates. That said, taxation economists have observed that the provincial CIT rates are kept stable for long periods of time and that the most intensive forms of tax competition may be tax incentives for research and development, television and film, and oil and gas royalties (Dahlby and Ferede 2019, 10). Another factor noted by Dahlby and Ferede is the role played by allocation formulae by which the provincial CIT of companies operating interprovincially is computed according to provincial weightings that are based on in-province sales and payroll costs. This tax allocation formula “has greater impact on the marginal cost of hiring labour than the tax rate differential between the provinces” (11). These other factors affecting corporate taxes payable could make promised growth rates under CIT reductions difficult to quantitatively separate out from these individual effects.

A second criticism of this type of study is the value structure embedded in the models created. One of Ferede’s and Dahlby’s (2019, 11) foundational beliefs is that “tax bases almost always shrink in response to a tax rate increase because taxpayers have an increased incentive to alter their labour, savings and investment decisions.” This assumption is canon for the neoclassical idea that the world is made up of economically rational actors. The real world is, arguably, different. Most individual taxpayers and many small corporate taxpayers have no time to pay attention to differential tax rates since their mobility is theoretical, not real. The claim that “shrinkage of the tax base is a measure of the harmful distortion in the allocation of resources caused by taxation” (Ferede and Dahlby 2019, 11, emphasis added) is a normative judgment. Moreover, many workers and small businesses, heavily indebted to financial institutions, do not have the choice to withdraw their labour or reduce business hours if they are to avoid bankruptcy. As Himmelfarb and Himmelfarb (2013) argue, the assertion that taxation is a “dirty word” because experts say so is a belief, not a fact.

A third criticism that may be levelled at these analysts is their acceptance of the Laffer curve. Developed by economist Arthur Laffer, this model is used to show that, in certain circumstances, lowering tax rates can lead to increased tax revenue. Ferede and Dahlby (2019, 12) argue exactly this: by reducing CIT, they can increase tax revenue in the long run. Indeed, much of the neoliberal school puts great faith in the view that, over the long run, the revenue growth estimated by Laffer curve models will come true. This argument can be refuted in two ways. The first refutation consists simply in discounting the Laffer curve as an unprovable article of faith of the neoliberal school. The second refutation follows the first and is more potent. The belief that the Laffer curve projections will come true is belied by evidence that long-term economic growth is slowing in modern industrialized economies (Piketty 2014, 93–95). Many of these now-slowing economies have, since the 1990s, been the subjects of neoliberal economic experiments.

There is also the question of technological progress as a factor in overall economic growth. Ferede and Dahlby (2019, 4) posit that higher CIT rates “reduce economic growth by reducing productivity and by lowering investment.” It is not clear from the context whether this statement is a fact, an assertion, or an assumption. While plausible, there are many other factors that may reduce investment and hence productivity growth. One of the central factors currently afflicting investment in Alberta is the desire by institutional investors to reduce their exposures to fossil fuel production, which has nothing to do with relative corporate tax rates. Rather, as Mark Carney (2019, 8), former Governor of the Bank of England, has said, “every financial decision must take climate change into account.”

Sales Tax and Alberta’s Tax Policies

In Kathleen Lahey’s (2015) persuasive report The Alberta Disadvantage, she argues that if a sales tax were introduced into Alberta’s current taxation system, it would contribute to social and income inequality and to the precarity of Alberta’s fiscal future. A key part of her position is that recommendations for a sales tax come from arguments, like those presented above, that support low taxes on capital (76). For Lahey, such arguments are based on “detaxation” policies in Alberta that have reduced tax revenue overall, including taxation on the wealthiest income earners. Yet these same policies have resulted in tax increases for Alberta’s poorest. By reducing overall tax revenue, these same policies have also increased the province’s dependence on non-renewable resource revenues to make up the gap in funding for government services.

Importantly, it is not necessarily sales tax as such that would exacerbate these problems, but a sales tax in the context of detaxation. Sales taxes are regressive—their rate is not adjusted based on a taxpayer’s wealth or income. This means that all consumers will be taxed at the same rate regardless of how much they consume, whether they’re able to pay the tax, or how much they earn; a millionaire would pay the same percentage tax or mark-up on a case of beer as minimum-wage worker. If a regressive sales tax were introduced into Alberta’s current system as a way of further reducing income taxes, the province would saddle its lowest income earners with a heavier tax burden, and saddle itself with ever-greater reliance on non-renewable resources.

Lahey (2015) observes that many taxes and fees that the Alberta government already collects are regressive. These include major sources of revenue for Alberta such as fuel taxes, tobacco tax, insurance taxes, carbon taxes, vehicle licenses, tuition and school fees, and markups from the Alberta Gaming, Liquor and Cannabis Commission.16 Her empirical research shows that Alberta’s shift from a progressive PIT system to a flat 10 percent income tax (which began in Alberta at the beginning of the 2000s) placed a disproportionate burden on the province’s lowest income earners (76–78). She proposes implementing a new progressive PIT, estimating that an extra $1.6 billion of revenue could be obtained without imposing any tax increases on the bottom five deciles of income groups.17 Unlike a progressive PIT, however, a retail sales tax would place a burden on all income groups (although the highest earner is also likely to be the higher consumer, and would end up paying about twelve times the consumption tax as the lowest).

Lahey notes that refundable consumption tax credits would reduce “some of the regressive incidence” of these taxes, but they would not really solve the problem. Even if the province instituted a refundable PST credit, Lahey finds that the overall share of the additional tax collected by each of the lower deciles would still be unfair from an equity and gender perspective. Other low-income measures don’t solve this problem, either. If the calculations of taxes payable, social assistance, rent and housing supplements, and special income programs for First Nations are becoming too complex and expensive to efficiently administer and do not ameliorate a sales tax’s regressive nature, then the time for more tinkering to would seem to be over. A sales tax as a means of reducing income tax is, from Lahey’s perspective, untenable.

Instead of introducing a sales tax to reduce income tax, Lahey (2015, 80) says that

the main focus [of building a less regressive tax system] should be on developing robust fiscal progressivity and a diverse array of stable taxes and economic sectors in order to move away from heavy reliance on resource revenues and begin the slow process of saving and sterilizing resource receipts for use as the capital assets they represent. Once Alberta reaches that level of fiscal development, it would then be time to begin the discussion of whether sales taxes with a robust low-income credit feature would enhance the overall tax mix.

In other words, Alberta doesn’t need another regressive tax right now. What it does need is a complete overhaul of its taxation system.

While a system of refundable tax credits would not completely solve the problem, improvements to the rebate or an aggressive overhaul of all social assistance programs would help. Moreover, creating a more stable, sustainable revenue structure with a sales tax would improve the periodic spending cuts that have afflicted public services for all citizens, but especially lower-income families. A key goal of fiscal reform is to balance efficiency in collecting consumption taxes with a simplification in the administration of social assistance and eventually, ideally, basic annual income for low-income individuals and families. The solutions are technical ones—ones that necessitate a thorough review of Alberta’s current system of personal and corporate income taxes.

From our examinations of Ferede, Dahlby, and Lahey, we are left with competing versions of not only how Alberta’s economy does run, but how it should run, and specifically whether and how it should integrate a sales tax. To be clear, I believe it would be in the long-term interest of neither the Alberta economy nor Albertan society to implement a sales tax simply to lower PIT or CIT. I do, however, agree with Glassford’s emphasis in chapter 8 of this book that PST can reduce the need to raise taxes in a recession. Along the same lines, I believe a sales tax is ultimately necessary to Alberta’s long-term plan if we hope to sustainably fund our public programs and maintain our quality of life. This is especially true considering the serious revenue shortfalls witnessed in fiscal years 2019–20 and 2020–21 and the diminished future investment and employment prospects in Alberta’s energy sector.

Consultation and Education

Public education and debate must be led by a third party who both politicians and the public trust, and who the public is confident will listen to them. This third party could take the form of, for instance, a financial sustainability commission. To gain the public’s trust, such a commission must be carefully appointed to accurately represent the diversity of people and perspectives in Alberta today. A starting point, then, would be to appoint at least two co-chairs to this commission: one who represents the interests of the business sector and the other the broad consumer and public interest. Committee selection would be by open competition with final decisions made by the government, and should include representatives of various stakeholders, public and private, from across the socioeconomic spectrum. This would be a shift away from status quo committee selection, which tends to be driven by the elites of the area under review. For example, the Blue Ribbon Panel chaired by Janice MacKinnon had no one to represent the day-to-day users or front-line providers of government services.18

Before consultations get underway, commissioners should recommend a program of research and a process for engagement by publicly communicating these recommendations to the government. Kevin Taft suggested in an interview that “the very first thing that needs to be done is a comprehensive assessment of the province’s assets and liabilities” in order to assess “the size of the problem” and better understand how much revenue would have to be raised through taxes, or how much spending would need to be cut (interview with author, 26 November 2018). Regardless of the starting point, though, the commission’s program and process should be approved with or without revisions by the government in a transparent manner. This transparent method would also help ensure that recommendations are implemented by the government. It would also help generate buy-in from government caucus members, making the commissioners and staff become agents of the elected representatives. Should the governing party seek to “guide” the process in a particular manner (e.g., try to suggest that the province has a one-sided revenue or a spending problem), this guidance would be transparent to the opposition and the public, and the government could be held accountable for making decisions to narrow or broaden the mandate.

The commission would then invite submissions on research projects. The results of accepted projects would be made public. The government would have a veto on topics studied, but the commission would have a free hand in selecting researchers for approved topics. Merit, including experience, would be the primary factors in researcher selection. The research team would benefit from being interdisciplinary, not dominated by economists and accountants. Widening the net beyond finance and economics would allow fiscal problems to be examined in a more wholistic way and hopefully produce innovative solutions.

Engagement

For too long, Alberta politicians had the luxury of relying on bonus royalty revenue to smooth over various constituencies’ demands for better public services and more capital infrastructure. Today, in the midst of the worst economic and fiscal situation since the Great Depression, spurred on in part by the concurrent COVID-19 pandemic, Alberta politicians and members of the public no longer have the luxury of remaining silent or complacent. Everyone in the province has a stake in the quality of provincial financial management. A robust engagement campaign must, therefore, be part of this process.

Developing accessible and interactive channels of communication. After the research program has been completed and published, the commission staff would prepare a summary of key research findings. The information would be available online through a special commission portal. In the interests of transparency, the portal would also disclose the commission’s expenses and those of its staff and researchers. In addition, there would be a public log of who commission members and staff met with to ensure transparency and build trust in the engagement process.

One bright spot of the COVID-19 pandemic is that, because we have all had to stay home, more people than ever are comfortable using online methods of engagement. Virtual townhalls can be, and have already been, successfully organized to receive submissions and to foster interest and public debate. We have incredible capacity to bring together large numbers of people into a consultative dialogue—a mutual or collective learning process—at relatively low cost, and with impressive results. Engagement efforts in the mid-2010s by the Royalty Review Advisory Panel and the Climate Leadership Panel used online portals, surveys, open houses, technical engagement with experts, and submissions, including email and online articles and reports. The Royalty Review Advisory Panel received over 7,200 submissions through its web portal; the Climate Leadership Panel received 25,000 responses to its online survey. Both reports are remarkable for the alacrity by which the panels accumulated and digested information and reported on it (Mowat et al. 2016, 15–16, appendix B; Leach et al. 2015, 14–15).

These public consultation approaches are mechanisms by which a commission could find areas of public consensus by engaging a wide audience and providing opportunities for Albertans to comment on issues confronting government.

Obviously, not all Albertans participate in public forums of this type. For this reason, the media must also play an important role in public engagement. Especially given the mistrust of media that exists in some communities particularly since the Trump presidency, it is imperative that the commission invoke participatory channels of media communication. Again, it is necessary for the public to trust that they are being listened to. Although a bit passé, the call-in radio talk show provides a template on which such interactive media channels could be developed. On these call-in shows, experts are invited to discuss a particular topic with the host as callers share their perspective with or questions for the expert, who is then given a chance to respond. While not all Albertans will directly participate in such media events, these publicly broadcast forums have the benefit of reaching broader audiences of listeners or viewers. They could thus be tapped to widen the public’s engagement in and understanding of the topics at hand—in this case, the province’s finances.

There are a number of experts that the public could speak to through these outreach and engagement strategies to educate themselves about the provincial government’s fiscal situation. In no particular order, such individuals would include the premier; finance, health, energy, and education ministers; credit rating analysts; economists; political scientists; and finance and accounting professors. Other viewpoints that should be heard on various topics include the Canadian Association of Petroleum Producers, Greenpeace, the Alberta Chambers of Commerce, the Canadian Taxpayers Federation, the Alberta Federation of Labour, and First Nations groups. Leaders in the not-for-profit sector, education, and health care should also be invited to provide context and understanding on critical issues of service delivery and effectiveness of government programs. Another benefit of participatory townhalls and media is that members and staff of the proposed financial sustainability commission could also be participant listeners or guests, allowing them to listen directly to the spectrum of values held by Albertans and their understanding of the province’s fiscal challenges. It should also be mandatory for all MLAs, as ultimate decision makers, to listen to townhalls and forums either live or in recorded form.

Exploring values, principles, and biases. An open, transparent process that reaches out for diverse views will make for better, long-term fiscal policies and a greater acceptance by a more informed public. Of course, voters’ understandings of the current fiscal and economic situation in the province vary and most bring their own set of values, principles, and biases to the table. In reaching out to Albertans, a financial sustainability commission would need to gauge Albertans’ understandings of the current situation and gain an understanding of the broad values and principles that the majority would accept to guide a new fiscal framework.

The commission must demonstrate to the public that its study is not simply a ruse to obtain buy-in for a sales tax. To be effective, the channels of communication chosen by the commission should be designed to seek areas of consensus—that is, guiding principles that the majority find acceptable—by exploring particular issues on which there are fundamental disagreements. They should then explore how a sales tax might help or hinder in each case. Issues could include, to name a few, regulatory reform; pay and benefits in the public sector, including the use of performance pay for executives; private versus public delivery of health care; how resource royalties are used; the issue of balancing spending against revenue; the role of borrowing and savings in government fiscal policy; the use of technology in service delivery; reviews of government programs; and the impact of environmental liabilities on the province’s balance sheet.

At the end of this process, the commission would issue a final report, which would be made public at the same time as it is sent to cabinet members and all MLAs. The report would identify areas of consensus and a set of actionable recommendations. The government would then decide how best to implement a program to support long-run fiscal sustainability. The public would have a role here in holding the government accountable to the program’s correct implementation.

For any of this process to work, it must be based on a foundation of willingness on the part of politicians to engage honestly with Albertans about the province’s precarious fiscal situation and the role a sales tax could play in remedying it. Only then will it be possible for Alberta to shed the fiscal and environmental denial of governments past and begin implementing a fiscal sustainability program that makes sense for Albertans.

Some Policy Suggestions

A financial sustainability commission might also wish to consider two specific policy ideas, alongside the implementation of a sales tax. The first has to do with the Heritage Savings Trust Fund: a shining example of Alberta exceptionalism that feeds into antitax sentiment. I suggest that the commission may wish to examine the continuing utility of managing this pool of assets while Alberta’s debt continues to rise. The second policy idea relates to the existential crisis of climate change, and asks politicians to consider: Is the current policy of Alberta allowing the federal government to collect carbon taxes and to redistribute the moneys back to Albertans appropriate when the province is running large deficits?

Eliminate the vestiges of a “have” province. The Heritage Fund’s investment returns are typically higher than the cost of Alberta’s debt. However, as we saw in chapter 4, investment income is subject to wide fluctuations and exposes the province to risks outside its control—principally, the risk of a prolonged downturn in global equity and financial asset markets. To simplify the province’s finances, the liquidation of approximately $17.8 billion of the Heritage Fund’s assets (as of 31 March 2021) would be both a concrete measure and a symbolic move. It would be a concrete measure in terms of removing a complex administrative and policy process that costs the province millions of dollars.19 The proceeds of liquidation could be used to purchase some of the province’s outstanding debt in the open market. This would put an end to the arbitraging of the province’s assets and liabilities,20 and reduce balance sheet complexity. A liquidation would be a symbolic act in terms of underlining that the province is no longer “special” in any financial or economic sense—it is no longer a have province. The burial of the Heritage Fund would signal that the government is no longer in denial about the fiscal challenges lying ahead. To the public, there would no longer be any debate about the virtues of the Heritage Fund and net debt would essentially be the same as debt outstanding.

Reinstate the carbon tax. The carbon tax has become a highly charged and polarizing tax. As economist Mark Jaccard (2018) notes, a common complaint is that the money raised through this type of tax is not put to good use or does not effectively reduce the carbon footprint. It is widely accepted that at the current rate, and even at proposed higher rate of $170 per tonne of CO₂e (carbon dioxide equivalent) by 2030—compared to the $50 per tonne rate in 2022—carbon emission reduction goals will be hard to achieve. Given the way current political winds are blowing, a stronger rationale is required to buttress support for the continuation of carbon tax.

As noted above, the oil and gas industry has created vast environmental liabilities that will take many generations to clean up, assuming they can be cleaned up at all. Instead of using the carbon tax to redistribute income, a large-scale program could be undertaken to clean up orphan wells and pipelines, return farmland to productive use, explore ways to use wells for geothermal power, and commence a massive project focussed on cleaning up the vast oil sands tailings ponds. Such a multibillion-dollar, multidecade program would employ thousands of former oil industry workers for a just cause—a clean environment. This bold proposal has already been made in an Alberta Liability Disclosure Project report (Boychuck et al. 2021).

Some may object that this is an unwise use of public funds and amounts to cover up market and regulatory failures. However, regulatory measures could still be undertaken to bill licensees for cleanup costs, forcing large producers to book the liability adequately. This process would provide greater comfort to investors on the grounds that (1) the liabilities are being addressed; (2) companies are disclosing fairly the estimated costs incurred and future costs companies must face; (3) rating agencies can better evaluate the scope of environmental liabilities; and (4) the provincial government is seen to be an honest broker in dealing with these massive liabilities.

Alberta, as a political jurisdiction with a stand-alone credit rating, is now facing staggering environmental liabilities that, in a “worst-case scenario,” are almost equal to the province’s GDP. This does not include the provincial government’s debt of approximately $110 billion nor the $8.6 billion in unfunded pension liabilities (Government of Alberta 2021b, 22, 64). This situation should command the attention of all Albertans.