Getting Off, and Staying Off, the Royalty Roller Coaster

1. Getting Off, and Staying Off, the Royalty Roller Coaster Ron Kneebone Director of Economic & Social Policy Research The School of Public Policy University of Calgary December 3, 2015 www.policyschool.ca

12. (* Excludes Resource Revenues and Investment Income)

15. Relying on energy royalties to balance budget • “Tax price” of spending falling

18. Ralph Klein

21. The Budget Gap Expenditure = Tax Revenue + Resource Revenue + Investment Income + Borrowing Expenditure – Tax Revenue = Resource Revenue + Investment Income + Borrowing Gap = Expenditures not paid for by taxes = Amount of Resource Revenue + Investment Income required to avoid a deficit

24. Strong but insufficient response -- Getty

25. Strong but insufficient response -- Getty Strong and sufficient response -- Klein

26. Strong but insufficient response -- Getty Strong and sufficient response -- Klein But it didn’t last…

27. Strong but insufficient response -- Getty And what had been accomplished under Klein was lost by 2011 Strong and sufficient response -- Klein But it didn’t last…

28. $4,407

29. Shrinking the Gap (-$1,584) by; • Increased revenue ($1,141 or 72%) • PIT +$477 • CIT +$443 • Cuts to spending ($443 or 28%) • Education -$395 • (Health held to +$65) $4,407

30. Shrinking the Gap (-$1,584) by; • Increased revenue ($1,141 or 72%) • PIT +$477 • CIT +$443 • Cuts to spending ($443 or 28%) • Education -$395 • Health held to +$65 $4,407

34. Three Budgeting Issues The Gap in 2018 is scheduled to be $2,462 (real per capita) Balancing the budget will require over $11 billion in resource revenue and investment income Currently at $5.6 billion A high-risk budgeting strategy to maintain a Gap of this size while hoping and praying for oil prices to rebound How Feasible is the Spending Plan? Restarts the growth in Health spending that the PC’s had halted because outcomes were not improving and dramatically increases Education spending Growing Debt Service $271 million in 2004 / now at $778 million The goal of maintaining a 15% debt to GDP ratio will require this to be much larger

35. Three Budgeting Issues The Gap in 2018 is scheduled to be $2,462 (real per capita) Balancing the budget will require over $11 billion Currently at $5.6 billion A high-risk budgeting strategy to maintain a Gap of this size while hoping and praying for oil prices to rebound How Feasible is the Spending Plan? Restarts the growth in Health spending that the PC’s had halted because outcomes were not improving / dramatically increases Education spending Growing Debt Service $271 million in 2004 / now at $778 million The goal of maintaining a 15% debt to GDP ratio will require this to be much larger

36. Three Budgeting Issues The Gap in 2018 is scheduled to be $2,462 (real per capita) Balancing the budget will require over $11 billion Currently at $5.6 billion A high-risk budgeting strategy to maintain a Gap of this size while hoping and praying for oil prices to rebound How Feasible is the Spending Plan? Restarts the growth in Health spending that the PC’s had halted because outcomes were not improving and dramatically increases Education spending Growing Debt Service $271 million in 2004 / now at $778 million The goal of maintaining a 15% debt to GDP ratio will require this to be much larger

37. Conclusion Alberta has ridden the royalty roller coaster for a long time Getting off the roller coaster will require some combination of tax increases and spending restraint The new government has halted what had been a serious and successful effort to do this Staying off the roller coaster will require a commitment to match new spending with new tax revenue The new carbon tax perhaps illustrates this commitment but it comes before the roller coaster has stopped.

38. Thanks for Listening!