Feigning austerity, budget sets table for tax hikes

With the province’s budget about to come down on March 7, it’s time to read the entrails of what Albertans can expect this year, and next.

Derek Fildebrandt – Let’s Talk Taxes

With the province’s budget about to come down on March 7, it’s time to read the entrails of what Albertans can expect this year, and next. Since it became apparent in September that the government’s election commitments were worth as much as Nortel stock, the Tories have dropped many hints and have been busily spinning away at public opinion. Combined with the hard numbers, the government’s hints allow at least some prediction of what to expect.

For all the bleating from the government about its invented “revenue problem,” public opinion will likely keep real tax hikes at bay — this time. Premier Alison Redford made clear during the election last spring that she would balance the budget by the end of 2013 without raising taxes. She is already likely to break this balanced budget commitment. Breaking her no new taxes pledge would require a titanic spin effort to convince Albertans of its necessity.

And that is where things become interesting.

If the government is ultimately intent on raising taxes, it will have to at least feign austerity first. Without at least pretending to cut the fat, few in the public would buy into a plan to raise taxes.

For this, expect short-term, modest spending restraint, but no cuts. A few examples shed light on the government’s mood. MLAs have already agreed to a pay freeze. And Finance Minister Doug Horner has announced bureaucratic managers will see a 10 per cent reduction in numbers over three years. This is easily attainable through modest attrition. This comes at a time when the average bureaucrat is costing taxpayers $102,000 a year in wages and benefits alone.

After increasing spending by 25 per cent over the last decade (after accounting for inflation and population growth), spending is still expected to increase in 2013, albeit at a slower pace. There has been precious little noise coming from the government in the way of an actual spending cut.

Shirking its promise to balance the budget, the government has weaseled its way into only balancing the “operating budget,” that is, the day-to-day expenses of the government, and not including infrastructure spending. The Canadian Taxpayers Federation (CTF) calculates that even this incredibly modest goal might not be met, as the government could run an operating deficit $270 million or more. The  government has said until it’s blue in the face that this will not happen however, making the prospect of actually doing so quite embarrassing. To avoid this, the government may shift some money off of the operating books and onto the capital books. The only thing that would change is politics.

This of course won’t change the real deficit. The CTF estimates that the cash deficit (which includes borrowing) could be somewhere between $5 and $5.5 billion this upcoming year.

The Sustainability Fund will most certainly be entirely depleted between this budget and next. Finance Minister Doug Horner has denied this, meaning that he has only one option: finance the government’s operations with debt. Once that debt exceeds the cash left in the Sustainability Fund, the result will be the same as the Sustainability Fund running dry.

By this time next year, Alberta will be a debtor province again.

To put one’s tinfoil hat on, this may be to set the table for tax hikes in 2014. No government in Alberta (that doesn’t have a political death wish) would raise taxes without carefully tilling the ground in advance.  After feigning spending austerity in this budget, the government may feel it has social license to go cap in hand to taxpayers next year.

Without actual spending cuts in 2013, it will be easy to predict that there will be tax hikes in 2014.