Alberta Austerity Greece

Repeat after me: Alberta isn’t Greece

Last week it was Andrew Coyne; this week it’s Jack Mintz. Seems all the National Post’s favourite conservative commentators have suddenly decided to offer their Very Serious Advice™ to Alberta’s new government. While Coyne made a spurious comparison between raising the minimum wage and instituting a minimum income, Mintz outdoes him with an even more spurious comparison between Alberta and Greece.

Simply put, it is completely disingenuous to compare Greece to Alberta. Greece has seen its economy lose a quarter of its GDP since 2008 – a level of economic crisis unseen since the Great Depression. Unemployment has spiked to over 25%, youth unemployment is over 50% and poverty is widespread. While private creditors who participated in the pre-crisis boom have been bailed out, Greece has been forced into a vicious spiral of austerity driven by an unsustainable debt.

What’s the situation in Alberta? Alberta is still expected to grow, albeit very slowly, in 2015 according to most economists. Unemployment is up by 1% from a year ago, before the oil price crash. In part this is due to firms trying desperately to find efficiencies and cut costs to maintain profits. The picture is not rosy to be sure, but Alberta is in a wholly different category from Greece.

However, not only are Alberta’s problems completely unlike those of Greece, Mintz is wrong about Greece itself. Mintz joins the chorus of mystification that presents Greece as profligate rather than insolvent. It’s not the flow of “unsustainable deficits” but the stock of crushing debt and insolvency that is driving Greece deeper and deeper into crisis–one openly abetted by creditors hoping to make it an example for anyone else in Europe hoping to free themselves from the yoke of austerity.

Don’t just trust me on this – just ask the IMF. Its own research department has for some time been in the awkward role of playing “good cop” to the bad cop of the IMF negotiating teams in Brussels and Athens as well as their political superiors in Washington. An IMF report released in 2013 admitted that Greece should not have been put through the “extend and pretend” austerity wringer. New reports have focused on the roles of public debt reduction and inequality in hampering global recovery.

Crucially, Greece is part of a monetary union, the Eurozone, without a corresponding fiscal union. It is the worst of both worlds: it is bound to a fixed exchange rate regime within its major trading bloc without any mechanism to alleviate the effects of the uneven and unequal development this can produce. Alberta is part of a Canadian federation that shares the Canadian dollar but also engages in significant internal fiscal redistribution. As a province experiences economic decline due to an external shocks (like the recent oil price shock), increased federal transfers help alleviate the economic pain.

Finally, Mintz completely ignores the specificity of oil sands investment. As I’ve written before and as explained by the Financial Times just yesterday, oil sands investments are incredibly long-term (think decades), incredibly costly and geographically fixed. While oil sands producers are revising their future investments downwards, they can’t just pack up and leave. Indeed, the investments that have been made or are scheduled to come online in the next few years will continue to produce (the worse for the planet). The oil and gas industry is expected to increase production until at least 2030.

There is a significant, several-year timeframe to jump start the economy as the oil sands slowly adjusts to lower long-term investment. Clearly the fall in oil prices is and will continue to have effects on Alberta, but there is time to increase public revenues and move away from a boom-and-bust economic model.

Alberta today is an extremely low-tax jurisdiction, yet Mintz completely concentrates on the relatively small increase in corporate tax. He doesn’t mention the equally-important plans to increase personal income taxes on the highest earners. Remember too, that Alberta long ago completely eliminated its sales tax.

The fear-mongering implicit the wild projection of $9.2 billion in lost investment from a 2% tax raise does not quite jive with Mintz’s other projection of a meager $50 to $200 million in revenues from the same increase. If tax shifting is so easy, why would companies go to the trouble to uproot investment (remember: long-term, costly, geographically-specific) if they can just shift gains to other jurisdictions on paper? Hiring a few more tax lawyers and accountants is surely cheaper than moving shop to another jurisdiction.

Neither is increasing the minimum wage the dangerous proposition Mintz makes it out to be. Although that was the topic last week, in short, it could allow the lowest-wage workers to share more widely in the wage growth that has accompanied the oil boom. It can also start to generate greater internal demand to compensate for the fall in investment.

Likewise, expanding investment in healthcare and education, while finding ways to promote new industries to slowly take over from an extractive sector in crisis are not economically-destructive policies. For instance, as climate change caused by the extractivism that currently powers Alberta’s economy continues to progress, agricultural growing lands are migrating northwards. CIBC’s former chief economist recently provocatively argued that Alberta is well primed to become a new bread-basket and carbon mitigation policies could help speed up the transition.

The point is not that any single policy is a magic bullet, but neither is anything on the table now a death wish. Alberta has the time, the resources and the political will to make start changing its economic model. Fear-mongering, whether with spurious comparisons to Greece or grim prognostications of the results of mildly redistributive policies, is not only unhelpful but completely disingenuous.

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