Strange bedfellows indeed

Ted Morton uses the budget to take care of electorally armed-and-dangerous departments: seniors, health, and education

by Colby Cosh

The theory that new Alberta finance minister Ted Morton was put in place to placate the fiscal hawks and play the cold-eyed budget-slasher—a zombie Steve West—was always dubious. I’m not saying Morton wouldn’t suit the role, and he may still be called upon to wield the scalpel. But the Stelmach government has one obsessive, overriding imperative: to announce a budgetary surplus for the fiscal year 2012-13, immediately before calling an election. And Alberta’s revenues depend to a fantastical degree on world prices for commodities, chiefly natural gas (though the end-products of the tarsands are catching up fast).

So either the Tories will pull it off or they won’t. Morton’s job is to keep the fiscal plan on track for the 2012 “Mission Accomplished” announcement and pacify various interest groups in the meantime—if possible, without exhausting the rainy-day Sustainability Fund established in 2003 to address temporary revenue downturns resulting from the volatility of Alberta’s petro revenues.

As of today, the master plan is still pretty much on target. Revenues were slightly stronger than expected for 2009-10, limiting the deficit to $3.6 billion. Today’s 2010-11 budget allows for another deficit of $4.7 billion with a 4% overall increase in spending. After that, the government expects gas prices to rise slowly from the present trough and pull Alberta out of the red. The futures markets expect pretty much the same thing. (Alberta finance ministers could conceivably play dirty with oil-and-gas pricing projections, since they ultimately get to pick which forecasters they listen to; but while the temptation must be strong, as a rule they refrain. International lenders and rating agencies are watching, and they expect stern realism. From governments, anyway.)

That’s not to say that Morton and his predecessors haven’t cut things close. The projected 2012-13 surplus is tiny and the amount expected to be left in the Sustainability Fund account is less than $3 billion. One unexpectedly warm global winter or other economic shock could eat into both quantities fast, as could a simple continuation of the methane glut. And that would mean scalpel time. The Finance Minister is already screwing a tight lid on spending in some areas that are, considered from a non-Machiavellian moral standpoint, particularly recession-sensitive: child-welfare interventions, employment retraining for adults, anti-homelessness measures and social housing (whose relevant ministry’s 2010-11 budget takes a 19% boot in the shorts).

But, like the political scientist he is, he’s taking care of the electorally armed-and-dangerous departments: seniors, health, and education—the S.H.E. Who Must Be Obeyed when governing a province. Anybody who still thinks of Morton as a whip-cracking Wyoming cowboy bent on Goldwaterizing Alberta should contemplate the astonishing reactions to this budget. The president of the Alberta Federation of Labour called it “clearly a victory” for public services (by which they mean, “for the union”). The Friends of Medicare (i.e., the Most Holy Order of Nurses Militant) agreed. The President of the Alberta Teachers’ Association, still amicably disposed after its pension bailout, declared with satisfaction that “The government listened to Albertans.” These are the dogs who have barked loudest and most persistently during the past 17 years of Conservative government. Ted Morton sure makes for a funny-looking pack leader.

Strange bedfellows indeed

  1. Gas prices improving, even with all the new shale gas plays in the US?

    • The gas prices the fiscal plan is predicated on are well below the futures prices already. If you have some reason for thinking they're still too high, you shouldn't be messing around here, you should be out making your millions.

      • This assumption is one I find difficult to accept:

        Alberta is standing by its forecast return to budget surpluses in three years, although that is based on the assumption that oil sands production will grow faster than industry expects and wages will climb at an extraordinary pace. According to government estimates, a person making $100,000 today will be making $125,000 by the end of 2013. Slower wage growth could reduce revenue from personal income tax, the single-largest source of cash for the province.
        http://www.theglobeandmail.com/news/politics/in-a

        That's like 8% per year. Does Kenneth Whyte have that built into your budget?

        My

        • Since we're at the start of 2010, it's more like 6% per year, but that does seem kind of unrealistic. It would help a little that the income-tax rate is flat (meaning that the marginal dollars at the top end and the high-income earners themselves are each less important to revenue), and estimates of labour-force participation are probably more important than wage growth among the already-employed.

  2. I think these two comments have it right. As US pressure for "energy security" heats up, all of the shale gas promoters will start to push their products. And that will keep NG prices down. So Alberta and BC have to hope that the environmental concersn outweigh the benefits of shale.

    And of course we are talking about a pipeline from Mackenzie, which will only add supply.

    In a related note, after insulating my house and replacing the windows, my natural gas usage dropped 60%

  3. The theory that new Alberta finance minister Ted Morton was put in place to placate the fiscal and hawks and play the cold-eyed budget-slasher—a zombie Steve West—was always dubious.

    My feeling was that Morton was put in place to bash the feds over "Alberta's" transfer payments to other provinces – which itself is dubious because "Alberta" does not make transfer payments – they come out of general revenue from GST and Fed income taxes. Always a good idea to direct anger elsewhere to take the focus off one's own internal political problems. Old trick.

    And to appease O&G companies (and counter Wildrose) with his views on climate change.

    Still, I was surprised by the size of the deficit, and some of the underlying asumptions for commodity prices. If Wildrose comes out with a bunch of cuts in their shadow budget, will they be perceived by the public as being meanspirited and overly harsh? That may also be part of the strategy to marginalize them.

    • "That may also be part of the strategy to marginalize them."

      Indeed, it is. It also positions Morton in a way he can't be wholly comfortable with. WRA supporters are already portraying him as an innocent victim–just as Danielle Smith (in her interview with Peter Mansbridge) has blamed the federal deficit on opposition parties, not Stephen Harper.

    • More mean-spirited than the Conservative cost cutting of toiletries from hospitals and funding to disabled children? The Conservatives have done this to themselves and shouldn't be surprised when they get hit hard come next election.

      • Of course more mean-spirited–unless the WRA intends to position themselves to the left of the government. The thing is, they won't say what they intend to do. One of the Danielle Smith's most frequent talking-points thus far has been that the WRA doesn't speak about "socially-divisive" issues.

  4. While I agree with your analysis overall, I would point out that natural gas is not a commodity whose price is determined by global demand. Not withstanding liquefied natural gas, NG is a very regional commodity. For instance, over the past couple of years, NG in the U.S. Rockies foothills has been priced at almost ½ the average North American price, due entirely to a lack of transportation capacity. Alberta gas shouldn't suffer that this same fate, since there is more than adequate transportation capacity to get its gas to the major American and Canadian markets. However, it wouldn't take a “globally” warm winter to undercut NG prices in Alberta. Simply having an unusually warm winter in the northeast U.S. would be sufficient.

    • Alberta at one time was also bottlenecked, until they added new pipeline capacity. If, as you suggest "in the U.S. Rockies foothills has been priced at almost ½ the average North American price, due entirely to a lack of transportation capacity", they could do the same. I'd be surprised if they didn't.

  5. I think the PC's have read the public wrong. We want fiscal discipline and what we get is ever growing spending. This isn't just a revenue problem. revenue is similar to the early 2000's but spending is much, much higher.

    Even when this bunch manages to cut they just turn around and spend it somewhere else.

    The Wildrose Alliance should be able to make hay for a year with this budget.

  6. As I mentioned on Wells' s mag article 5 days ago:

    Getting Alberta to act on the oil sands emissions issue will only occur from pressure outside the country – similar to how activists targeted clear cut logging in BC by targeting Canadian lumber company customers in Europe, for example. While any cap and trade legislation may get bogged down in Congress, efforts directed at the state and municipal level in the US will still proceed, and can be just as effective. The activists are quite sophisticated down there, and have deep pockets.

    http://www2.macleans.ca/2010/02/05/why-prentice-t

    Just an hour ago on BNN. Just the start in the US, which could very well snowball. Maybe not.
    (go to 6:30).

    http://watch.bnn.ca/the-business-news/february-20

  7. *ahem*

    Danielle reminiscing back to when he was nine. Did she have the Alberta special edition NEP Barbie?

    "There is absolutely no question," Ms. Smith told The Hill Times. "People here are very uneasy here when they start hearing Ontario and Quebec dog-piling on our industry. It raises spectres of the NEP and the economic pain we went through as a result of that program in the 80s."

    http://www.thehilltimes.ca/page/view/wildrose-02-

  8. The gas price is improving alright. But not that stable though.

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