David Staples: Whatever its merit, Danielle Smith's new economic ...
Whatever merit this new focus has, I can't see how delaying the tax cut now is anything but an iffy idea and bad politics
Published Feb 21, 2024 • Last updated 4 hours ago • 4 minute read
There may well be merit in Premier Danielle Smith’s new economic focus, but it feels like a bait-and-switch scam.
In a nutshell, Smith announced in her state-of-the-province address on Wednesday evening that she’s putting off implementing her most welcome and prominent economic promise of the May 2023 election campaign, a major reduction in personal income taxes amounting to $1,500 a year for each Alberta family with two income earners.
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“Promised personal income tax cuts will have to wait a year and be phased in responsibly,” said the premier.
Instead, Smith said her government will focus on balancing the budget, restraining spending, and, mostly, building up the Heritage Trust Fund. This is all good stuff but it still feels wrong, and that will especially be the case for Smith’s UCP base.
Before I detail how Smith postponing the tax cut is about as welcome as finding your mailbox stuffed with jacked utility bills and a photo radar ticket, I’ll spell out what Smith said and whatever merit it has.
First off, how can anyone now living through the debt, inflation and interest rate fiasco bought on by Justin Trudeau’s painful financial illiteracy not support fiscal responsibility?
Smith prominently mentioned the need for more cautious spending in her Wednesday address. “I have instructed our finance minister to limit government spending to below the legislated rate cap of inflation plus population growth, not just during lean years with lower oil prices as we expect next year, but also in years when high oil and natural gas prices result in billions of surplus provincial dollars.”
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There’s an obvious political calculation here. Public sector workers are clamouring for pay raises, just like everyone else. It will be much more difficult to take a hard line with them if Smith were to slash taxes just now. It’s easier to do so if the focus is on prudence all around.
Smith also promised there will be no spending cuts in the coming budget, but worried aloud that volatile oil prices could create hard times in Alberta in years to come, noting that $16 billion of the current $70 billion comes from unstable resource revenue. This, too, is fair comment. We’ve seen massive price swings even in the past few years. For example, in March 2022 the price for Western Canada Select was US$100 per barrel, reports Oilprice.com. But one year later it had crashed to US$51. It shot back up to US$72 in September 2023, but is now at US$58.
“I, and I suspect most of you, are growing tired of this budget volatility,” Smith said. “Bluntly stated, our province has become unsustainably dependent on non-renewable resource revenues.”
Smith said she’s now thinking “long-term.” She’s not going to raise taxes, but instead will “act decisively” to build up the Alberta Heritage Trust Fund.
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Of course, this isn’t a new priority. The UCP has been intent on building up the fund for a few years now. A significant portion of Alberta’s recent surplus went into it. The trust fund’s value will soon be $25 billion, up from $17 billion a few years ago.
More money will now go into the fund, Smith said, and “slowly but surely wean our province’s budget off the volatile roller-coaster of resource revenues.”
By 2050, Smith said the plan is for the fund to be between $250 billion and $400 billion.
There’s much to admire about such an ambition. The problem is, that’s not the main economic promise that got Smith and the UCP elected last May. Delaying the tax cut and suddenly playing up the Heritage Trust Fund creates the bait-and-switch vibe here.
Smith can argue that she never technically promised during the campaign the income tax cut would come in 2023 or 2024, just that it would come at some point during her mandate.
But it was her first major campaign promise.
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Folks were counting on it.
How many of us have seen years with little or no raise and now this new plague of inflation and high interest rates? Who among us isn’t engaged in serious belt-tightening at home? Who didn’t rejoice even a bit when Smith promised the tax cut and said, “after all, it’s your money. You earned it, not the government.”
In Alberta’s most recent fiscal update in November 2023, major budget surpluses of $5.5 billion this year, $2.1 billion in 2024-25, and $2.8 billion in 2025-26 were forecast. The promised tax cut was expected to cost $1 billion.
It was the winning promise of the last election. As much as any other policy, it defined Smith’s economic optimism.
Whatever merit this new focus has, I can’t see how delaying the tax cut now is anything but an iffy idea and bad politics.
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