Obsessed with ending Alberta's advantage

Mark Milke

National Post 
November 28, 2018, FP9 

Ralph Klein and Rachel Notley both inherited a fiscal mess when they became premiers of Alberta 23 years apart. In his new book, Ralph vs. Rachel: A Tale of Two Alberta Premiers, author Mark Milke looks at how both used the crisis to wrench Alberta in a new direction - Klein by slashing spending and taxes; Notley by imposing higher taxes, strict climate rules and activist government - and the stark difference in the outcomes. This second and final excerpt reveals how the NDP never let the party's deep unpopularity shake its determination to undo the unique tax advantage Klein gave Alberta, right up to when it finally got its big break.

In the chronicling of famous battles, military historians will point to a number of examples of campaign failures, where, with some foresight, commanders might not have lost entire armies. One example: Napoleon's invasion of Russia, which required the 650,000-strong French army to not only find and defeat Tsar Alexander I's army - a chronic problem as they kept escaping - but to win Moscow and survive the Russian winter, which they did not.

Another comes from Agincourt, where Henry V's much smaller English force defeated the French army under Charles d'Albret in 1415. Problems for the French included too-heavy armour on a crowded muddy battlefield, a disorganized commander, and French forces that mistakenly thought they were superior to the English. After the English initiated the battle, superior longbow arrows, better organization, professional and well-financed soldiers, and a charismatic king who led the charge, resulted in a French defeat. The men were cut down and into pieces by the advancing English.

If a common link exists in both military failures, it is the obsession by those in command to stick to some existing notion at all costs. Napoleon wanted Tsar Alexander I to sign a peace treaty that would have eliminated English trade with Russia; Charles d'Albret allowed himself to be drawn into battle when he should have backed away and allowed the English to advance to the coast and Calais. Which is where we might consider another not-so-magnificent obsession, and a hill New Democrats apparently wish to defend: their decades-long belief that Albertans are dramatically undertaxed.

The NDP’s message to Albertans: Tax yourselves more

The examples of this obsession are plentiful. In 1993, the NDP platform demanded new taxes on anyone earning over $80,000 plus higher business taxes. "We can no longer afford to be a tax haven for the rich," said Alberta NDP Leader Ray Martin, just as the election campaign started. Except the NDP leader skipped a relevant, recent fact: Don Getty's Progressive Conservative government had already increased personal and business taxes substantially, in 1987. Also, in the 1992 budget, the provincial government doubled the corporate tax rate from six per cent to 12 per cent, an increase that Getty's successor, Ralph Klein never reversed. By 1993, spending cuts were the only option left for an Alberta government after years of tax increases and red-ink budgets. The class warfare call to the battlefield fell flat, and in the election that year, the NDP vote dropped to 108,883 votes, half that of the 217,972 ballots cast for it in 1989. The party lost every one of its 16 seats held in the legislature before dissolution.

In 1997, the newest NDP leader (after Ross Harvey who served from 1994 to 1996), Pam Barrett, avoided another rush into the muddy field of tax hikes but did campaign on a platform titled "We're fighting back!" New Democrats railed against Klein's reductions in provincial spending - the ones the public endorsed in 1993. In 1997, the NDP again dropped in popularity at election-time, to 83,292 votes. Similarly, in 2001, just as the Progressive Conservative government cut taxes and moved to a single 10-per-cent income tax rate, NDP Leader Raj Pannu thought he spotted a winning strategy on the political battlefield: Divide and tax by class. Pannu observed that 80 per cent of Albertans made under $60,000, "so why not tax the rest?" The 2001 platform proposed $1 billion in new and higher taxes and $2.3 billion in new spending. The platform awkwardly called for a "more fair" income tax system with five tax brackets. Votes cast for the NDP dropped to 81,339 in the 2001 election.

In 2004, the NDP platform under leader Brian Mason avoided targeting individuals for tax hikes, though he demanded an end to planned business tax relief. In 2008 the party was back with calls for higher resource royalties. "Albertans deserve better than bargain-basement royalty rates," proclaimed Mason in his newest election launch, musing that "If Alberta adopted Alaska royalty rates, it would generate over $4 billion in extra revenue." The NDP promised to spend half that every year, $20 billion over 10 years to subsidize green energy. The results for New Democrats in 2004 and 2008 were 90,829 and 80,578 votes, respectively.

In 2012, personal tax hikes were again back on the NDP front-burner and in the party platform. Under Mason again, higher-tax hopes sprang eternal and the party tacked back to the fairness schtick: "It's time for everyone to share fairly in our province's prosperity," stated the NDP platform. The NDP saw more government, higher taxes, and a just society as inextricably linked. It lectured that it was "time that businesses and individuals with the greatest wealth pay more to support the services we all need." In 2012 the NDP price tag to fix the problem of undertaxed Albertans: $3 billion in new taxes. In the 2012 election, New Democrats managed to attract about 18,000 more ballots than they did in 1993, in a province where the population soared by 1.2 million in the intervening 19 years.

Softening up the public

Over the years, NDP allies repeated the same message, that Albertans were dramatically undertaxed. In 2010, Gil McGowan, president of the Alberta Federation of Labour, wrote how "Making Alberta's overall tax system comparable with other provinces could bring in an extra $10 billion to $18 billion per year." In 2013, the University of Alberta's Parkland Institute argued that Albertans could tax themselves by $11 billion more and "remain the country's lowest-tax jurisdiction."

The NDP itself followed the rationale in both 2012 under Mason and again in 2015 under its newest leader, Rachel Notley. They skipped the scary 11-figure estimates of what it would take to tax Alberta just like any other province; but Notley promised to right the supposed Klein-era tax wrongs. "The PCs failed to earn Albertans' full and fair value" on royalty rates, proclaimed the platform authored in Notley's name. The NDP promised to fix that, and for the wealthy and business to "contribute a little bit more."

The various appeals to tax Albertans ever higher repeatedly failed to inspire a rush to the polls, including, arguably, in 2015. Between 1997 and 2008, the NDP vote never recovered to even the devastating 1993 wipe-out levels.

After the May 2015 election win, the NDP was in a two-decade hurry to right Alberta's historic tax wrongs and it took all of 44 days between the party's win, and the legislation to actualize their long-held hope: That Albertans would finally face fair taxation. While the first official NDP budget was still months away, the government quickly corrected moderate-tax Alberta with its second bill in the legislature, An Act to Restore Fairness to Public Revenues.

In introducing the new and higher taxes, Finance Minister Joe Ceci used the fairness argument beloved by politicians who eagerly look at the wallets of others. "We are asking high-income earners and profitable corporations to contribute fairly to rebuilding our province," said Ceci, in announcing four new personal income tax brackets and a 20-per-cent hike in corporate taxes. "This measure will create a fairer tax system and help bring fiscal stability to our province so we are not so prone to boom-bust cycles."

It was unclear how higher taxes would smooth out the yo-yo economics of Alberta's resource-based economy; higher taxes in a recession were more, not less likely to dampen economic growth. Nevertheless, the October 2015 NDP budget hoped for $550 million from higher income taxes and $1 billion more from increased business taxes when fully implemented. Ceci, as with the Progressive Conservative finance minister before him, believed the province could tax its way to economic equilibrium and balance the books. It was an interesting theory and a dubious proposition.

Also, the NDP's fervent belief in higher taxes ignored the other side of the balance sheet, but they were not alone. Attention to the dry, boring-but-necessary details of government spending, from corporate welfare to public sector compensation, was critical though most often ignored by the chattering classes. That budget side skipped, the higher taxes became effective on July 1, Canada Day, 2015.

The NDP tax hit made it clear that the 14-year "experiment" in Alberta's popular flat tax now was definitively over. As if to make the point in dramatic fashion, all the NDP tax increases were worth almost $2.4 billion annually when fully implemented. But that was only the start. More would come to match the NDP's belief that Albertans were severely undertaxed. Helpfully, the newest tax to hit Albertans in a generation, since the introduction of the federal Goods and Services Tax in 1991, could be justified as part of a strategy to reduce carbon emissions.

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Excerpted from Ralph vs. Rachel, a Tale of Two Alberta Premiers. Copyright Mark Milke 2018. Reprinted with permission of Thomas and Black.