It’s becoming clear that the Notley NDP is intent on following the disaster policies set by the Rae government
There are many parallels between Alberta’s first NDP premier, Rachel Notley, and Ontario’s only NDP premier, Bob Rae. Some similarities, like the fact neither was expected to even contest the election let alone form a majority government, are interesting for conversation but not necessarily impactful on the lives of average Albertans.
There are, unfortunately, other similarities that will adversely affect the Alberta economy and the prosperity of Albertans now and for the foreseeable future.
The first worrying similarity is that Notley, like Rae before her, seems totally unconcerned with controlling government spending in the face of large deficits. Rae inherited a $3.0 billion deficit when he was elected in late 1990. His government increased spending by over $5.3 billion (or 13 per cent) in one year, resulting in a deficit of $10.9 billion. These increases came on top of the large increases introduced by Liberal Premier David Peterson. In the three years the Peterson Liberals governed as a majority, they increased program spending by 35 per cent.
The early actions of the Notley government suggest it is following the same course. Despite an expected deficit of almost $5.0 billion, the government has announced over $600 million in new spending, including $39 million for social assistance and housing, over $100 million for education, and a whopping $500 million for healthcare.
The second worrying parallel between Rae and Notley is their proclivity to increase taxes without understanding (or worrying about) how such increases affect competitiveness and economic incentives.
The Rae NDP aggressively increased personal income taxes and raised a host of other taxes including business taxes. These tax hikes came after large increases to the same taxes introduced by the Peterson government. The result was that Ontario was markedly uncompetitive with respect to many key taxes and the incentives for work effort, savings, investment, and entrepreneurship were eroded. The result was predictable: a sluggish economy throughout Rae’s tenure.
Alberta’s NDP government appears determined to repeat the tax and competitiveness mistakes of the Rae government. In the Throne Speech, the Notley government confirmed it will proceed with a 20 per cent increase in the province’s general corporate tax rate and introduce two new personal income tax brackets, eliminating the country’s only single-rate tax.
These changes mean all that remains of Alberta’s once meaningful tax advantage is the absence of a provincial sales tax. However, most economists agree that this is in fact not an advantage, since consumption taxes are among the least economically harmful taxes. In fact, Alberta would be better served economically with a low sales tax that allowed for even lower personal and business income taxes.
Surprisingly, unlike the Rae government that unsuccessfully tried to promote manufacturing, the Notley government seems uncompromisingly committed to reigning in what has been an anchor of the provincial economy: the oil and gas sector.
There have been a slew of announcements that undermine investment and development in the oil patch including the review of the province’s royalty regime with a clear eye towards collecting greater revenues and new environmental regulation including a doubling of the carbon levy. And the government has mused about replicating the disastrous energy policies of Ontario which have caused electricity prices to skyrocket and competitiveness to plummet.
The new government’s punitive approach to the province’s energy sector will have immediate, tangible effects. The marked decline in Alberta’s competitiveness make investment in neighbouring Saskatchewan and British Columbia as well as the Dakotas that much more attractive. It’s reminiscent of a comment by former Alberta Premier Ralph Klein when he joked that the most productive cabinet minister in Alberta was B.C.’s premier because his policies made Alberta so attractive for investment.
As our recent analysis demonstrates, there was nothing inherent about the election of the NDP in Alberta that predetermined bad policies. Saskatchewan’s NDP demonstrated in the 1990s and early 2000s that good policies are non-partisan. Unfortunately, it’s becoming clear that the Notley NDP will walk the same road travelled by the Bob Rae NDP of Ontario, with predictably similar results.
By Jason Clemens and Ben Eisen
Jason Clemens and Ben Eisen are economists with the Fraser Institute and co-authors of Fiscal Policy Lessons for Alberta’s New Government from Other NDP Governments.