WEDNESDAY, MARCH 11, 2020 | THEGLOBEANDMAILO A
OPINION
NEWS |A
lberta has been here be-
fore. And not that long
ago.
But the latest collapse in oil
prices could certainly not have
come at a worse time for the
province’s economy, which has
been in stagnation since the last
crude crash five years ago. It was
just showing signs of modest
growth.
It’s impossible to say what fate
awaits Albertans this time. Pre-
mier Jason Kenney said on Mon-
day that the province is in un-
chartered territory. The combi-
nation of a global energy slow-
down as a result of the
coronavirus, combined with the
bizarre decision by Saudi Arabia
to flood the market with oil at
the same time, has led to a price
decline not seen in ages.
No one is sure where things go
from here.
Unfortunately, governments
in Alberta have rarely learned
from these events in the past. In-
stead, they have plodded along
the same path afterward, plun-
dering their oil riches until the
next great fall. Sadly, they are
likely to do the same thing again
this time, racking up debt to un-
heard-of levels in the process.
University of Calgary econo-
mist Trevor Tombe did some
ballpark estimates on provincial
deficits over the next few years
given current prices – on Mon-
day, West Texas oil closed at
US$27 a barrelbelow thegovern-
ment’s US$58-a-barrel forecast in
this year’s budget. (It’s estimated
that for every one dollar drop in
the price of oil belowgovern-
ment estimates, roughly $355-million gets extracted from the
provincial treasury.) Mr. Tombe
estimated a deficit of between
$11-billion and $12-billion this
year, another $8-billion to $9-bil-
lion the next and up to $4-billion
the year after that. It would put
the province’s overall debt at
well past $100-billion.
Mr. Kenney is convening an
advisory panel chaired by econo-
mist Jack Mintz to help chart a
course of action. Unfortunately,
the Premier has already ruled
out a sales tax.
Now is precisely the time to
ask people in the province to
make the kind of “sacrifice” they
should have been making for
years. A modest 2-per-cent sales
tax would hardly impose an im-
possible burden on Albertans,
while helping alleviate some of
the damage that the price col-
lapse is imposing on the prov-
ince.
More importantly, it would
condition people there to the
idea of a tax that the rest of us
pay every day.
Economists have been sayingfor decades now that the prov-
ince’s books should never com-
pletely depend on revenues from
something as unpredictable as
oil. At best, the government
should count on a small fraction
of those annual revenues that it
could certainly rely on, and put
the rest in a “rainy day” fund for
occasions precisely like the one
in which we are currently.
The same economists have al-
so been saying that the province
needs a reliable source of income
to help during these inevitable
downturns. As it’s been pointed
out here before many times, a
sales tax of 5 per cent – which
would be the lowest among the
provinces in the country – would
have helped eliminate several of
the deficits the province has in-
curred over the last several years.
But no,governments have come
to believe the adage that PST
stands for Political Suicide Tax.
Well, then.
At some point, the compas-
sion one has for a province down
on its luck has limits. If Alberta
does not want to do anything tohelp itself out of these messes
when they invariably arrive, then
you can’t feel too badly for them.
It’s like a child that won’t listen.
Eventually, you have to let them
sort out these problems for
themselves. That’s the only way
they will learn.
In the case of Alberta,govern-
ments have always relied on the
markets eventually returning to
their old selves, and oil royalties
returning the provincial coffers
to overflowing. Well, there are
new winds blowing in the energy
sector that suggest those days
may be gone for good.
Alberta does have the capacity
to add more debt to its books
without upsetting bond rating
agencies too much. But like a
snowfall that is left unattended,
it just makes it that much harder
to dig out from under.
They say that a crisis is a ter-
rible thing to waste. Unfortunate-
ly, Alberta has wasted them be-
fore. Premier Kenney has an op-
portunity to make sure that
doesn’t happen this time
around.Alberta,acrisisisahorriblethingtowaste
There’saneasy,reliable
sourceofincomeunder
theprovince’snose–so
whywon’tJasonKenney
takethesensiblepath?
GARY
MASON
OPINIONJ
ohn Barry, author ofThe Great
Influenza: The Epic Story of the
Deadliest Plague in History,was
on the phone from New Or-
leans. His book on what came to
be known as the Spanish flu has
suddenly become relevant for ob-
vious reasons.
In the U.S., about 28 per cent of
the population became infected
with the Spanish flu and 500,
to 675,000 died from that disease
between 1918 and 1920. The death
rate was similar to the 2-per-cent
estimates on the new coronavi-
rus. The Woodrow Wilson gov-
ernment was in power. It tried to
hide the impact of the virus.
Asked what lesson the Trump
administration should learn from
what happened back then, Mr.
Barry said in a phone interview,
“Be truthful. They certainly
haven’t learned that yet and they
may never learn it and it will end
up killing people.” He thinks Do-
nald Trump has been making a
mistake, as Mr. Wilson did, in try-
ing to play down the threat.
In the critical midterm elec-
tions of 1918, Mr. Wilson was hit
hard. Republicans emerged with
a two-seat majority in the Senate
after picking up a net six seats,
and they also gained 25 seats in
the House. Taking control of the
Senate enabled the Republicans
to deny entry of the United States
into the League of Nations. The
League was a dream not just cher-
ished by Mr. Wilson, but by others
too.
Mr. Barry, who is in contact
with officials dealing with the
coronavirus epidemic, says the
White House has badly erred in
not following the advice of public
health officials. The Trump team
has reportedly been in turmoil
with some officials advocating a
remain calm approach, others
pushing for dramatic measures to
contain the epidemic. Vice-Presi-
dent Mike Pence, who is in charge
of the file, has not inspired confi-
dence. Mr. Trump has put out
word that the situation is under
control only to be contradicted by
much evidence to the contrary.
In 1918, it was believed that Mr.
Wilson himself contracted the
Spanish flu and that it badly
weakened him in postwar nego-
tiations. Mr. Trump’s new chief of
staff Mark Meadows is in self-im-
posed quarantine after coming
into contact with an infected per-
son at a political event. Even
though Mr. Trump was on Air
Force One with a coronavirus-ex-posed Republican, Mr. Trump has
not been tested for the virus.
All that Mr. Trump seems to
care about, as Mr. Barry says, is his
self-interest, which is re-election.
His mood cannot be good. He’s
still in his first term and a poll of
nearly 200 top political scientists
has come out ranking him as the
worst president in history. It’s the
type of thing that drives him
mad.
His blossoming economy, the
key to his re-election, is suddenly
tanking. The health crisis is one
for which he cannot rely on old
methods to make go away. He
can’t pin the blame on the Demo-
crats this time. (Although Mr.
Trump certainly tried: “The Oba-
ma administration made a deci-
sion on testing that turned out to
be very detrimental to what we’re
doing,” he said last week.)The vi-rus wasn’t developed in Alexan-
dria Ocasio-Cortez’s laboratory.
Insults won’t work either. The vi-
rus does not have a low IQ. As for
the deep state, the federal bu-
reaucracy that he alleges has
been out to get him, he needs it
now, the health agencies and oth-
ers, to bring the virus under some
kind of control.
Having been slow to respond
to it, having put out wrong infor-
mation, this crisis risks becoming
Mr. Trump’s Katrina.
“I don’t think we can ignore
how disastrous their perform-
ance has been,” said the Demo-
cratic Senator Chris Murphy. “In
many ways this was the moment
we feared: a true security threat
to the nation and a president who
can’t tell the truth, who can’t or-
ganize a consistent response and
doesn’t have enough experi-
enced people on the job.”
There is still time for Mr.
Trump to reverse course and gain
some control of the situation. Na-
tional crises provide presidents
with enhanced emergency pow-
ers. In many ways, COVID-
plays to Mr. Trump’s nationalist
agenda of stricter border con-
trols. For the economy he will
take extraordinary measures of
stimulus for those most affected.
He had been talking about anoth-
er tax cut before the fall election.
With so many businesses taking a
hit from the virus, he will now
likely be able to get one passed.
Such measures may be called
for. But given his penchant for
overrunning democratic norms,
he will now be even more in-
clined to exercise authoritarian
levers.
The self-proclaimed very sta-
ble genius is someone who ig-
nores realities, preferring to cre-
ate his own. The extent to which
he may go now to create an alter-
native reality is a frightening
thought.EventhestablegeniusDonaldTrumpcan’tbullyadeadlyvirus
LAWRENCE
MARTIN
OPINIONU.S. President Donald
Trump, accompanied by
Vice-President Mike
Pence on Capitol Hill in
Washington on Tuesday,
speaks to reporters about
the coronavirus outbreak.
ALEXBRANDON/
ASSOCIATEDPRESSWASHINGTON
T
he sudden collapse of
world oil prices has focused
much attention on the
province of Alberta and its fi-
nances. Rather less attention has
attached to Newfoundland and
Labrador. Sliding toward bank-
ruptcy even before the current
crisis, the province may soon be
hurtling over the proverbial fiscal
cliff.
Alberta’s net debt as of last
year stood at $27.5-billion. New-
foundland and Labrador, with
less than one-eighth of Alberta’s
population, owed $15.4-billion.
That’s directgovernment or “tax-
supported” debt. Add in the
broader public sector, notably
the province’s power utility, Nal-
cor, and that balloons to some-
thing closer to $25-billion today,
or roughly two-thirds of the prov-
ince’s GDP. And it is only going to
get worse from here.
Ostensibly Nalcor’s debts are
“self-supporting,” meaning they
can be financed by charges to the
province’s power consumers. The
galloping debacle known as
Muskrat Falls has exposed that
fiction. Announced with much
fanfare, inflated revenue fore-
casts and bogus accounting in
2010, the massive hydroelectric
project is now an acknowledged
fiasco, years behind schedule and
costing more than twice its origi-
nal estimate of $6.2-billion.
Were the costs of servicing the
project’s debts to be passed on to
consumers, it would mean a dou-
bling of electricity bills – unthink-
able in a province in which nearly
half the population depends on
electricity to heat their houses.
Were the province instead to bor-
row the difference, its debt-ser-
vice costs would soar from about
$1.4-billion today to more than
$2-billion, or roughly a third of
the revenues it collects annually.
Not that the latter are in short
supply. Thanks in large part to its
oil wealth, Newfoundland and
Labrador’s economy generates
much more in revenues than any
other province – about a third
more than the national average.
The problem is that it spends
even more – in excess of
$8-billion annually, againstroughly $6-billion in taxes and
other revenues. It gets about a
billion dollars from the feds, and
borrows the rest.
That was unsustainable
enough when oil prices were at
US$65 a barrel, the price on
which the last budget’s forecasts
were based. With prices now at
about half that level, the prov-
ince stands to lose hundreds of
millions in royalties alone, to say
nothing of the broader impact of
a recession. Cut spending, then?
The province’sLiberalgovern-
ment tried that early in its first
term, ran into stiff opposition
and gave up. Spending cuts are
still pencilled in, but always for
future years.
With its debt set to soar, even
as GDP falls, the province’s fi-
nances are already blinking red.
But now look further ahead.
Newfoundland and Labrador’s
population is both shrinking and
aging; both trends are certain to
continue.
By 2040, the province’s “medi-
um” projection suggests, roughly
one-third of Newfoundland and
Labrador’s population will be
over the age of 65, up from 22 per
cent today.Health care currently con-
sumes nearly 40 per cent of pro-
vincial revenues. What will that
ratio have grown to by then? The
province’s remaining young peo-
ple can do the math as well as
anyone. How many of them will
stick around to see their predic-
tions borne out?
The question that naturally
arises, in view of this kind of spi-
ral, is: Will the province default
on its debts? Or will the federal
government bail it out? The an-
swer to the second is: The bailout
has already begun. The first in-
stalment came through last
year’s $2.5-billion “renewal” of
the Atlantic Accord – a grand
name for a crude shakedown,
whereby thegovernment of New-
foundland and Labrador threat-
ened the seats of MPs from suc-
cessive federalgovernments to
keep the payments flowing from
Ottawa even as the province be-
came ineligible for equalization.
Next,it would seem, is a deal
to relieve the province of the bur-
den of Muskrat Falls. The terms of
the agreement announced last
month remain opaque, but it ap-
pears to involve some attempt to
“monetize” the project, sellingoff bits in exchange for a share of
the revenues they generate. The
federalgovernment might even
be the purchaser, which, if past
practice is any guide, sets up a fu-
ture scenario in which Ottawa
signs over the revenues from as-
sets it purchased from Newfoun-
dland and Labrador ... back to
Newfoundland and Labrador.
It’s far from clear that even
this will be enough to save the
province. A default, of course,
would be catastrophic, not only
for Newfoundland and Labrador
but for the other provinces,
whose own debts would come
under suspicion. But a bailout
would be even worse. If New-
foundland and Labrador can be
bailed out, the other provinces
will say, why can’t we? And so
long as the bailout option is avail-
able, what incentive do any of
them have to take the hard steps
necessary to rein in their own spi-
ralling debts?
The federalgovernment’s fi-
nances are often said to be sus-
tainable. But it will be increasing-
ly difficult to disentangle them
from those of the provinces.
Newfoundland and Labrador
may be the first test.Canada’sbiggestfiscalcrisisisn’tinAlberta.It’sinaprovincemuchfarthereast
ANDREW
COYNE
OPINION