Calgary Economy

[Ramsayfarian]

Originally Posted by Fuzz

The problem with looking at healthcare and saying it needs cuts is that a lot of the extra cost seams to come from the horrible decisions continuously made at the top(within AHS and government), yet any cuts to have quick impact are going to hit the bottom. That whole sector in Alberta needs a serious injection of common sense.

We're also still paying the price for Getty's mantra of pave it, pension it or put up a hospital.

[lubicon]

Originally Posted by milomilo

http://calgaryherald.com/business/energy/oil-services-giant-baker-hughes-to-lay-off-7000-workers

The layoffs continue..

Originally Posted by Ramsayfarian

Service companies are the canaries in the coalmine.

I wonder if Halliburton might be regretting their offer to purchase Baker Hughes right about now. Or if they can use this as an opportunity.

[MalcolmTucker]

Originally Posted by Fuzz

The problem with looking at healthcare and saying it needs cuts is that a lot of the extra cost seams to come from the horrible decisions continuously made at the top(within AHS and government), yet any cuts to have quick impact are going to hit the bottom. That whole sector in Alberta needs a serious injection of common sense.

Health has actually been pretty reasonable these past few years, bringing down increases to around inflation plus population growth, which is pretty amazing.

I think it is entirely reasonable for two teachers, nurses, x-ray techs, and whatnot to expect to be able to make an income that supports a middle class lifestyle. Alberta is an expensive place to live.

[suburbia]

The BOC unfortunately cut the overnight lending rate. This is unfortunate, but those who lose their jobs won't be saved by a quarter percent in my view.

News out of DAVOS is that oil is expected to remain low for at least three years. North sea cutbacks galore.

Interestingly, if alternative fuel investments decline, this could possibly result in a massive boon for Alberta in five years. One Italian company has suggested that a scenario when OPEN keeps things low for three years would mean $200 oil in five years, with lack of infrastructure investment having ground the system down by then.

[McMurph]

Originally Posted by MalcolmTucker

Health has actually been pretty reasonable these past few years, bringing down increases to around inflation plus population growth, which is pretty amazing.

I think it is entirely reasonable for two teachers, nurses, x-ray techs, and whatnot to expect to be able to make an income that supports a middle class lifestyle. Alberta is an expensive place to live.

I agree that people need to make a decent salary. When it comes to the Health system, however, what physicians make in Alberta is obscene. It really spiralled out of control over the last decade or so. Although it's possibly being held in check at present, it's being held at a level that means we are supporting some of the highest paid specialists in the world. I really don't know how the AMA has managed to keep that secret and to maintain public support.

Aside from that grievance, I'm hoping that this financial crunch and Prentice's current invincibility gets us a smallish sales tax, hopefully in the form of an HST. It really is the fairest of all options.

[MalcolmTucker]

^ It really varies within the specialties, since technological change without fee change led to some really rich specialists.

The new AMA agreement helps with that, there is a Physician Compensation Committee which basically will search for these anomalies and transfer the savings to reinvest in other compensation. The last AMA deal was a great deal for the province, would have been hard to do better. Freeze on the entire fee envelop for three years even if the amount of services and doctors changes.

[MasterG]

Originally Posted by McMurph

I agree that people need to make a decent salary. When it comes to the Health system, however, what physicians make in Alberta is obscene. It really spiralled out of control over the last decade or so. Although it's possibly being held in check at present, it's being held at a level that means we are supporting some of the highest paid specialists in the world. I really don't know how the AMA has managed to keep that secret and to maintain public support.

Aside from that grievance, I'm hoping that this financial crunch and Prentice's current invincibility gets us a smallish sales tax, hopefully in the form of an HST. It really is the fairest of all options.

The compensation for physicians is wrongly based on the principle that physicians choose their location based purely on compensation. Financial incentives are a diminishing return for those guaranteed multi-hundred thousand dollar jobs anywhere within Canada. Particularly in the grueling field of medicine; few would last the program length and difficulty if they were motivated financially only. There are easier ways to make big money.

I remember this debate from a group of 10 friends enrolled at the U of C medical program. 3 were from AB, 4 Ontario and a scatter of BC & Quebec for the remainder. All went back to where they were from - apart from a trade between BC and Ontario. One AB friend ended up going to Toronto after a few more years here after they completed their residency.

Anecdotal of course, however I don't see why scaling doctor's salaries to the national average + 1% would not have yielded the same results and saved significant money.

Here is a Globe Article on the subject:

http://www.theglobeandmail.com/life/heal...re-canadian-doctors-paid/article7750697/

"The CIHI data show a “gross clinical payment per physician” of $307,482. That ranges from $250,000 in PEI to $350,000 in Alberta."

[Doug]

Originally Posted by MalcolmTucker

The problem with the provincial budget is this:
Capture by Odarwin1, on Flickr


So how do you reduce spending, when you don't really want to cut capital, and when the government already has a huge retention and recruitment problem (turns out people need to be able to afford a house/condo to want to work for the government — who knew?)

The biggest costs to the government are health, education, and infrastructure. Those are things people like. If you protect those and eliminate the rest of the government you still likely won't balance the budget.

You can freeze wages (add a year with a zero to everyone's contract), but that means all bargaining units in the province will have had at least 4 0% years in the past 6. You could do a full scale rollback, but if the economy takes off in 2 years again you will have the public service without any bench strength.

You can cut entire programs you deem useless, but look at the fire storm when pilot programs that were proven not to work or were replaced by a different pilot or permanent program had their funding pulled.

So what do you cut?

To get to real money, talking billions, not millions, spent in a single year, not amortized over 20 or 30 years, you have to cut real things, not symbolic things. The Wildrose never even got close in their 'budget planning' to bridging this gap with cuts, nor have the Liberals or NDP with cuts/taxes. The Alberta Party's leader has said they would ring fence off royalties to savings, but never really said what they would do to replace the revenue (he did acknowledge it would have to be around $10 billion in revenue though).

So is it bad?

Yes: we are in a bad place.

But,

No: In 1995 the province had $1.1 billion in net assets. Last fiscal closed at $44.9 billion in net financial assets. The province has huge space to maneuver, and time to figure out how to do this well.

The Province was also in a huge net asset position in 1982 that quickly eroded. No one knows how long this down turn will last. Running deficits on speculation that oil prices will recover in the medium term would be highly risky.

I would question the assumption that capex cannot decline:
-weakness in the construction market should bring down costs
-reduced growth expectations mean less capital required

A cool down in the labor market will also solve the recruitment and retention problem (if it ever really existed). In the 90's, the province got the public sector to sign on (no legislation required) to a 5% roll back after a decade of freezes. I worked as a medical lab tech in 1993 where wages had been frozen since 1982. In 1994, a 5% roll back went through. Since so few jobs came up, retention was never an issue (hundreds would apply for the handful of openings that came up each year). The labor market will likely not get anywhere as weak now as back then, but certain professions like teachers have enough supply of under and unemployed that even a 10-15% rollback likely wouldn't hurt recruitment.

[Doug]

Originally Posted by MalcolmTucker

Well, cigarettes generate a billion dollars a year in direct taxes for the Alberta government. Alcohol about the same. Even if direct taxes on pot is $100 million a year, that is nothing to sneeze at.

For a few years in the 90's, gambling brought in about the same tax revenue as O&G royalties. Maybe time to consider raising the quota on in-service VLT's and looking at new gambling options like sports betting.

[dazzlingdave88]

Originally Posted by MalcolmTucker

Health has actually been pretty reasonable these past few years, bringing down increases to around inflation plus population growth, which is pretty amazing.

I think it is entirely reasonable for two teachers, nurses, x-ray techs, and whatnot to expect to be able to make an income that supports a middle class lifestyle. Alberta is an expensive place to live.

As a teacher, I appreciate people like you.

It looks like education has kept cost increases minimal over the last 7 years with only a 2.2% increase during that time. While student population has went up 15%. I have noticed this in regards to class size.

Our current deal signed in September 2012 is for 0%, 0%, 0%, 2%.

Which means we are up for renegotiation around September 2016. I wouldn't be at all surprised if we sign another deal that is similar. I'm all for it as we are currently the highest paid in Canada. (But, good luck convincing my colleagues that)

[Doug]

Originally Posted by MalcolmTucker

Health has actually been pretty reasonable these past few years, bringing down increases to around inflation plus population growth, which is pretty amazing.

I think it is entirely reasonable for two teachers, nurses, x-ray techs, and whatnot to expect to be able to make an income that supports a middle class lifestyle. Alberta is an expensive place to live.

Remove the union distortion and wages will equalize with cost of living. AB is no more expensive than ON or BC, yet public sector wages are much higher.

The other issue is that current accounting rules do not fully capture the true cost of a public sector employee. A $80K per year teacher really costs much more once defined benefit costs are included. Future liabilities must be accounted in the present. Defined benefit pension plans are an off balance sheet scam under current public accounting rules.

[MalcolmTucker]

Originally Posted by Doug

For a few years in the 90's, gambling brought in about the same tax revenue as O&G royalties. Maybe time to consider raising the quota on in-service VLT's and looking at new gambling options like sports betting.

With the proliferation of casinos since that time, is there a bunch of unmet demand, or would it just be moving demand around? You don't see nearly as many VLTs in establishments in the cities anymore.

[suburbia]

Originally Posted by Doug

The other issue is that current accounting rules do not fully capture the true cost of a public sector employee. A $80K per year teacher really costs much more once defined benefit costs are included. Future liabilities need to be accounted for in the present.

That is across the board - not something that santa left for us with a lump of coal.

The real issue is of course way beyond reviewing salaries. It is that the rich don't pay an appropriate level of tax.

I know someone who works in Singapore and has a holiday property in Calgary on his wife's name. In the last year he traded in his M3 and X5 for a CLS63 AMG, GL500 & Quatrosport that sit in his garage/driveway here for most of the year. Buddy should have being paying sales tax on those, but the neo con mentality prevalent has held the province from putting such a thing in.

[MalcolmTucker]

Originally Posted by Doug

Future liabilities must be accounted in the present.

They are for current employees, the problem is from the really old liabilities, from when the public service really shrank then rates of return dropped like a rock.

I contribute 16% of my pre-tax income for my pension, which is matched. If I can withdraw what I have contributed, plus the match, plus the average rate of return from AIMCo it would be a wash compared to my future benefits.

But touch my future benefits? Not on your life (well, beyond the early retirement year, I can stand to work until I am 59 instead of 57) before I go consulting. I have had lower effective compensation to pay for that.

[RyLucky]

Two questions for Malcolm or anyone else who knows off hand:

1) Of the various revenue sources (income tax, sales tax, gas tax, liquor tax, royalties, etc), how does AB currently rate relative to other provinces? For example, my understanding was that families<$50k pay about the same tax as in most provinces, but families>$100k pay less tax, correct? What kinds of differences are we talking between us and our competitors?

2) How much would you ballpark estimate that could be earned by aligning our taxes and royalies with our nearest competitors?

For the record, I'm not necessarily advocating a position, I'd just like to be more informed. Thanks.

[MalcolmTucker]

Fortunately the government prepared this wonderful chart to help guide this discussion!

Alberta = $0 * Additional taxes Alberta individuals and businesses would pay if Alberta had the same tax system of other provinces.

AlbertaTaxAdvantageCapture
by Odarwin1, on Flickr

From this document: http://www.finance.alberta.ca/publicatio...grounder-on-Alberta-Fiscal-Situation.pdf

Other tid bits from the document:

it is estimated that a $4 billion reduction in government spending would reduce Alberta’s real economic growth by over 1%.

And whether Alberta's public sector compensation is disproportionate:

In 2013, private sector average weekly earnings in Alberta were 26% higher than the national private sector average. In provincial public administration, average earnings in Alberta were 12% above the national average for provincial public administration employees

The Alberta government has been successful in keeping public sector earnings proportionally using like to like comparable 14% lower than the private sector.

[Wooster]

Belt tighten a bit to be sure - but we see that we could easily close the ~$7 billion funding gap and remain by far the lowest taxed jurisdiction.

Then use royalties for what they should be - paying debt, saving, advancing capital strategically and investing in diversification.

Man, our province is short-sighted.

Originally Posted by MalcolmTucker

Fortunately the government prepared this wonderful chart to help guide this discussion!

Alberta = $0 * Additional taxes Alberta individuals and businesses would pay if Alberta had the same tax system of other provinces.

AlbertaTaxAdvantageCapture
by Odarwin1, on Flickr

From this document: http://www.finance.alberta.ca/publicatio...grounder-on-Alberta-Fiscal-Situation.pdf

Other tid bits from the document:


And whether Alberta's public sector compensation is disproportionate:

The Alberta government has been successful in keeping public sector earnings proportionally using like to like comparable 14% lower than the private sector.

[MasterG]

Originally Posted by MalcolmTucker

Fortunately the government prepared this wonderful chart to help guide this discussion!

Alberta = $0 * Additional taxes Alberta individuals and businesses would pay if Alberta had the same tax system of other provinces.

AlbertaTaxAdvantageCapture
by Odarwin1, on Flickr

This is a great graph. Excellent find Malcolm

I am always amazed how the "tax advantage" buzz-word in Alberta has permiated so deep into Alberta political and economic discussions. The theory that tax rates are only usually important for decision-making on the margin seems to be lost in the rabble-rabble-rabble of it all.

Cover the deficit tomorrow, lose no investment (due to tax increases at least) and still be the most competitive tax jurisdiction in the country by a good distance. Not to mention we get $5 - 10 billion extra per year of resource revenue for a sweet and ever-growing savings / investment fund.

[MasterG]

^^^

What Wooster said

[DizzyEdge]

What income would the income tax advantage be based on? it was my impression the flat tax here only gives an advantage at the ~$125k level or so.