THE BLOG

Alberta Throws Jim Dinning's Reforms Overboard

03/21/2013 02:08 EDT | Updated 05/18/2013 05:12 EDT

For those who don't normally read budget documents, here's what the Alberta government just did in its 2013 budget: they abandoned the sensible budget and financial framework that former Progressive Conservative Finance Minister Jim Dinning introduced in 1993.

Some history for those too young or too new to Alberta: Dinning, the province's finance minister between 1992 and 1997, was the chief architect of budget pruning and budget reforms. Such reforms came on the heels of a previous decade's worth of budgets where the numbers were so politicized as to make them untrustworthy and often unclear.

Post-1993, the Dinning reforms laid out the bare facts, for good or ill, whether flattering to a government or ugly in the light of day.

On a go-forward basis, regardless of whether one wanted higher taxes, less spending, more borrowing or some combination, the books would at least make clear the state of the province's finances.

Post-1993, anyone with rudimentary mathematical skills could glance at a one-page summary, the Historical Fiscal Summary, in the back of the budget and get a clear sense of provincial finances over the past several decades.

All that was chucked overboard in Budget 2013; the government of which Jim Dinning was once a part has just made his sensible budget reforms walk the proverbial plank.

The provincial government has now made blurry what was once clear, and made confusing what was once straightforward. Dinning's reforms and budgets--ones copied in budgets ever since and until this year--were designed so that one didn't need to be an economist, an accountant or a finance department official to understand how the government spent, taxed and got the province in or out of debt.

No more. And for those who think I exaggerate, pick up the new budget and try and figure out how much money the province is short versus what it plans to spend. You have to thrash through operating spending and then capital spending; you must then look at revenues and expenses in both categories, figure out cash adjustments and then start number-crunching.

The province and some of its apologists argue this is good accounting, that it mimics private sector norms.

That misses this salient point: Imagine a homeowner who earns $50,000 a year but spends $60,000, and yet informs his spouse--"Don't worry; $15,000 of our spending is for the mortgage. Our 'operational' spending is only $45,000 and the rest is in an investment in our collective future."

Even if a bank lends more money to that couple on the justification they possesses substantial collateral (as Alberta does), the bank will still demand a clear bottom line number after expenses are subtracted from income.

That clarity is now AWOL from Alberta's books. That Alberta can "afford" to borrow for capital or operating (it can and is doing both) is a separate issue from a clear, red ink bottom-line number.

The result, likely intended, is that Budget 2013 allows the province to put off any serious reforms and even though the province is hemorrhaging red ink overall.

So, little attention will be given to rein in public sector benefits out of whack with private sector realities. In Alberta, that includes how eight in 10 public sector workers have a defined benefits pension plan, this when fewer than one in ten private sector workers have such guaranteed retirement benefits.

Nor will the province feel much pressure to fix how the public sector has a 10 per cent wage premium over the private sector. (For the record, that figure includes all public sector employees in Alberta, even federal, but the latter account for only one in ten such workers. The rest are employed by provincial or municipal governments or funded via the province in some fashion.)

If the operating and capital budgets were kept together, there would be pressure to address such disparities. While the public sector is an integral part of any well-functioning province, governments must represent all citizens and all taxpayers, not just those in the public sector. Governments must, if they are to keep costs in line, drive total compensation in the public sector towards comparable private sector norms.

But by tossing clear budgeting overboard, the Alberta government has delayed such overdue reform.

Alberta's public sector unions were unhappy with frozen operational spending this year. Truth be told, they don't realize they were thrown a lucky lifeline, this because the present government threw Jim Dinning's budget reforms into the deep blue sea.