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Alex MacDonald: The Jason Kenney dividend

Commentary

Put simply: no Premier Kenney, no Premier Smith

Today (May 29th) marks the one-year anniversary of Premier Danielle Smith’s election victory and the second mandate for the United Conservative Party of Alberta (UCP). It also marks the nearly two-year anniversary of Jason Kenney’s resignation as leader of the UCP.

While the 2023 twin victory of Smith—the UCP leadership and provincial election—has been rightly chronicled as a true political comeback drama, the inextricable link between Kenney and Smith has been less explored or recognized.

While Smith is worthy of praise in her own right for her many achievements, when a wide angle is taken of recent Albertan political history the legacy of Kenney looms large. In fact, one can argue that for a host of both positive and negative reasons, Smith’s success as leader of the UCP has been largely thanks to Kenney’s contributions to the province. Put simply: no Premier Kenney, no Premier Smith.

Kenney’s provincial political odyssey not only provided Smith the opportunity to contend for the UCP leadership and then government, but it also prepared the ripe conditions for her success in the 2023 election and then as premier.

This political legacy, which Kenney effectively bequeathed to the province and his successor at the helm of the UCP, should be understood as a political dividend of sorts—one which Smith is now cashing in.

How did we get here?

Prior to contending in the 2019 provincial election, Kenney undertook the massive and historic task of uniting the Albertan Right. This consisted of three distinct campaign efforts within a 10-month time period:

  1. Winning the Progressive Conservative (PC) leadership contest
  2. Brokering the PC – Wildrose merger and winning the subsequent UCP leadership contest
  3. Winning the Calgary-Lougheed by-election

Three straight victories, all of which were secured by at least 61 percent or more of the vote, was no small feat. But these were only parts one (unite the Right) and two (lead the Right) of Kenney’s Triple Crown performance.

Having secured the leadership of the UCP and a seat in the provincial Legislature, Kenney then embarked on part three: a nearly two-year campaign against Rachel Notley and the NDP leading up to the 2019 provincial election. In this time, Kenney stewarded the nomination of 87 UCP candidates and drafted perhaps the most comprehensive provincial platform to date with 300 plus policy commitments.

The UCP approached the 2019 election with unstoppable momentum and ultimately won with 54.9 percent of the vote, securing the most votes of any political party in the history of the province. No party in Alberta had secured such a vote share on its first ballot since Social Credit contested and won its first election in 1935.

The UCP’s first mandate

With such a strong mandate secured, the Kenney-led UCP embarked on an ambitious policy agenda of lowering taxes and cutting regulations, a K-12 curriculum re-write, a new master agreement with doctors, the Fair Deal Panel and referendum, reviving the embattled Keystone XL pipeline, and the passage of 149 pieces of legislation in the UCPs first Legislature.

However, a mere 13 months into the mandate, as the COVID-19 pandemic began to unravel, Premier Kenney declared a public health emergency which set the province on a tumultuous trajectory of battling the pandemic, both physically and politically.

A month later, Alberta and Canada experienced another historic event: Canadian energy began trading for less than $0 as energy markets expeditiously collapsed as demand halted. The North American benchmark crude, West Texas Intermediate (WTI) fell close to $50 on April 20th alone, closing at negative $37.63 USD.

As the pandemic intensified and commodity markets continued to reel, Alberta’s economy suffered, as it was harder hit in 2020 than any other province. While most other provinces experienced a 4-5 percent contraction in GDP compared to 2019, Alberta’s GDP decreased more than 8 percent. Consequently, the province’s budget deficit of $ 7 billion quickly tripled to nearly $20 billion, severely threatening the UCP’s promised path back to balance.

Taken together, these three generational crises combined into a triple Black Swan event for the province and its ambitious new government. Yet, in true Kenney fashion, he took these adverse times head on “like the sturdy prairie buffalo” determined to deliver on the UCPs mandate—and he did, at least for as long as was tenable.

Alberta roars back while Kenney limps

Having inherited a provincial debt load of roughly $13 billion in 2014-2015, Kenney was able to steer a clear course to balance despite pandemic-induced spending, the commodity crash, and the general economic disaster of the pandemic. Astoundingly, the UCP delivered a balanced budget in 2022. Notably the province’s first balanced budget in a decade.

Yet stewarding the economic peril of the province from historic catastrophe to steady relaunch would prove insufficient as the pandemic and its politics exposed Kenney to intense and unrelenting scrutiny from within and without his caucus. When the UCP government re-imposed a near lockdown in the spring of 2021, 17 UCP MLAs wrote an open letter to Kenney decrying the decision.

Despite the UCP caucus subsequently ejecting two MLAs, the malcontent over pandemic policy continued to stew within the ranks of the UCP. The discontent revealed a fatal weakness within the management and ethos of the party the inability to harmonize a staunch prairie libertarianism and a traditional conservativism of ordered liberty.

The fissure of libertarianism that took hold within the UCP thanks to the pandemic ultimately spelled the demise of Kenney while offering Smith a path back to political office and party leadership.

On May 18, 2022, Kenney faced the UCP membership in a scheduled leadership review. Despite securing 51.4 percent of votes, he announced shortly after that he would resign as leader.

The politics of the pandemic proved to be the soft underbelly of Kenney’s leadership. Despite stunting the rise of the NDP, economically managing the pandemic downturn, and undertaking the most significant policy revival in recent provincial history, Kenney was ultimately judged by his caucus and party membership through the solitary frame of his public health choices.

To his most severe critics, however, it wasn’t just Kenney’s pandemic response itself. It was how his pandemic management fulfilled and confirmed a particular narrative—that Kenney was insular, hubristic, and unwilling to govern the caucus collegially.

UCP Leader Danielle Smith makes her victory speech in Calgary on Monday May 29, 2023. Jeff McIntosh/The Canadian Press.

The UCP’s second mandate  

Given her Wildrose roots, Smith was a natural standard bearer for the libertarian discontent that had brimmed over in the UCP caucus and base. Smith stewarded a successful leadership bid by predictably focusing on commitments to dismantle  Alberta Health Services in retribution for the pandemic, protecting personal freedoms, and aggressively asserting provincial jurisdiction. She competently rode the wave of reactionary libertarianism that Kenney’s leadership opened up within the UCP base.

Upon assuming the leadership, Smith was endowed with not only the party that Kenney founded but also its achievements, its potential, and a province that was roaring back from the pandemic.

The healthy economic state that Smith inherited allowed her to deliver timely affordability policies directly to voters ahead of the 2023 election. These included sending cheques directly to Albertans, a fuel tax break, and electricity and natural gas rebates. Such public spending would not have been possible without the effective economic management of the Kenney years, which produced the first balanced budget in a decade while the subsequent rebound of oil prices provided a surprising $10.4 billion budget surplus in 2023.

As Smith led the UCP into the 2023 election she also had the benefit of an exceptionally ambitious and efficient UCP policy record. As has been noted in these pages before, Kenney’s UCP was “the country’s most ambitious centre-right provincial government since the Harris government’s Common-Sense Revolution in Ontario more than a quarter-century ago.”

Practically speaking, this allowed Smith to run on the UCP record, not her own personal record or a particularly ambitious policy agenda. The NDP’s choice to run a predictably negative campaign against Smith and her personal record only confirmed that Smith’s perceived weakness was her record of public musings and potential to self-immolate through a mid-campaign gaffe.

The inherited UCP record cushioned her in the polls and allowed for a bland, cautious, and ultimately successful campaign.

Comparing the 2019 and 2023 UCP platforms reveals that while the 2019 platform was brimming with novel policy commitments, the 2023 platform was rather uncontroversial. Perhaps the most notable platform commitment was the creation of a new 8 percent tax bracket.

Having not led through the pandemic, Smith was also able to contrast herself with Kenney’s pandemic policies, side-step direct responsibility for its management, and focus on the more politically expedient—the political and bureaucratic reforms in the wake of the crisis. This was ultimately a winning proposition.

Conclusion

What is now obvious in hindsight is that Kenney’s dividend is paying out handsomely for Alberta and for Smith herself.

Smith has shown an incredible degree of grit, patience, and political acumen, and she does deserve credit for capitalizing on the value of what Kenney left behind. She too deserves acclaim for converting the dividend into political action and true progress for the province of Alberta. We ought to hold her up on this anniversary of her election victory, but not forget that she is standing on the shoulders of Kenney, the father of the UCP.

Bill Bewick: Nearly two-thirds of every dollar in income taxes goes to Ottawa. That needs to change

Commentary
Prime Minister Justin Trudeau meets with Alberta Premier Danielle Smith in Calgary on Wednesday, March 13, 2024. Todd Korol/The Canadian Press.

Balance the federation by balancing tax revenue: A proposal for a 50-50 split between the provinces and Ottawa

As you were filling out your tax return last month, did you notice something odd? Most of the services that you would want those dollars to go towards are delivered by the provincial government, so why did you send most of your taxes to Ottawa?

Tensions are high between governments in the federation right now. They are strained in large part by fights over how much federal funding is coming to fill gaps in areas of provincial jurisdiction like crime, education, homelessness and addictions, seniors’ care, and health and social services more broadly. Sometimes what gets backs up even more than a lack of dollars are the strings attached to new federal funding dictating how and where to fill these gaps.

Those decisions do not only come from federal politicians—federal forays into provincial areas mean a whole second bureaucracy needs to be fed before that tax dollar gets back to your hospital or seniors’ home. In addition to the tax dollars siphoned off for that double administration, taxpayers in Ontario, Alberta, and B.C. are responsible for effectively shipping their tax dollars ($4,000-5,000 per Albertan annually) via Ottawa to other provinces mostly for provincial services.

With new federal programs like pharmacare, dental care, and housing initiatives being controversially added to the recent federal childcare agreements, these problems are only going to get bigger. One step towards strengthening unity in Canada and making politicians more accountable for their responsibilities is to even out the tax share taken by your federal and provincial governments.

While this tension can be slackened when federal programs respect provincial autonomy and add purse strings that are barely visible, so long as the strings are held by elected and unelected decision-makers in Ottawa, the next fight about expanding government will always be just around the corner.

The imbalance: tax power vs. responsibility

Why do provinces go cap in hand to Ottawa to fund services for which they are constitutionally mandated to provide anyway? And when they come back empty-handed, why do they shrug and point a finger back toward the Gatineau hills?

It is because of that odd thing we did last month: sending almost twice as much of our income to Ottawa as we did to our provincial capital. According to Finances of the Nation in 2021-22, we sent them $77 billion more in personal taxes, and the federal corporate tax bill was $28 billion higher than the provinces combined. In recent years the gap has averaged $90-100 billion.

Graphic credit: Janice Nelson

For better accountability, the government responsible for delivering a service should be the one taxing us for it. If the people of a province want more spending on a given service, they can elect a government that will prioritize that—with some combination of shifting dollars or raising taxes and/or debt to do it.

Citizens lobbying Ottawa to improve their provincial services makes even less sense than provinces doing it, except for the distortions caused by this fiscal imbalance.

The reasons our original constitutional documents put social programs under provincial purview were good enough that, despite the significant growth of the welfare state, they stayed there in 1982.

Different regions have always had different pressures and needs, and different ways of meeting them. What they have not had is the fiscal independence to pay for them without their taxpayers’ dollars going through Ottawa.

This imbalance is not new, and in many cases, the provinces gradually brought it upon themselves by signing on to various federal funding agreements. What used to be more prominent, however, was a consensus that there needed to be latitude for provinces in how they used these funds (on constitutional as well as practical grounds). The Meech Lake and Charlottetown proposals, for example, both featured provisions for provinces to opt out of new national programs and instead get their share as a block fund.

Seguin report

Federal funds today virtually all have federal strings and sit on the edge of the chopping block when sporadic rounds of belt-tightening take place. The suggestion made here to even out the tax powers gets past that, which is why it has had support in the past.

In 2002 the Fiscal Imbalance Commission struck by the Quebec government proposed to rebalance tax power by moving federal tax points as well as GST revenues to the provinces to replace the unpredictable Canada Health and Social Transfer (CHT). In addition to securing predictable self-generated funds, another aim was to increase autonomy in program delivery.

“The situation can be summed up pretty easily,” said the president of the commission Yves Seguin: “The federal government occupies too much tax power compared to its responsibilities.”

The resulting “Seguin Report” made numerous recommendations, but emphasized the need for a major tax room shift. It argued (correctly in my opinion) that only increased tax power can truly reduce the provinces’ dependence on federal decisions for how and where to spend on the services they deliver.

Given provincial services are more than half of government spending, one could certainly argue the provincial share should actually be higher, but our compromise 50/50 proposal here means we need to close a $100 billion gap as outlined above.

To get a sense of what would be required on the revenue side, ceding GST to the provinces ($52 billion in 2022) could close that gap, as could switching 25 percent of our federal personal taxes to the provinces. On the spending side, drastically reducing the CHT ($52 billion) and eliminating the Canada Social Transfer ($17 billion) would do the trick. Given Ottawa likely wants to preserve a sizeable CHT baton with which to enforce the Canada Health Act, it would likely prefer to take a hard look at different places to back out of provincial areas—great!

Prime Minister Justin Trudeau arrives to meet with Canada's premiers in Ottawa on Tuesday, Feb. 7, 2023 in Ottawa. Sean Kilpatrick/The Canadian Press.

Barriers to reform

So if there are clear reasons to shift the tax power significantly and straightforward ways to do it, why has it not happened?

One reason is that as these programs emerged last century provinces usually signed on to federal agreements; sometimes, this was because of advantages of scale, but it was also politically convenient to avoid being the ones raising their tax rate to pay for them. Repeatedly relying on the feds’ larger tax room only exacerbated the imbalance.

The tax power shift proposed here would mean provinces raise their rates to make up for the federal cuts in tax (and spending) but would be more palatable politically because it would be a sudden switch between orders of government and not necessarily a tax hike at all.

Another barrier to reform is the reluctance of the federal government to give away power, and the difficulty the provinces have in changing federal programs without Ottawa’s cooperation. The federal influence over these programs does help standardize services nationwide. This is for the better or the worse depending on your perspective or the program—but the feds of course would insist it is for the better.

Besides standardization, one of the benefits they and other supporters of the fiscal imbalance tout is that using federal funds helps promote equity between provinces. Or, in economist-speak, the vertical imbalance offsets the horizontal imbalance. Taxpayers from wealthier regions pay more in federal taxes, but payments come back roughly per capita so billions of dollars from wealthier provinces quietly go to support services in those with less economic activity.

Giving tax points back to provinces boosts coffers in B.C., Alberta, Saskatchewan, and Ontario but leaves the other 30 percent of the country a little short without the subsidies inherent in per capita payments.

This is the biggest political barrier to rebalancing tax powers. It would likely necessitate something like a five-year top-up for the lagging provinces to smooth out the adjustment, but for some, autonomy would eventually come at a price.

This effect was acknowledged in the 2002 Seguin report, but Seguin pointed out that the equalization program is the one that is designed to equalize with direct payments. If there are remaining equity needs, they should be openly and fairly addressed there, not quietly implicit in countless federal forays into provincial services.

At Fairness Alberta, we have pointed out that there is a distorting and inefficient amount of redistribution happening with equalization proper, made worse by all these quiet forms of redistribution on top of it. To point out one striking fact: despite provinces becoming more equal over the last decade, roughly $9 billion of Ontarians’ taxes are sent by Ottawa to fund provincial services in their neighbouring provinces through equalization alone. Even if the tax powers were balanced as proposed here, the feds would still be facilitating massive levels of redistribution.

Reducing these quiet forms of redistribution may be more of a feature than a bug.

Conclusion

To be sure, there are many permutations and combinations that can get us to this balance, and almost all of them will be controversial. But if you agree that the “let’s count on Ottawa to ensure our provincial services are strong” status quo is not working, then it is time to restart this conversation that has been alive for most of Canada’s history but lately dormant.

If we even out the “tax room” between federal and provincial governments their powers will better reflect the responsibilities each has been assigned.

In addition to aligning better with the Constitution, this will mean less finger-pointing, less regional alienation, and more political accountability for the services we want delivered.