Rotary Club of Calgary: Pre-Budget address

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Thank you very much, George (Brookman).

Great to be here and wonderful to be with so many dedicated Rotarians.

This club has served Calgarians for more than a century, The oldest club in Alberta, I spoke yesterday at the second oldest club which is in Edmonton, but also the oldest club in Canada which is pretty remarkable.

I know through the selflessness of the members here and the far reaching generosity of everyone that is associated with this club has more than a century making a difference in our community.

There are not many non-profits in our province that have the record of longevity of success.

So I am pleased to start by saluting the Rotary Club.

And I want to link some of your values to what I will be speaking about.

You are upholding some of Albertans’ oldest values — care and compassion certainly, but also an unshakeable refusal to be daunted or intimidated by the challenges that we face as Albertans

You refuse to settle for what is easy. You dedicate yourselves to doing what is right and beneficial through service to others.

I admire Rotarians for choosing to walk this path and also for your perseverance in staying on that path through your lifetimes.

We all know that good intentions in and of themselves are not sufficient and they don’t take you very far, it takes more than that it takes, at the end of the day perseverance. Perseverance requires sacrifices; it requires discipline through all kinds of weather — good or bad.

These are the characteristics that the Rotary Club to remain a force for good in our community.

Fortunately these are exactly the same qualities which are widespread in Alberta, where they have driven a century, a record and a history of accomplishment.

Alberta is Canada’s economic engine, a world leader in sustainable resource development. And we are home to an enviable quality of life, one that increasing numbers of new arrivals are anxious to experience for themselves.

All of these factors have not arrived here accidentally. They are a result of luck, but luck is really where hard work, preparation and opportunity meet. It’s a result of the good work and perseverance of the people in this province.

Like Rotarians, the people of Alberta are tough, resilient and unafraid of the sheer effort that success requires.

And I think that these attitudes are firmly entrenched in our culture. And I do not think many people in this room would disagree with that, or disagree with that self-image of who we are as a province.

And so Alberta got caught up in its greatest fiscal challenge in a generation, those attitudes and the values on which they are based are more important than ever before.

Low-price environment

By now, I think it is fair to say that every single Albertan is aware that our province is struggling to deal with a deep decline in public revenues.

I find that a comprehension of the true scope of the problem is sometimes hard for people to grasp.

At the end of the day no one really knows what a billion dollar looks like, and whether it would fit in this room or not.

So if you will bear with me, I would like to set the record straight in terms of the sheer scale of what we are dealing with.

All of us in our own way are beginning to see the scale of this because we are seeing people that we love and people that we know, people that we care about lose their jobs, and being effected by what is happening in the economy.

The most immediate difficulty is that oil prices have collapsed — not just in Alberta but worldwide.

And this really goes back to overproduction on the part of the OPEC cartel, notably Saudi Arabia to continue to over produce

And it has resulted in an environment where prices have fallen by nearly 60 percent. Leaving aside the financial crisis a few years ago which was a different circumstance, this is the precipitous decline of energy prices I the span of the life of most of the people in this room.

In the span of a few months, really since September when I was sworn-in as Premier, prices began to decline, (I don’t take this personally) nearly one-fifth of Alberta’s revenues have evaporated.

They have not deteriorated or weakened, but completely disappeared. One-fifth of the provinces revenue.

Government is looking at a shortfall of close to $7 billion for the coming fiscal year. And the years that follow are not much better.

A $7 billion shortfall, to put this in context, is the equivalent of the entire education budget or all health expenses in Alberta from now to July in this province.

Discussions about what to do are ongoing.

And I have wanted to see frankly, is  an honest discussions in our province,  about the scope of the problem, the source of the problem and who will be the solution to the problem,  because these are circumstances we are all going to have to deal with and be measured by.

I have heard people ask if we need to do anything at all.

We’ve been through commodity price cycles before. So why not wait for prices to rebound, because they inevitably will?

This is a reasonable question to ask.

In my professional life, prices collapsed in 1981, 1986, 1990’s, the 2000s and 2009, by my reckoning this is at least the 6^th cycle that I have seen in my professional life.

The answer is that prices are not going to rebound any time soon. This price trough has been steeper and it will be longer than anything that we have seen in this province for some time.

So we can’t afford to do nothing.

There is not a single energy expert in the world, not a single financial analyst that we have talked to, who thinks oil prices are going to rebound any time soon.

And if people are suggesting that to you, that we should just ride this out, my friends, they are simply wrong.

Let me speak of the consequences of that kind of decision making.

In the new fiscal year, oil is forecast in the 2015-2016 year to average about $65 per barrel — ultimately leading to that $7 billion hole in the budget.

Things should improve marginally in the following fiscal year. Prices are expected to be somewhere in the $70 per barrel range. The budget deficit that we have in that scenario, that leaves us with a $6 billion hole in Alberta’s finances.

Prices might stabilize the year after that, although the consensus seems to be in the vicinity of $80 per barrel, thank heavens you might say, except for the fact at $80 a barrel the annual structural deficit is $5 billion in size.  

So we anticipate a low-price environment continuing for the next three budget cycles.

Add up those three deficits and the cost of doing nothing amounts to almost $20 billion that we will have to accept in deficits.

Falling back on Alberta’s financial reserves is not a solution either.

The sustainability fund that was built up in the Klein era is gone. It doesn’t exist anymore. Instead we have resources we have a $5 billion contingency fund.  If we do nothing we would burn through that about five months. Once we burn through that we would turn to the Heritage trust fund. And we would burn in that less than two years. So if we do nothing, within 3 years we would have eliminated all of the savings that this province has accumulated over 50 years to accumulate. 

And we would begin to rack up debt.

That is not smart. It is not even remotely rational. I can tell you, on my watch that’s not going to happen. That’s not where this government is headed.

So government must act. At the end of the day, Albertans’ futures, their jobs, communities and infrastructure depend on a robust, shrewd response to the circumstances we find ourselves in.

I have heard quite a few proposals. But here too, I want to emphasize that the issue is complex and I’m going to speak to some of the dimensions of this. I recognize that there are many experts who have perspectives on this, experts and advisors and, as a U.S. president once said when it’s all finished they’ll move onto to give the next piece of advice, or the next session where expert advice is needed but the burden of decision will rest with the government, and we will be accountable for the choices that we made.  

Deficits of this size are not easily solved. This is not a question of adjusting the government’s procurement policies, or buying fewer paperclips. Dealing with a $7 billion dollar structural deficit close to 20% of the revenue stream of government is a quantum challenge.

To put it in its bluntest dimension, we could, in fact, eliminate the entirety of Alberta’s civil service and it would not come to $7 billion per year.

That’s the size of what we’re speaking about.

I am not trying to be negative. I want to ensure all Albertans are fully aware of the scale of the challenge we face as a province.

I am immensely confident that we will overcome these difficulties together. But we all need to be a part of the solution and we all need to enter this with an appreciation of the sheer scale of the issue.

Cracks in the foundations

The truth is that the cracks in Alberta’s fiscal foundations run deeper than is generally acknowledged.

Yes, we have a revenue problem.

But we also have a spending problem.

It has been overlooked for too long. And it has spread to every branch of the public sector in Alberta.

Let me tell you, we have had a pretty good thing going in Alberta.

We have had the best of everything that money can buy — the most generously funded public services in the country, the lowest taxes and plenty of oil money until now to underwrite all of our dreams.

Unfortunately, that system was flawed from the get go.

We succeeded along the way in creating some of the most expensive public services in Canada, but we failed to establish the mechanisms to pay for them.

As a result, we are running up public debt and siphoning non-renewable resource revenues from future generations to cover the costs of services for this generation of Albertans.

Frankly, Alberta, as a province has made a habit of living beyond our means.

You may have heard about a report from the Fraser Institute published a week or two ago on this subject.

The report shows that over the past decade, program spending in our province outpaced population growth and inflation.

The most obvious example of this is health care.

Expenditures in healthcare over the past 10 years. Think back to 2004, like you, I remember being at a hospital and our system was functioning pretty well.

Since then our costs have gone from $8 billion to $18 billion.

Our population has expanded by 25 percent, while the health-care budget has more than doubled.  

An annual cost increase in excess of 7.4 % year after year, after year, after year.

If we had kept spending in line with population plus inflation, the province would have saved tens of billions of dollars.

So as the Fraser Institute report concludes, previous spending decisions are at least as responsible for our current budget gap as is the oil price collapse.

I agree with these conclusions.

We agree that a large part of the problem is wages — in government, health care, education and municipal services.

Albertans are rightfully proud of having the country’s hardest-working front line workers. Karen and I have raised 3 daughters in this community, and without  wonderful front line service  such as teachers, doctors, nurses, none of us could have done what we have done.

But we must recognize that they are also the highest paid public-sector professionals in Canada, taking home significantly more than the national average.

In fact, Alberta’s public-sector professionals are at or near the top in terms of salaries across the entire board, in every level of public sector wages.

Successive governments have repeatedly approved costly wage agreements over the past 10 years, leaving taxpayers to deal with the consequences.

Salaries and benefits now take almost one dollar out of every two dollars the province spends.

10% of your taxes go to pay doctors, 10 % of your taxes go to pay nurses, teachers and retirees. I could go on from there.

And over the next three years, people say what’s the greatest challenge that you are facing? The most immediate challenge is that baked in to the government’s current budget reality is the fact that we have agreed, before I became the premier, to an additional $2.6 billion on wage increases over the course of the next three years, that we are trying to internalize at a time when our revenues have collapsed by close to 20%.

Government cannot bank any longer on the oil revenues these promises were based on.

So as we cut costs, as we confront population growth pressures and inflation, we will have to begin from a higher threshold —a new high water mark to move from.

So I will be blunt: This trend is not sustainable and it never was sustainable. It is time we all understood and recognized as much. And that we need to move forward and find solutions.

It has been an issue in the Canadian federation. Every single Premier has raised this issue with me. It has been a poorly kept secret in the Canadian federation, because every other province has been struggling to keep pace with the wages that we’ve been paying in Alberta. They’ve lost staff to our province, they can’t retain their own staff and they face their own pressures. They know that what is going on in our province is not sustainable.

It is unrealistic to expect government expenditures can continue to increase in such an environment.

No one expected this, but we are where we are.

Difficult decisions are unavoidable. Anything else is not living in the real world.

You know that from what’s going on in the economy, and in this city and from people who are losing their jobs.

Labour strategies

I have said repeatedly —and I will say it again today— that government will not ask Albertans to tighten their belts without tightening its own first.

We have already demonstrated leadership in that regard. Together with Cabinet and all MLAs, I have taken a voluntary five percent pay cut as the Premier of this province. All of the staff in my office also took a voluntary five percent pay cut effective immediately.

Our province has a spending problem fuelled by wages and we intend to fix it, starting at the very top.

In that spirit, as I announced yesterday, government will take a more active role in ensuring that these concerns are addressed.

This is about getting our house in order and improving how we do business. 

I’m joined here today by Minister McIvor who I am proud to have at my side who is doing an exceptional job as Minister of labour.

Minister McIver’s office and all of Cabinet have begun to turn their attention to this urgent need.

And it will begin with collective bargaining process.

Previous government approaches to bargaining have not been consistent. They have been hampered by a lack of foresight and coherence.

We cannot afford one-off settlements based on immediate priorities and immediate pressures.

Regardless of economic conditions, we must be prudent with the tax dollars that we are responsible for.

Falling short of this goal in one year will only accelerate and exasperate the pressure in the years that follow.

So in the months ahead, the government intends to make its approach to collective bargaining more consistent and more coordinated.

We will speak with a single voice across the public sector, as we engage with workers in municipal services, universities, schools and hospitals.

Changes will start with the establishment of the working group I announced yesterday, led by one of our most senior public servants, Deputy Minister Tim Grant, who is a very capable person.

The group will advise government on how to revitalize and modernize the province’s approach to public sector labour negotiations…

It will be based on the best practices of other jurisdictions — not what we have done in Alberta in the past. There are successes in the confederation.

Provinces such as British Columbia use unique processes to negotiate collective agreements, which is why the working group will review their approach carefully to develop recommendations for Alberta.

The working group will report back to Minister McIver and myself in the next four months, but his input into this approach has already begun.

Our relationships with Alberta’s public-sector trade unions will be respectful. And they must be respectful.

We have been clear, we will honour existing agreements negotiated before I became Premier.

But going forward, I feel that it is government’s responsibility to put ourselves in the best position to achieve outcomes that are sustainable and fair, both for public sector employees and also for the taxpayers.

Our ideal is a balanced solution that maintains labour stability and recognizes the current reality of Alberta’s finances.

Most of all, we must ensure that we continue to receive excellent front line services. Albertans are very clear about this.

But the status quo is not sustainable.

And Albertans are best served by both sides adopting a pragmatic, long-term view of what is possible.

The provincial economy has hit a rough patch and everyone will share the pain.

Different sectors are experiencing it in different ways.

For industry, the pain translates into significant layoffs, as we are seeing. Which is why hiking corporate taxes is not a viable option – not when companies are trying hard to keep working, to continue to be profitable, and continue to pay their employees.

We do not want to see a flight of private sector investment or a loss of jobs in our province.

When it comes to the public sector we’re not seeing the same job losses. Limiting costs must involve future salary constraint.

We also need to take a fresh look at how we deal with public sector labour disputes in our province.

This is a parallel path that we’re on.

In light of a very important recent Supreme Court decision on the right to strike, and in line with our government’s desire for fair and supportive public sector labour relations, we believe it is time to review the provincial framework for dispute resolution in terms of public sector unions.

We must ensure our legislation is relevant, efficient and effective.

This spring we will launch talks with public sector employers and their respective unions about a different approach.

This will include an essential services model similar to that in place in other provinces in Canada, and which has some applicability here in our province.

Under this standard, unionized staff and employers may resort to strikes or lockouts, but essential services must continue operating while any work stoppage is underway.

Any legislation that we adopt will be a made-in-Alberta solution that will follow the strict parameters that the supreme court of Canada has set out that draws upon best practices from other provinces and from what we learn through consultation, with employees and their the unions representing them.

And the Supreme Court has made it very clear that all governments have this obligation.

My hope is that we will receive full cooperation sequentially to get it right, that we will receive cooperation from public sector union. 

I think that they are just as serious as we are about doing the right things by Albertans.

Culture shifts

I will not pretend that progress on the labour front —or on any one front— will be sufficient.

We cannot deal with circumstances like this within a single year.

In fact, economists have been advising us that we should not try to balance the budget in a single year.

Filling the $7 billion gap in our budget in one shot would mean such drastic cuts that the province would be tripped into a recession. Which we all wish to avoid if we can.

And it would leave us completely unable to maintain the quality of services that Albertans expect, or to protect our most vulnerable citizens.

Getting Alberta back on track is a longer-term proposition; longer than a single budget or a single year

This is more than a matter of policymaking. It is a matter a cultural shift, a fundamental rethink of public finances and the economy.

But this much is clear. There’s maybe no one who travels the province as much as I do, We need to get off the oil rollercoaster. I hear that everywhere I go, from all citizens and they are right.

They agree that turning on their TVs and watching an OPEC meeting to decide if we can build new schools is not the way we should be administering this province for our children and our grandchildren.

Resource revenues can help us remain competitive, but frankly, we have become addicted to them.

That is not smart nor fair, because those revenues, our non-renewable resource energy, don’t belong entirely to us in this generation.

They belong to our children and grandchildren, and to Albertans yet unborn.

We should be setting a portion of that money aside for them.

We must pay our own way, and we must get back to a point where we are spending within our means on what we need, and saving for the future.

These are Alberta values that I hear as I criss-cross the province.

Change on this scale can be wrenching. And everyone, every single Albertan, will bear a bit of the pain that is coming. There is no solution other than that.

But this province has been through culture shifts before. And there is nothing tougher than an Albertan.

Albertans are the ones who step out of line, who don’t do what they’re told, who when they fall down, they get up laughing.

I think we often forget that Albertans are no strangers to re-invention. History has forced us to master this particular art.

Ninety years ago, our economy ran on a single commodity, it was called wheat. It comprised 60 percent of our agricultural crops and the bulk of that was exported.

But by 1930, wheat surpluses from other nations caused a glut in international markets.

The Great Depression and drought conditions made a bad situation worse.

But it is worth noting that Alberta was dealing with a state of affairs not all that different from where we are today.

We had become dangerously dependent on a single commodity and oversupply caused a global price collapse.

And Albertans fell back —then as we will now—on our longstanding values of innovation, courage and of resilience.

We were forced to develop new techniques to improve production, to reduce costs, to expand market access… sound familiar? and to find new avenues of diversifying the Alberta economy, which is surely familiar.

That is how our modern economy was born. And how it will be sustained going forward, as once again our province moves to redefine itself.

Conclusion

Innovation, courage, and resilience — those qualities are the foundation, at the bedrock of Albertans’ identity.

Like Albertans, like Rotarians, we persevere in all weather and against all odds.

We are not a people prone to giving up. We handle the most severe tests of our character bravely and wisely.

This is what it will take to solve Alberta’s budgetary difficulties.

And at the end of the month, to be clear here, my government will bring forward a 10-year fiscal plan designed to do exactly that.

Our plan will be measured and balanced. It will lay out in detail what the problems are and the decisive actions we will take to correct them.

Every Albertan will know where we are going and how we will get there — in detail.

We will bring forward a plan – and we will stick to it.

We are resolved, and we will all do our parts.

We will take action in a way that protects jobs, our vital services and our Alberta economy.

We will act prudently and decisively but with compassion for those who need government services. 

We will be sensitive to the impacts of the decisions we make on an already vulnerable economy.

When Albertans face a challenge, we stand together, they shoulder their share of the burden, and they tackle it.

That is what people expect from their government at this time.

And together, I say to you in closing, we will strengthen the foundation of this province and build an even brighter future – with the same determination, the same confidence, and vision that Albertans have always shown. 

And mark my words, we will emerge even stronger and tougher than we are now.

Thank you very much, and god bless.