Yesterday, Doug Schweitzer, Alberta’s minister of jobs, economy, and innovation, tweeted out a Financial Post article written by Jack Mintz, an economist at the University of Calgary.
In the article, Mintz goes on and on about how awesome Alberta is doing now, but there are a few things he left out, so I thought I’d fill in some of the gaps. You know, like I did back in February when Mintz complained about Trudeau ruining the Canadian economy.
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Alberta is getting its mojo back. Nominal GDP is up a whopping 21 per cent in 2021 (constant dollar GDP is up 6.1 per cent).
First of all, this 21% is a forecast, but Mintz is boasting as if this were already a done deal. We don’t know what Alberta’s GDP was for 2021 yet.
Nominal GDP is GDP calculated in current dollars. It makes it difficult to compare the GDP between years because it doesn’t account for inflation. Real GDP (or the constant dollar GDP Mintz references in his parenthetical) accounts for inflation by pegging the value of GDP at a certain year, usually 2012 in Canada’s case.
A report published earlier this month by 4 economists at TD Economics forecasts a GDP of 21% for Alberta in 2021. I assume this is where Mintz got his information from.
Oddly, however, the same report forecasted a real GDP of 5.3% for 2021. I’m not sure where Mintz got his 6.1% from.
Even so, this jump in nominal GDP will be short lived, with the TD economists forecasting nominal GDP growth of 9.2% in 2022 and 5.6% in 2023. Meanwhile, they’re predicting real GDP for those two years at 5% and 4%, respectively.
I wonder why Mintz focused on just the 2021 forecast.
Even so, there’s something you should know about that 21%.
GDP at market prices in 2019 was $351.4 billion for Alberta. In 2020, it was $294.8 billion. That’s a drop of 16.1% in nominal GDP, brought on by low oil prices and the pandemic. So, the 21% Mintz is bragging about is really a 4.9% net increase in nominal GDP, considering that most of it is simply recovering from the pandemic recession.
And let’s say we do end up with 21% increase in nominal GDP this year. A 21% increase on 2020’s GDP of $294.8 billion would be $356.7 billion. And while that may sound impressive, that’s still below the $376.8 billion the province saw in 2014.
We haven’t even recovered from 2015–2016 recession yet.
A big help has been the rise in oil prices, with West Texas Intermediate zooming up from US$48 per barrel at the beginning of the year to US$76 this week.
Indeed. But this isn’t a good thing. Cheerleading economic growth driven primarily by volatile commodity prices is a dangerous game to play. That 2015–2016 recession I mentioned? A major cause of it was a drop in oil prices. And oil prices tanked right before the COVID-19 pandemic, too.
It’s true that WTI has increased from $48 a barrel in January to $76 this week, but what Mintz isn’t telling you is that in October, it nearly hit $85 a barrel. And we were at $65 a barrel less than a month ago.
C’mon. That’s a variation of $20 in the last 2 months. We need an economy that is immune to such wide swings in market prices.
The industry is producing more oil than ever, with production hitting 3.84 million barrels per day.
Also true. But this is true of nearly every year in Alberta.
See? Oil production has hit record levels pretty much every year after 2010. This isn’t a celebratory note. This is literally the status quo. Even when production bottomed out in May 2020 because of the pandemic, it was still higher than it was 3 years previously.
Production isn’t at an all-time high because Alberta’s economy is so amazing. It’s because that’s what the fossil fuel sector does: produce more oil every year.
November employment was up by 105,000 (4.8 per cent) on the year, almost fully offsetting the previous year’s loss.
At least now he’s finally showing that some growth is just basic loss recovery.
With job vacancies running at 100,000 in the third quarter, employers in most sectors are stretched to find workers. Though unemployment remains a concern, with 186,000 Albertans still out of work, unemployment could be a lot less if many of those unemployed eventually get the skills needed by employers.
I’m not sure where Mintz is getting his numbers from, but according to Statistics Canada, job vacancies in Alberta during the third quarter were 86,385, not 100,000.
Also, before we put too much blame on the workers, let’s keep in mind that these same stats say that there were 1.871 million employees on payroll in the third quarter, up from 1.803 million in the second and 1.768 in the first.
There are literally over 100,000 more people on payroll now than there were at the start of the year, so I think it’s a bit disingenuous to say that workers just aren’t trying hard enough.
Also, let’s remember that the average offered hourly wage in the third quarter to those payroll employees was $23.50, which is only 20¢ more than it was in the third quarter of 2019, two years ago.
Investment is also starting to improve, with diversification taking hold. Building permits have increased by 34 per cent since last year. Hi-tech companies like Amazon, India’s Infosys and what used to be B.C.’s mCloud have located new operations in Calgary. Dow Chemical announced a net-zero $10-billion petrochemical project near Fort Saskatchewan, while Pennsylvania’s Air Pocket will create a $1.3 billion-hydrogen production and liquefaction plant near Edmonton. Calgary-headquartered Canadian Pacific Railway’s $31-billion acquisition of Kansas City Southern will create the first pan-North American railway linking Canada, the U.S. and Mexico. Consolidation continued in the extractive industry in 2021, with Cenovus’ acquisition of Husky and Arc Resources’ of Seven Generations.
I’m not sure how creating a multinational railroad conglomerate or how 3 fossil fuel companies are now 1 company are examples of diversification. Nor do I see how 3 tech companies, 1 petrochemical plant, and 1 hydrogen plant are proof that diversification is “taking hold”.
Also, I’m not sure where Mintz is getting his data from, but Statistics Canada isn’t showing a 34% increasing in building permits. The latest data they have is for October 2021, which shows 4,221 permits issued. In October 2020, there were 4,693 permits issued. That’s a decrease of 10.1%, not an increase of 34%.
Even if we average out all the permits between November 2019 and October 2020 and then the same period a year later, it’s still only a 17.3% increase.
Alberta’s government is reaping the benefits of a hotter economy in the form of rising royalties and personal, corporate and excise taxes. A provincial deficit originally expected to be $18.2 billion for the fiscal year 2021/22 should plummet to $5.8 billion.
Again, that all depends on high oil prices. If oil prices tank, that deficit plummeting goes out the window. Alberta certainly wasn’t predicting in the October 2019 budget, for example, that oil prices would crash just three months later.
The federal government’s deep fiscal hole has also been filled-in just a tad with billions more in taxes coming from Alberta.
Even with higher oil prices, Alberta still has a structural fiscal deficit, i.e., never mind debt interest, it is spending more on programs than it collects in revenues. An economic slowdown sometime this decade — which certainly can’t be ruled out — will put the province deep into the red.
Agreed. In fact, I kind of said that above.
Nor will oil and gas revenues continue to grow as quickly in later years as in 2021.
For decades, peak-oil economists have argued that governments should slow down their extraction of non-renewables to save resources for future generations. Not anymore. Oil-producing countries know it is best to maximize their profits as the world slowly shifts to other energy sources of energy in the next three decades.
Sigh. I thought we had something for a moment there, Jack. Obviously, I disagree on maximizing profits. But that’s the type of economist Mintz is. Capitalism demands the highest profit, no matter the cost. And this economist is telling companies to stay in right to the end.
Mintz then outlines 2 strategies he thinks Alberta should undertake.
- Continue economic diversification
- Reform spending and taxes
The Kenney government has wisely pursued business-friendly corporate tax and regulatory policies for many strategic sectors. They are the best way to achieve diversification in an entrepreneurial economy like Alberta’s.
I disagree. The best way to achieve diversification is to remove all subsidization of the fossil fuel industry, such as low royalty rates and royalty discounts, for example. Plus, subsidizing things such as blue hydrogen, lithium mining from oil and gas wells, and carbon capture, is just another way to prop up the fossil fuel industry.
The fossil fuel industry has had an unfair advantage in Alberta, benefitting from not having to compete in the free market, propped up in various ways by government, something not all sectors get to enjoy. As long as that keeps happening, Alberta’s economy will be affected by volatile oil prices, for good and bad.
The premier has also been musing about reintroducing a flat tax that would lower personal tax rates and attract and retain skilled workers.
A flat tax, assuming it’s set at 10% like it used to be, would be lowered for high income earners. Anyone making under $131,220 already is taxed at 10%. Plus, the 10% tax bracket already accounts for 93.3% of all personal income tax revenue generated in Alberta. This isn’t about attracting and retaining skilled workers; it’s about attracting upper management and corporate owners.
The province should make its public services more effective and efficient. Its education system has been slipping in the OECD’s “Pisa” rankings. Health care faces ongoing challenges with rising wait times due to the pandemic.
Maybe that’s because the province has frozen spending in health and education for two years. You can’t effectively cut spending (if you factor population growth and inflation) and then be surprised that outcomes worsen.
Alberta also needs less volatile resource revenues. A premium or payroll tax would support long-term health expenditures. An HST (the “Hated Sales Tax”) harmonized with the GST would raise revenues with less damage to work effort, investment and risk-taking than income taxes cause.
Agreed. Also a wealth tax, a higher corporate tax rate, and a higher top marginal personal income tax rate. And while we’re on the topic of lowering personal tax rates, I think Alberta should set the personal exemption amount to whatever the median income is. Anyone making less than the median income pays no personal income tax.
Other levels of government should also make economic growth their top priority. Municipal leaders and policies should be more business-friendly. Continuing property tax and user fee hikes by social-spending municipalities are undermining competitiveness.
The top priority? Really? More important than eradicating poverty? Ending homelessness? Increasing life expectancy? Improving education rates? Producing more stuff is more important than those?
Canadians should be happy to see Alberta get its mojo back. Over the last half century the province has provided more than half a trillion dollars — net — to support the rest of Canada.
Like I said earlier, only a small proportion of federal revenue is generated in Alberta. If the federal government has generated over $500 billion—net—during the last 50 years in Alberta, how much have they generated in the other provinces?
For example, between 2007 and 2020, Canada generated $10.674 trillion in revenue. Of that, $1.454 trillion came from within Alberta. That means that the federal government received about $9.22 trillion from within all the other provinces combined. That’s more than 6 times what was generated within Alberta.
Sorry to be the bearer of bad news, but Alberta isn’t the darling child that Mintz thinks it is.