A Conversation with the Hon. Stockwell Day

Conversation, Public Sector, Frontier Centre

Frontier Centre: Alberta continues to attract more investment and people than other provinces. What are the key factors that underlie this success?

Stockwell Day: An approach that says to people: we will allow you to enjoy the rewards of your education, your skills and your labour that translates into a broad-based policy of low taxation for everybody. The government being out of the business of subsidizing business and making the opportunity field a place where everybody can plant their seeds and watch things grow.

FC: A lot of people downplay Alberta’s strong economic growth by saying that it is based on petroleum revenue – what is your response?

SD: Just check the records – in 1986, of all the corporate revenue we took in, approximately 59% came from the oil and gas sector. When you look at 1998, some twelve years later, of all the corporate revenue we took in, only about 21% of that was from the oil and gas sector. We see a vastly expanded base to the economy, much more diversification, particularly in the area of manufacturing and the value-added sector that have long term, relatively high skilled, high tech jobs. In the 1997/98 fiscal year, because oil was so low, we actually took in a billion dollars less in oil revenues than the year before, and yet our economy continued to expand in these other diversified areas, allowing us to ride out that cycle without going into deficit.

FC: Alberta is cutting its provincial income tax rate to a flat 11% and there has been some speculation about reducing it to "zero". How can that be accomplished?

SD: Getting to the single rate has been a major achievement and it is fully endorsed by the majority of our population. It is a major step to simplifying the system. Our government can no longer easily hide behind a range of brackets and special constituent favours that typically plague tax systems. The single rate tax is a much more transparent system.

As Alberta continues to radically pay down our debt, thereby alleviating the cost of government, it does open the door of opportunity for looking at on-going reduction of provincial income taxes. If Albertans want to support this, a policy of no provincial income tax is indeed possible. We haven’t made that policy decision but some of us tossed it into the public arena for visioning purposes to show our citizens that it is within our grasp Who knows? Seven or ten years from now it is something that is at least a possibility.

FC: Did the sharp cuts to Alberta’s civil service require you to cut services? In hindsight what advice would you give to other provincial cabinets? Did you make any mistakes that they might avoid?

SD: The amount of services being delivered by the government was reduced but the amount of services available to Albertans increased because we analyzed what we did through the question "what should the government’s core business be?"

As an example, we said to ourselves, "Why is the government in the business of selling liquor?" So we ceased to do that as a service, thereby, reducing the number of people in government who were selling booze. In moving it out to the private sector, however, we saw an expansion of retail opportunities. Those retailers primarily hired the people who had been working for the government in that business because those people had the product knowledge and experience on the marketing end. We saw a net decrease in the cost to government but we also saw an increase in jobs. The managers who had previously worked in the public sector were now getting not just their salaries but bonuses based on performance. In many cases, they ended up actually making more money then before. And I still run into managers every day who are in the liquor store business who say it was the best thing that happened to them – being moved out to the private sector.

FC: In hindsight, what advice would you give to other provincial cabinets?

SD: Make the decision and accept as fact that government is performing services and delivering products that it should not be. Put together a core group of people in the private sector and the public sector to help identify which areas government should move out of. Be propelled by the basic understanding that government is involved in too many areas and that you benefit your citizens by letting those services be delivered through other mechanisms. Be driven by that and accept the committees’ recommendations on which businesses the government should be moving out of. Be convinced that it is the right thing to do.

FC: Long debate grinds on about the issue of Federal tax cuts. If you had your way what sort of budget would we see from Ottawa?

SD: Parallel what is already proven successful in a number of provinces: reduced provincial income tax; making the system simpler. We still say, even though people tell us it can’t be done at the Federal level, that you could look at the possibility of a single rate. So I would tell the Federal government: "do as we do. Forget the political and philosophical motivations, look at what works and what’s working in the provinces: Lower tax systems lead to invigorated provincial economies.

FC: Research from the Atlantic Institute for Market Studies indicates that "have-not" provinces that receive more money from Ottawa than they pay in, suffer economically from this generosity. Albertans pay more than they get — do you agree that your largesse may be hurting more than it helps?

SD: Well, as Albertans, we agree with some of the fundamentals of equalization. The well-intended goal of equalization is to provide a mechanism that assists a province when it gets hit with an economic downturn beyond its control, courtesy of other provinces that may be doing well. That was the original intent of the program.

The danger is that any insurance program, if it is too generous, can encourage the very activity that it is insuring against – which is lack of productivity. And, if your business is not doing well but you have a silent partner who will continue tofeed funds into your business without accountability, then you won’t focus on the things that have to be done to make that business productive on its own. That’s the dangers of the equalization program – we support it but it can actually erode and take away the very things that have to happen to improve the situation.

FC: Alberta has tried to free up the rules governing Medicare but each time backs down in the face of threats from Ottawa to withhold transfer payments. Do you see any cracks forming in this wall?

SD: I tell people that, ten years ago, if a publicly elected person stood up and talked about looking at alternative forms and more efficient ways of delivering health care, they would have been hung in the public square. Today, we talk about it as elected people in Alberta and we only get burned in effigy in the public square. So things are improving.

The public is saying that they still want the principles of insured services being available to everybody without somebody buying their way into the line up. The public is also saying, allow some market reality into the system so that line-ups can decrease and the product can improve and service can improve. There is an increasing acceptance of that in the public arena and politicians need to listen to it.

FC: Alberta promotes competition between public schools more aggressively than any other province. What lessons have you drawn from this policy?

SD: Lesson No. 1 is that there will always be people in the public education arena who don’t like the idea of competition. Increasingly large numbers of people realize that you can have diversity in the public system and it does allow for the creation of excellence rather than one-size-fits-all mediocrity. We have seen different types of schools coming forward with different emphases and that has produced energy, innovation and better quality in the long run.

FC: The Estey Commission’s recommendations on deregulating grain transport have not yet been heeded by Ottawa. What’s holding them up? How important are these policies to the prairie farm economy?

SD: I come back to basic principles: you need to expose farmers to, and many want to be exposed to, economic opportunities and diversity. You are going to have an unproductive farm economy if you have programs in place that feature the negative sides of regulation. They don’t force farmers to be business people. They don’t allow them to be business people and look for the opportunities that are going to be most productive.

If you have a system which forces higher costs on the farmer whether it is shipping related or otherwise, then those farmers are going to come back and ask for some kind of subsidy to make up for the policy that is heaping greater costs on them. The whole circle becomes vicious. We have a big enough problem dealing with European and U.S. subsidies without having to compound it with unrealistic, non-market based policy within our own domestic market.

FC: Do you think there is an optimal size of government and at what level is it best to divide the resources between the public and private sectors?

SD: Any government, even Alberta’s in Canada today, can safely assume that it is too large right now. Less is better and every government even including Alberta’s has a good distance to go in driving down the size of government before they have to worry that they have passed the "optimal" limit. We have significantly reduced the size of government in Alberta. We are down to 14% of our GDP and yet we can still make productivity gains and efficiency gains. So, I would toss the challenge to all levels of government, we all have a way to go before we can be accused of missing that "optimal" size.