Alberta is alone in trying to slash the deficit without raising taxes

BRIAN BERGMAN March 7 1994


Alberta is alone in trying to slash the deficit without raising taxes

BRIAN BERGMAN March 7 1994



Alberta is alone in trying to slash the deficit without raising taxes


The premier of Alberta is in his element. Dressed in blue jeans, white sneakers and a wellworn turquoise sweatshirt, Ralph Klein settles into a swivel chair in a studio at Edmonton’s CHED radio station for his monthly live phone-in show, Talk to the Premier. Strapping on a set of headphones, Klein—a former radio and TV broadcaster—casually adjusts the sound controls just seconds before air time. For the next hour, he deftly fields calls from across the province, gesturing with his hands as he makes his points and gazing reflectively at the snow-covered parking lot outside the studio. On this Saturday afternoon, most of the callers are from rural Alberta—a stronghold of Klein’s Conservative government—and the tone is friendly and informal. No one addresses him as “Mr. Premier,” instead, it’s “How ya’ doin’, Ralph?” For Klein, who has just endured another gruelling week defending his controversial plans to slash government spending, the exercise is clearly a tonic. As he remarks during a commercial break: “I think there are a lot of people out there saying, ‘Ralph, you’re getting hammered. Maybe you’d like a nice call to make your day.’ ”

These days, Klein will take his support where he can find it. Since being elected leader of Alberta’s long-reigning Conservative party in December, 1992—and especially since leading the Tories to an upset majority victory last June—the 51-year-old Klein has been on a single-minded crusade to eliminate Alberta’s $2.5-billion provincial deficit by 1997. Virtually all politicians these days talk about trimming government and cutting deficits. But Klein is in a league by himself. He and his ministers are going further, faster, lower than any others in Canada with an Olympian deficit-reduction program. Compared with Klein, the others are merely nibbling at the edges. Provinces as varied as Ontario, Quebec, Nova Scotia and even neighboring Saskatchewan have reached deep into their taxpayers’ pockets as they struggle to put their financial houses in order. Alone among Canadian governments, Klein’s Alberta is vowing to resolve its fiscal crisis without raising taxes—and his far-reaching program has significance well beyond the province’s borders.

As the provincial budget tabled last week by Treasurer Jim Dinning

demonstrated, that means drastic—critics say draconian—cuts in almost every kind of government service, including major reductions in education, health care and welfare. Amid threats of a general strike by labor activists, Dinning slashed Alberta’s 1994-1995 deficit by $918 million to $1.5 billion—a giant step towards his goal of achieving a zero deficit within three years. “No other government has done this before in Canada,” Dinning boasted. “We are taking the steps required to becoming the first debt-free province in Canada.” Klein himself will preach his government’s tight-fisted message directly to Central Canada this week, with speeches to business groups in Montreal and Toronto.

Alberta’s approach also stands in stark contrast to the budget unveiled two days earlier by the federal Liberal government (page 34). Despite much tough pre-budget talk from Finance Minister Paul Martin, Ottawa sent out a decidedly mixed message by imposing minor tax increases while postponing many difficult decisions on reforming social programs until at least next year.

There are other reasons, too, why Canadians outside Alberta should pay attention to what has become known as “Ralph’s Revolution.” For one, Alberta’s uncompromising approach to tackling its fiscal woes is very similar to the measures that Reform Leader Preston Manning is urging upon the federal government. That is hardly coincidental: the conservative, antispending sentiments that helped to re-elect Klein’s government last June also delivered 22 of Alberta’s 26 federal seats to the Reform party four months later. ‘What Alberta is doing today,” says Ian McClelland, a Reform MP from Edmonton, “Canada must eventually do as a nation.”

And beyond giving Canadians a glimpse into how their country might be run if Reform ever wins power in Ottawa, the shock waves from Alberta’s radical experiment in fiscal reform may have a more immediate impact on other jurisdictions. By taking drastic steps to get its deficit and debt under control, say analysts, Alberta is reducing total public sector borrowing in Canada and thus helping to maintain the credit ratings of all provinces—even those whose finances are in much worse shape. By contrast, provinces such as Ontario that continue to run up high annual deficits are hurting their counterparts. As Bill Robson, a senior policy analyst at Toronto’s C. D. Howe Institute who generally supports what Alberta is doing, points out: ‘To the extent that Alberta gets its house in order, that actually improves the situation in Saskatchewan and Newfoundland. At the same time, the horrendous borrowing that Ontario is doing right now is in a very real sense messing up the chances of other provinces to get through this period without hitting some sort of debt crisis.”

That Alberta’s austerity campaign may be doing other Canadians a favor is of scant comfort to the thousands of Albertans who must bear the brunt of the cuts—and who are howling in protest. Students and teachers across the province have staged noisy rallies in opposition to the Klein government’s plans to reduce spending on education by about $239 million over three years. Administrators and doctors at several large hospitals in Edmonton and Calgary are waging savvy media campaigns warning that a planned cut of about $734 million in health-care funding could mean the closure of all or part of their facilities—and even the loss of lives if centrally located trauma units are shut down. The 42,000-member Alberta Union of Provincial Employees, smarting from the elimination of 2,700 public sector jobs since April, is vowing to send protest pickets to follow the premier throughout the province. Even the province’s drinkers have a beef with Klein: his government’s decision to hand over more than 200 government liquor outlets to the private sector has, in the short term at least, resulted in higher prices and less selection.

The volume and ferocity of the opposition to his cost-cutting cam-

paign has had a direct personal impact on Klein. In nine years as the populist mayor of Calgary, he often mingled with his constituents in bars and restaurants and on the streets of the city.

Now, he says he fears for his personal safety when moving about in public in Edmonton, where he lives while the legislature is in session. So far, he says, the effects have been minor: he has been accosted by noisy critics while shopping in his local supermarket. But he worries that the high feelings generated by his campaign could lead to something more serious. “I do feel threatened because I know there is a large constituency out there of special-interest groups who are mad,” Klein said in an interview with Maclean’s. “Sometimes, people can get very, very nasty.”


But it is not just what the premier calls “special-interest groups” that are voicing outrage. It is individuals like Elaine Gordillo, a Calgary homemaker whose 18-month-old son, Mark, was bom with a disconnected esophagus.

In addition to requiring a special feeding tube that is inserted directly into his stomach in order to eat, Mark suffers related cardiac and kidney ailments. Before the first round of health-care cuts last April, Gordillo was able to pick up a free replacement from the hospital whenever the tube ruptured. Since then, however, the tube has broken three times and the hospital has charged her $65 for each replacement. Gordillo, whose husband, Walter, was laid off from his job as a travel agent in September, refuses to pay the bills. “I’m not asking for a luxury,” she says. “I’m asking for something to help my son live.”

Gordillo used to be among Klein’s legion of supporters in Calgary. “I voted for him as premier and I voted for him as mayor because I thought he did this city proud,” she says. “If he came to the door now, I’d probably lynch him.”

For Albertans, and for Klein himself, this is unfamiliar political terrain. As mayor of Calgary between 1980 and 1989, he made a career of championing popular causes—including construction of a Light Rail Transit system and the staging of the 1988 Winter Olympics—and displayed an uncanny knack for connecting with the concerns of the common man. The ease with which he could deal with all classes of Calgarians—from the barflys who frequented his favorite downtown tavern to the business elite who noshed at the elegant Petroleum Club—added to his appeal (page 24). By contrast, Klein frankly admits that he feels much more isolated as premier, and says the task of slashing government spending brings him little joy. “It’s one of the hardest things I’ve ever done in my life,” he says.

The province, too, has seen better times. Buoyed by massive royalty revenues from oil and gas, the Conservatives, who were first elected in 1971 under former leader Peter Lougheed, spent lavishly on an impressive array of schools, hospitals, recreational facilities and highways. They also established the nation’s largest public savings account, the Alberta Heritage Savings Trust Fund, now valued at $12 billion. But when oil, gas and grain prices all collapsed in the mid1980s, Donald Getty, who succeeded Lougheed as premier in 1985, re-

fused either to reduce spending or significantly raise taxes. As a result, the province’s accumulated debt grew from almost nothing to nearly $15 billion during Getty’s seven-year reign. His government also lost more than $1 billion in bad business investments, including the writeoff of $566 million in loan guarantees to the Alberta telecommunications company NovAtel.

Klein faces the clear embarrassment of having been a senior minister in the government that helped to create the fiscal crisis he is now intent on resolving. He says his own epiphany came with the Getty government’s last provincial budget in April, 1992. It promised to balance the budget that year—an objective that Klein says those around the cabinet table knew even at the time could not be achieved. Klein was also influenced by the earlier defection of a senior minister, Ray Speaker,

who left to run federally for the Reform party. “I didn’t like Ray for going,” says Klein, “but what he was ostensibly saying is, This government is not doing what it said it would do—it is not addressing spending.’ ”

While Hein may have been seized by the need to slash government spending, he managed to mask those convictions during the Tory leadership race later that year. In contrast to some of his rivals, who laid out painstaking plans for reducing the deficit and debt, Hein ran the kind of feel-good cam| paign that had helped him to win mas1 sive pluralities as mayor. It was only afs ter he became premier that Hein took I a series of measures aimed at outflank| ing the provincial Liberals, who were winning support by promising to rein I in spending. He reduced the size of ¿j the cabinet from 26 to 17, introduced § legislation requiring the government 10 to produce balanced budgets starting in 1996, and responded to widespread criticism of the province’s generous legislative pension plan by scrapping pensions entirely for MLAs elected since 1989. The strategy worked: in the June 15 election, the Tories, who had been mired at 17 per cent in the opinion


Last week’s Alberta budget set out in detail the Klein government’s plans to slash spending and reduce its deficit in 1994-1995. A summary:

REVENUE: $11.4 billion, down $91 million from last year.

SPENDING: $12.9 billion, down $918 million.

DEFICIT: $1.5 billion, down from $2.5 billion.

ACCUMULATED DEBT: $32 billion, up from $29 billion.

PROJECTIONS: $497-million deficit in 1995-1996; $212-million surplus in 1996-1997.

TAXES: No tax increases, but increases in medicare premiums to $32 from $30 per individual and to $64 from $60 per family. Alberta has the lowest income tax in Canada and is the only province without a sales tax.


polls under Getty, captured 51 seats while the Liberals won only 32.

Still, it was only after his election victory that Klein got specific about exactly how he intended to balance the province’s books. One of his first targets was the province’s welfare rolls, where caseloads had swelled by 21 per cent in 1992 alone. Last September, his government cut individual monthly welfare cheques to $394 from $470 and reduced or eliminated a number of other benefits, including payment of damage deposits—usually equal to one month’s rent—to landlords on behalf of welfare recipients who had just arrived in the province or who had moved. The government also decreed that “employable” welfare recipients—by which it meant nearly everyone but the severely handicapped—must seek job retraining or risk losing their benefits. By Dec. 31, the number of welfare recipients had been cut by nearly 30,000 to 66,883, which will save the government an estimated $185 million in payments this year. Hundreds of those people fled to British Columbia, where monthly welfare payments are about $100 higher, often with a one-way bus ticket supplied by Alberta social services. B.C. officials angrily accused Klein’s government of exporting its welfare problems to their province.

Klein insists that the welfare cuts are not intended to punish the poor. “I have a lot of compassion for people who are on low incomes, including people on welfare,” he says. “But I also have a lot of sympathy for the so-called working poor—those people who will take a job, whether it’s doing dishes or flipping hamburgers, and will do what they can to upgrade their skills.” The welfare reforms, he adds, “are fairly harsh on those who can work, but who won’t work. It is not a mean program.”

That is not how it feels to Nancy Reilly, a Hamilton, Ont.-bom single parent and mother of four who arrived in Calgary in November from Wales, where she had been living on welfare. Reilly, 43, recently ended her marriage and decided to come to Calgary where she had briefly lived before emigrating to Britain in the late 1970s. Because she arrived after the cutbacks took effect, Reilly is responsible for paying her own damage deposit. She was lucky enough to find a landlord who would let her pay the $500 deposit in monthly instalments of $50. But that leaves less money to feed and clothe her four children, aged 8 to 16. “Both my sons need new shoes next month, and I don’t know how we’ll pay for it,” she says. Reilly adds that she is getting pressure from her social worker to take retraining courses and to find work, but says she still suffers from a nervous disorder and feels that taking care of her children should be her first priority: “If I was on my own and I wasn’t ill, I’d work at anything.” Reilly is thinking about leaving Alberta, but says she is not sure where she would go.

The full scope of Alberta’s cost-cutting effort became apparent in Dinning’s budget. Many of the measures had been announced before, including the decision to reduce the number of school boards in the province from 140 to about 60 and to cut provincial funding for kindergarten by more than half—a move that will force school boards either to offer a half-year program or raise fees to parents. The province’s cities and towns took one of the biggest hits as the government slashed the main provincial transfer grant to local authorities by a whopping 77.9 per cent. For many municipalities, that could mean cuts in everything from street cleaning to garbage collection, and increases in everything from bus fares to swimming pool fees. Spending on education was reduced by 12 per cent over the next three years, health services by 18 per cent, social services by 19 per cent and most other government operations by 30 per cent. As well, another 1,800 civil service jobs will be cut.

The budget drew immediate fire from the government’s critics. liberal Opposition Leader Laurence Decore charged that the deep cuts will slow Alberta’s economic growth and do nothing to create jobs. “Albertans should despair,” he said. “This is a tailspin for our econo-

my.” But Dinning remained unrepentant. “Sure, cutting deficits hurts a bit now,” he said. “But if deficits created jobs, everyone in Canada ought to have two or three of them.”

Ralph’s Revolution hits home. Already, many of those caught in the crossfire of fiscal restraint—social agencies, nurses, municipal politicians—are saying that Klein has gone too far, that he needs to consider other options, perhaps even introducing the much-dreaded sales tax. Allan Warrack, a former cabinet minister under Lougheed in the 1970s and now a business professor at the University of Alberta in Edmonton, argues that only about a quarter of the current deficit should be tackled through spending cuts, with the rest paid for by imposing a 6.5-per-cent provincial sales tax. Sticking with the present plan, he says, means that Albertans will go from having one of the highest levels of public services in the country to one of the lowest. “That is simply not on for most Albertans,” says Warrack, “nor do I think that it should be on.”

But as recent opinion polls attest, the thought of a sales tax—something other Canadians have long learned to live with—is anathema to most Albertans. It is a province, after all, where sales clerks still apologize as they ring up the federal Goods and Services Tax on a bill. And to this and all other suggestions that they retreat from their goal of no deficit and no new taxes, Klein and his ministers have an almost mantralike response: ‘We are not blinking.” Egging them on is a Conservative caucus that is to the right of its predecessors. Many of the backbench Tories were elected for the first time last June and are imbued with a Re form-like zeal to get government off the backs of taxpayers.

Calgary MLA Jon Havelock is one of a half-dozen Tory MLAs known as the “deep six”—a collection of like-minded politicians from across the province who happen to sit in the third row behind the premier in the Alberta legislature. “People expect us to run the government much like they run their households,” declares Havelock, a lawyer and businessman. “They are sick and tired of seeing taxes go up, services being withdrawn and money slipping into the black hole of government”

All the same, Havelock concedes that the government has not done a stellar job of selling its message. “That’s where Ralph comes in,” he says. “He’s a great communicator. He needs to be doing more of it” Albertans, and other Canadians for that matter, can expect to see Klein doing just that in the weeks ahead—using, among other vehicles, his monthly phone-in show. And if anyone can muster the communications chutzpah needed to convince Albertans to accept the painful choices ahead, it just might be the fellow who started out reading news and farm reports on Calgary radio station CFCN—and who seems to have been talking his way to the top ever since.


The budget also remained true to Klein’s pledge that he will eliminate the deficit without raising taxes. At the same time, though, it did increase a variety of user fees and eliminated free medical care for seniors earning more than $18,000.

Albertans now pay the lowest taxes in Canada—about 25 per cent less in personal and corporate taxes than the average paid by other Canadians. Alberta is also the only province that does not levy a sales tax, and Klein aims to keep it that way. “People don’t want us to pick their pockets to spend money on their behalf,” he told Maclean’s.

“They want to have the money in their pockets and be able to create economic growth.”

Klein also predicts that if his government stays the course it will not only have a balanced budget but will have the most competitive tax regime in the country—a positive ■ Operating room at Calgary’s business climate that he calls the ■ Bow Valley Centre hospital: “Alberta advantage.” His governdoctors claim that health-care ment is counting on that to lure cuts could mean lost lives businesses and skilled workers to

the province and create 110,000 jobs in the next three years. Declares Klein: “We will have created the climate for the private sector to come in and help build our economy.”

Klein’s cost-cutting campaign has served to polarize public opinion in the province. According to recent polls and calls to the government’s own hotline phone number, Albertans are almost evenly divided between those who support and those who oppose his efforts. Support runs deepest in the rural areas of the province, which gave his government 30 of its 51 seats in the last election. There, Klein’s message of frugality and self-reliance strikes powerful chords with people for whom government has long been a dirty word. “We’ve been living beyond our means and now it’s the day of reckoning,” says Ernest Jablonski, 53, as he leans across the counter of the convenience store he owns in Thorsby, a farming community of 600 located 60 km southwest of Edmonton. Jablonski—who in addition to spending six days a week at the store works evenings on his family’s half-section cattle farm—talks about how he and his rural neighbors differ from urban Albertans. “People in the city are so used to government doing everything for them,” he says. “Because it’s taken for granted, it’s abused.” As for Klein, Jablonski says with a grateful smile: “Finally, we have a politician who is doing what he said he’d do.”

The premier also gets top marks from Paul Gregg, a trucker who lives near Thorsby. “I think what he’s doing is very necessary, because the system is out of control,” Gregg says as he sips coffee at a friend’s farmhouse. While the cuts will inevitably hurt some people, Gregg believes they are the only way to ensure that the government will be able to provide a reasonable level of services down the road. ‘We have to do this,” he says, “if we are going to have a future for our children.”

Not all rural Albertans are as supportive of Klein’s cost-cutting campaign. “It just doesn’t seem like he has a plan,” says Thorsby-area chicken farmer John Mason. While Mason agrees with the need to curb government waste, he is concerned about cuts to education and apprenticeship programs. “You could end up having more people on welfare because they don’t have the education to get work,” he says, shaking his head sadly. “It may be necessary, but is it right?”

That is the question confronting Albertans as the full impact of