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Thank you for that kind introduction, and good afternoon ladies and gentlemen. What a pleasure it is for me to be here!
At 108 years, the Canadian Club of Calgary is just two years younger than our province. For all of that time, you have been bringing community leaders together to discuss the pressing issues of the day. Today is no exception, and even the issue is familiar. We have all seen low oil prices before. We have lived the cycles. We know we will get through.
I note this luncheon was sold out some days ago, which shows how seriously we all take the situation. And I welcome the time for questions at the end of my talk, because this challenge needs a true discussion.
I have been Premier for almost six months now, and I knew I was taking on a challenging job. I knew I had to bring sound conservative principles back to government, and restore the public trust. I knew our government had to maximize the value of our natural resources, establish our environmental leadership, and enhance our quality of life.
I knew it would not be easy. But, like all of you, my parents taught me that the jobs really worth doing in Alberta are never easy.
This is a province that was built on hard work, by pioneers who were lured by promises of abundant, fertile land and who instead encountered isolation and adversity. They responded the only way they knew how, by doing the work and earning the reward. Every generation who came before us has provided an amazing example of this.
I often say that there is no greater prize in life than being able to call yourself an Albertan. This is a place of fortune and strong character. It is character that is shaped by cycles of challenges and by the resilience with which we have all responded.
Whether it was facing back to back cycles of drought in the ‘20s and ‘30s, or cycles of oil boom and bust in the ‘70s and ‘80s, Albertans shoulder the tough work and come out stronger. We have lived the cycles. We are resolved, and resilient. We are not afraid of the hard work here. And there is hard work ahead.
But this time, we must not just get through. We must seize this once-in-a-generation opportunity before us—not just to manage the cycle, but to right the balance once and for all.
I was sworn in as Premier on September 15. That day, the WTI closed at $92.92 per barrel. It’s been going down every day since. Tuesday’s third quarter forecast is based on US$44 a barrel for the rest of this fiscal year. And we are seeing the impact on industry, in the real estate market, and in government.
So there is reason for bad news. But there is also reason for optimism, determination and confidence. I know I share this with you.
I can say this with complete confidence, even though this time is not like the last time. We cannot just cut back to weather the storm until good times come again. I have a different goal—to move Alberta off the roller coaster once and for all. Your children’s class sizes, your parents’ continuing care, and people’s knee replacements will not depend on oil prices set half way around the world.
And when prices go up again, we can look to those revenues for savings and investments, instead of using them to fund programs and services. To make that happen, we need to deal with our current challenges honestly and fairly. To me, that is leadership.
Today, I will take a candid look at the scope of the challenge. That includes the small surplus in the third quarter forecast released on Tuesday.
I will look closely at some of the built-in cost escalators that are driving government expenses to a new high. I also will address the need to fix government’s fiscal foundation. That includes a cultural change in how government collects, budgets for, and spends its revenues, which may be the biggest challenge of all.
For months now, you have heard me talk about the $7 billion gap in government revenue caused by falling oil prices.
What does that look like?
In Education, $7 billion is more than the entire annual budget to educate almost 660,000 K-12 students. That includes paying more than 41,000 teachers. In Health, $7 billion pays for the health care all Albertans will receive from now to July 15.
In terms of public sector compensation, $7 billion pays for one in three public sector staff. That includes doctors and nurses, teachers and professors, judges and social workers, and all other public servants.
A $7 billion hole is not a simple problem. It cannot be addressed by cutting staff, eliminating severances, or buying fewer paper clips.
The small surplus in the third quarter does not change next year’s reality. The circumstances that created that surplus are a lower loonie, a smaller oil price differential, and higher than expected investment income. None of those things represent stable revenues, or sufficient income to fill a $7 billion gap.
It has been said of newly famous entertainers that they are an overnight success, 10 years in the making. The same thing could be said of Alberta’s fiscal challenge. It is true that oil prices dropped—if not exactly overnight—still very quickly. But that did not cause our fiscal problems—it only revealed them.
Last week, the Fraser Institute released a report that showed Alberta’s spending grew faster than our population and inflation over the last 10 years. We have inherited the spending legacy of previous decisions, and we see the impact of those decisions in the cost of Alberta’s public services.
More than 210,000 people deliver the education, health care, job training, family supports and other services that Albertans depend on. So it is reasonable that salaries are government’s single biggest expense. But today we are spending $1,300 more per capita than the national average. Salaries and benefits now take almost $1 out of every $2 government spends.
And we have seen higher and more expensive public sector wage settlements even since the 2014 budget. That will create cost pressures for years to come. It also creates a record high point for spending from which we now must begin to manage our spending.
Those in-year wage settlements will cost $600 million more in 2015-16, $900 million more in in 2016-17, and $1.1 billion the year after that. That adds up to $2.6 billion over just three years, or about $700 more for every person in the province.
Before I move on, let me be clear: I am speaking only about the cost of the public service, not its value. We all depend on public sector workers for quality education and health care. We depend on them for compassionate seniors’ care, a fair system of justice, and protection for our environment.
Even in the tough times ahead, we will work to contain costs in a way that supports the quality of front line services for Albertans. We all value the excellent services and supports that we have built through our public service. But we all must also manage the cost legacy of decisions that were made by previous governments, one by one, to bring us to this point.
My government must act to deal with these challenges. Not only do embedded cost increases give us a new high point from which to cut, we have to do it in a lower revenue environment that is about more than oil.
In 2014, we forecasted economic growth of 3.7 per cent. This year, the outlook is—shall we say—less optimistic. CIBC, BMO, RBC, TD and Scotiabank are forecasting growth from a high of 0.9 per cent, to minus 0.3 per cent. Our government’s own forecast is about in the middle, at 0.6 per cent. We do not expect a recession in 2015, although it may feel like one.
Many of you are already starting to feel the impact. So are we in government. The slower economy is taking a bite out of corporate and personal taxes through which we fund the services Albertans depend on.
Anyone who says we can meet this challenge by focussing on a few headline-grabbing examples of waste is not being honest. Waste in the public sector does exist, and we are dealing with it. But what we really need is to fix the foundation of the fiscal problem.
My budget team and I are looking well ahead down Alberta’s fiscal road. We are developing a long-term plan that looks beyond short-term fluctuating revenues to create a steadier future. It will be a 10-year plan to minimize the effect of volatile energy prices, and provide predictable and sustainable funding for programs and services.
The fiscal plan and budget will reflect Albertans’ input through our web survey, letters and phone calls. And we are hearing from people directly through meetings with members of our government who are out and about in communities across Alberta. Today is your opportunity to tell me in person what your suggestions are.
In the meantime, as leader, I am not just waiting—I am taking immediate action. My first decision was to put the government air fleet up for sale. Bids are now closed, and I am happy to be able to tell you that three of the four aircraft sold for $6.1 million. That is 11 per cent higher than the asking price. The Dash-8 is still available if anyone here is interested.
On December 15, I put a hiring restraint in place across government for all but critical and frontline services. That has already saved about $7 million on an annualized basis. Also, department spending on goods and services is limited to critical operational requirements and legal commitments. Spending on discretionary grants, travel and training has the same restriction.
I asked agencies, boards and commissions to follow that lead. And I asked other organizations funded by government to do the same—including schools, universities, colleges and Alberta Health Services.
Cabinet and I took a 5 per cent pay cut, followed by all MLAs and, now, by the senior staff in my office. We are setting the standard that more will have to be done with less.
We are closing the International Offices in Ottawa, Chicago and Munich, and suspending plans to open offices in California and Brazil. This will save $3.1 million over two fiscal years as we focus our international efforts on emerging markets in Asia. What is more important—I believe we will deliver better services through our international offices, even with less.
None of these are massive cuts in themselves, but they add up. Across the more than 210,000 jobs of Alberta’s public service, they also represent a cultural shift.
The old approach to meeting service pressures was to expand programs, hire more people, and pay them more. The old approach to revenue was to draw every dollar from oil royalties and the Heritage Fund. This helped to fuel a culture of spending and entitlement that I am determined to change.
We need to get off the oil roller coaster, so years of free-handed spending are not followed by spells of belt-tightening. Resource revenue needs to be a legacy for the future, as well as a competitive advantage today.
You folks in the private sector deal with this every day. You face reduced production, reduced costs and layoffs that are felt by real people in the real world. Government must live in the same world. We cannot act as though every dollar we spend this year must be spent next year, plus five cents—plus another five cents every year thereafter.
That is the cultural shift we need to see.
It comes down to balance. With balance, I believe we will achieve what we need to and come out in better shape on the other side.
In the short term, we will make balanced use of our three budget levers: reducing costs, increasing revenues and using our contingency fund. Where we reduce costs, we will balance the savings with a firm commitment to quality in education, health care and other public services.
We will focus our spending and our efforts on maintaining the services and supports that Albertans value: schools for our children, the right care for our aging parents and quality, accessible health care for all of us.
The long-term fiscal plan—backed by a cultural shift across our entire government sector —will help us not only to end the cycles of boom and bust, but will ensure a long-term sustainable path for the province we have all built together.
We will get back to spending within our means on what we really need, and saving for the future. That is the balanced fiscal future I am working to achieve. And I believe that Alberta’s resilience will make it happen.
Alberta’s first Premier, Alexander Rutherford, once said: “We have no pessimists in Alberta –a pessimist could not succeed. We are optimistic and always look on the brighter side of affairs.”
This is the Alberta he founded, and it is the Alberta I have the pleasure of leading today. We are optimistic despite the challenges we see ahead. We are resolved, and we will all do our part.
We will take action in a way that protects jobs, our vital services and our Alberta advantage. We will make the long-term decisions. We will act prudently and decisively, but with compassion for those whom we must protect.
We will be sensitive to the impacts of the decisions we make on an already vulnerable economy. We will listen, and respond – with care – to do the right things, for the long-term. We will deal honestly and fairly with a shared and fundamental challenge.
This is the kind of leadership I vowed to bring to Alberta as we deal with our province’s greatest challenge in a generation.
When Albertans face a challenge, we stand together and tackle it head-on. And together, we will strengthen the foundation of this province and build an even brighter future with the same determination, confidence, and vision that Albertans have always shown.
And we will emerge even stronger on the other side.