Alberta must find alternatives to cutting social spending
I have an opinion piece in today’s Edmonton Journal about Alberta’s current fiscal situation.
Points raised in the blog post include the following:
-The Jason Kenney government will almost certainly announce cuts to social spending in the near future.
-Yet, more than 80% of Alberta’s kindergarten through Grade 3 classes currently exceed the provincial government’s own class-size targets.
-Tuition fees as a share of university operating revenue have roughly tripled in Alberta over the last 30 years.
-Social assistance (i.e., welfare) caseloads have risen substantially in Alberta since the start of the economic downturn.
-Alberta still has, by far, the lowest debt-to-GDP ratio of any Canadian province.
-Albertans are also taxed less than any residents of any other province.
-Meanwhile, Alberta remains the only Canadian province without a provincial sales tax.
The link to the opinion piece is here.
I like the piece. But I do think it’s worth thinking a little sideways on the sales tax issue. I know sales taxes are supposed to be “efficient”, although I’m not sure how important I think that is. But what they definitely are is regressive. Progressives in Alberta have a unique opportunity (well, if they can ever get another sniff at power) to rely entirely or almost entirely on progressive taxation as they restore revenue levels–indexed income taxes, wealth taxes, taxing things like capital gains at least as much as labour income and so on.
There’s no reason to introduce a sales tax just because everyone else has one.
When World War I began, Europe was on the gold standard and experts predicted fighting would last only months because governments would run out of money. But since wars are fought with real resources, the belligerents simply suspended the gold standard and kept on fighting.
Today we are no longer on the gold standard, and a war-like mobilization would enable us to jump-start our under-performing Canadian economy. The amount available for equalization payments could be dramatically increased and provinces might use the funds to put people back to work through infrastructure renewal, environmental stewardship, and better provisioning of health and education.
Any recommendation that provinces cut vital services today derives not from an appraisal of true economic possibility, but from a misguided pre-war mentality of penny-pinching, inappropriate for a country with a sovereign currency and unused available resources.
1. Essential insights of Modern Monetary Theory (MMT)
The essential insight of MMT is that sovereign, currency-issuing countries are only constrained by real limits. They are not constrained, and cannot be constrained, by purely financial limits because, as issuers of their respective fiat-currencies, they can never “run out of money.” This doesn’t mean that governments can spend without limit, or overspend without causing inflation, or that government should spend any sum unwisely. What it emphatically does mean is that no such sovereign government can be forced to tolerate mass unemployment because of the state of its finances – no matter what that state happens to be.
Virtually all economic commentary and punditry today, whether in America, Europe or most other places, is based on ideas about the monetary system which are not merely confused – they are starkly and comprehensively counter-factual.
2. Economics for Everyone: A Short Guide to the Economics of Capitalism (2nd Ed.), Jim Stanford, Pluto Press, P. 352
If money can be created out of thin air by the government’s own bank, to buy financial securities, why can’t it be created out of thin air to do other things – like putting people back to work in real jobs? The answer is, ‘It can be.’
3. Alan Greenspan, former U.S. Federal Reserve Chairman, 1997
“[A] government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the ones we have today, can produce such claims without limit.”
3. Fiscal federalism: US history for architects of Europe’s fiscal union
“(p.4)……states in the US can abide by strict budget
balance rules to the extent the federal government is responsible for stabilisation and the bail-out of insolvent banks, but this simple lesson is sometimes overlooked in European discussions.
(p.23) Fiscal transfers from the federal government directly into state budgets, to help them fulfill federal mandates and otherwise alleviate budget pressure, ameliorate the procyclical influence of the states during downturns.”
Isn’t the reason that sales tax is considered better is because it encourages rich people to make investments rather then buy goods and services.
These days many investments are in things like currency speculation, derivatives and generally shifting money between rich people and doesn’t trickle down to regular people.
While buying good are services will result in much of the money ending up in worker’s hands.