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NDP economics much the same as PCs

Some Alberta businesses really seem to be letting down the side. They're actually investing money in Alberta.

Some Alberta businesses really seem to be letting down the side. They're actually investing money in Alberta.

Don't they know or care that the CEO of the Calgary Chamber of Commerce has pronounced that the province is on the brink of becoming “a banana republic?”

Come to think of it, that may not be an aptly discouraging complaint.

The classic “banana republics” of Central America were characterized by scads of North American investment in their resources, including banana plantations. And billions of Alberta and Canadian dollars are still being sunk into places like Mongolia, the Congo, and other countries with a fair amount of what the investment community calls “political risk.”

For that matter, a lot of people wondered about the state of democracy in Alberta for nearly a century, given that the province was governed for 36 straight years by one party and then for 44 years by a successor party.

Let's forget about the labels then, and just say that some Alberta businesses don't like the New Democrat government.

The usual corporate way of showing displeasure is to stop investing.

Rumours are abroad that some businesses are in fact threatening to hold their breath and turn blue in the face until they see a return to something more rational — like the promise of another 44 years of government they like. This tactic is even easier to implement when market forces dictate that you cut investment but you can pretend that bad government policy is the cause.

It's hard to sort out what's real and what's bluster.

Now we are seeing some major decisions going in the other direction. Canadian Natural Resources has restarted its $1.4-billion Kirby North thermal oilsands project. The first 129 wells have been approved under the province's new oil and gas royalty regime. Cenovus Energy is collecting contractor bids in anticipation of a possible restart to its Christina Lake SAGD oilsands project, which has been on hold for two years.

There's still a long way to go. People tend to focus on royalty revenues when they think about oil and gas. Royalties are much more important for the government's budget than they are for the overall economy.

The far bigger impact of oil and gas takes place in capital investment. Capital investment was accounting for more than 30 per cent of Alberta's economy (as measured by provincial gross domestic product, or GDP) before the recent slump in energy prices. That's a much bigger share than in other provinces. It's what made Alberta the place to make money until 2014.

The government is a fairly small player in that game. Capital investment by all levels of government in Alberta was running at less than 10 per cent of business investment through 2014. So when business spending on what the economists call “gross fixed capital formation” shrank from nearly $107 billion in 2014 to $84.5 billion in 2015, there was no way the Alberta government was going to make up the difference.

The complaint from the government's critics is that the NDP has made a bad situation worse.

What's always missing is any real notion of how any government can make a material difference. It's the same for getting rid of the $11-billion budget deficit planned for this year. If other parties aren't telling you how they're going to find $11 billion — vague talk about efficiencies is worse than useless — they are just blowing smoke.

The NDP, meanwhile, has encountered reality and found that it looks a lot like what the Progressive Conservatives saw.

The NDP set oil and gas royalties at slightly lower levels than in other western provinces (a business-friendly decision that got them some new investment but no appreciable political credit). They have followed through on budget announcements of new business tax credits worth $90 million over three years. They've allocated $500 million in royalty credits to stimulate investment in petrochemicals. They've reduced the small-business corporate tax rate to 2 per cent from 3 per cent. And more.

In other words, they've stared the realities of investment and economic diversification in the face and found that what a government can mostly do in the short term is hand out either cash or tax credits. (The long term involves good education, health care and business ethics.)

Only decisions in a relative handful of large areas such as electricity policy differ from the Progressive Conservative days —except that the New Democrats don't get as much credit because it's easy to paint them as either clueless or outright hostile to business.

Mark Lisac

About the Author: Mark Lisac

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