Pre-budget analysis
Klein government prepares to reinforce failure

Tom Fuller, AFL Staff

Sometime in the next six weeks, the Government of Alberta will table its 2003-2004 budget. Judging by Premier Klein’s remarks in his annual television address to the province, broadcast on January 27th, this year’s budget will feature a renewed assault on public services and public sector workers.

Over the last four or five years, the government has toned down its rhetorical attack on public services in the face of resistance from unions and the public. That doesn’t mean the government’s basic goals have changed, however, and it now appears that the Klein Tories are preparing to go on the offensive again.

This new wave of privatizations will take the form of "Public/Private Partnerships" or "P3s." In order to justify its commitment to P3s (which have had a terrible performance record in other jurisdictions) the government will have to argue that public spending is out of control, just as it did in 1993, at the dawn of the "Klein revolution." Sure enough, in his speech Premier Klein stared mournfully into the camera and informed us that provincial health care spending had "increased by 90% over the last seven years." It is a measure of Ralph Klein’s abilities as a politician that he can look the camera right in the eye and speak this kind of nonsense with a straight face. For nonsense it is – and the government knows it.

According to the government’s own figures (published in the First Quarter Fiscal Update) Alberta is going to spend about $6.8 billion on health care this year. If we compare this to 1995/96, when the Alberta spent just $3.75 billion, this year’s spending represents an increase of 82% over that year. Now 82% isn’t 90%, but it’s still a pretty hefty increase. But as any economist will tell you, if you want to make meaningful comparisons of government spending over time, you have to adjust for the effects of inflation and population growth.

Inflation causes the cost of all goods and services, including government services, to increase. This has nothing to do with a failure to control program costs, but simply reflects changes in the overall economy. It is also at least partly compensated for by increases in wages and income tax revenues. Overall prices in Alberta have increased by just over 18% during the last seven years.

Population growth causes government spending to increase because more people create a greater demand for government services. Once again, however, there is a self-balancing effect. An increased population also means an increased tax base, so the net effect on government finances should roughly balance out. The population of Alberta has increased by about 13% since 1995.

That’s why when they analyse government spending over time, economists convert raw spending figures into constant (inflation adjusted) dollars per capita. In other words: if you want to analyse government spending, you should look at how much is spent in after-inflation dollars for each resident of the province. When we do this for health care spending in Alberta, we find that constant dollar per capita spending increased not by 90% or 80%, but by about 36% between 1995 and this year.

Even this much lower figure is misleading, for a very simple reason: health care spending in 1995/96 was artificially low, and in 2002/03 it is artificially high. 1995 was the year of the biggest cutbacks all across government, and particularly in health care. In constant dollar per capita terms, health care spending in 1995 was over 17% lower than the average of the previous 12 years – a level so low that it was clearly not sustainable.

In fact, the drastic cutbacks of 1995-1999 seriously damaged the provincial health care system, just as critics of the Klein government had predicted. Physical plant and equipment wore out and was neither replaced nor properly maintained. Health care professionals left the province in droves, while enrolment in nursing and other health-related university programs declined. The result was a critical manpower shortage in health disciplines by the end of the 1990s.

While publicly denying responsibility for the chaos, the Klein Tories privately recognized that the health care system was on the verge of a complete breakdown. In budget year 1999/2000 the government moved to avert a major crisis, boosting health care spending by $150 million, an increase of about 10%. Unfortunately repairing the damage caused by earlier cutbacks proved to be a costly business, and further spending increases followed over the next four years. So the increased health care expenditures cited by Ralph Klein in his address to the province result from a combination of misleading figures (ignoring the effects of population growth and inflation) and the cost of repairing the damage caused by earlier spending cuts.

Of course, the government has learned nothing from this experience. If ill-considered cutbacks, pointless restructuring and reckless privatization have damaged health care in Alberta and contributed to escalating costs, the government has a solution: more cutbacks, more restructuring, and privatization via Public/Private Partnerships.

Albertans should brace themselves for a return to the rhetoric of the early 1990s. We can look forward to Ralph Klein and his cabinet dusting off all the old clichés about health care costs "skyrocketing" or "spiralling out of control." It will be déjà vu all over again, with distorted numbers and language deployed to push a political agenda that has already failed. As usual, the costs of further failure will be borne by all of us.