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2/ Forget your idealizations about Peter Lougheed. He was a great man. This story begins in the late 1990's with the Federal Liberals under Jean Chretien and his Minister of Natural Resources, Anne Mclennan. en.wikipedia.org/wiki/Anne_McLe…
3/ Anne Mclellan (@DalChancellor) likely had a greater impact on the trajectory of Alberta's Economic prosperity than any other politician in history. OK, maybe we'll place her next to Saint Ralph Klein, God Rest His Soul.
4/ In order to truly understand the contribution of Anne McLellan (@DalChancellor) to Alberta's long term economic prosperity you'll need to read this. I've isolated the pertinent details for you. glenbow.org/collections/se… 
5/ Do you see what she did? "Hey guys, you are mining oil sands ore, you are a mine, how about we extend this capital cost allowance to you? All the other truck and shovel mining operations who mine commodities are getting it, why not you guys?"
6/ If you don't understand ACCA, that's ok. In essence, it means #oilsands mines could write off the capital costs against revenues. This means they don't pay full royalties until capital costs are recovered. Remember this for later.
7/ It's brilliant, when you think about it. Anne McLellan (A LIBERAL!) implemented a fiscal policy that would kick start some serious investment in #oilsands in the late 1990's. If you're a #FortMac person, you recall the 1996 Declaration of Opportunity calgaryherald.com/storyline/when…
8/ And so began the #oilsands boom from 1996-2007. Many projects in this vintage went over budget, costing tax payers billions in revenue. More on that later.
9/ in 2006, @stephenharper was elected Prime Minister. In 2007, Jim Flaherty would announce the grandfathering out of the ACCA. Again, I've isolated the pertinent part for you. budget.gc.ca/2007/pdf/speec…
@stephenharper 10/ Now begins the fun part of deconstructing the perverse incentives that were wrought by the implementation and subsequent cancellation of the ACCA.
@stephenharper 11/ First off the bat, under the ACCA, if you over spent on a project - who cares? The capital costs are in essence a write-off. Projects stopped caring about cost, as they were focused on schedule.
@stephenharper 12/ So when a project went over budget, it didn't matter so much, because the inflated costs just kicked the royalty can down the road. I've seen one estimate that every $1bn in overruns costs taxpayers $400 million in resource revenue.
@stephenharper 13/ The Perverse Incentive of the ACCA led to too many projects going ahead all at once, all competing for labour, materials and transportation infrastructure that was lacking in Fort Mac, adding further to cost pressures.
@stephenharper 14/ 1996-2007 is a distinct period in #oilsands history because it marked a race to get product to market. In 2007, two things poured diesel on this fire: The ACCA was cancelled and the SubPrime Mortgage meltdown.
@stephenharper 15/ In the 2007 throne speech, Jim Flaherty announced the phase-out of the ACCA by 2014. If you didn't have a shovel in the ground on a project by then, no ACCA for you. What happened? Everyone and their dog had an #oilsands project proposal.
@stephenharper 16/ This was set against a global macroeconomic backdrop of excess liquidity, declining interest rates, and a flight of capital from Finance, Insurance and Real Estate (the FIRE economy). Oh, and #Peakoil was all the rage.
@stephenharper 17/ The jittery market was full of liquidity seeking a rate of return. A declining US Dollar corrupted the pricing mechanism, creating the illusion that commodity prices were rising. Naturally, this excess capital went into commodities in a vicious circle.
@stephenharper 18/ This thesis that a low US Dollar distorted commodity prices is also known as the Forbes Thesis. I've clipped the in point of it from this article: forbes.com/sites/stevefor…
@stephenharper 19/ When you have cheap money seeking a rate of return, it tends to flow into projects with marginal economics. Projects that would otherwise not go ahead, end up going ahead.
@stephenharper 20/ Let's pause and review: 1) ACCA created a perverse incentive for #oilsands 2) Too many projects all at once 3) Fed policy and a weak $USD corrupted commodity pricing signals 4) Excess liquidity poured into commodities. In other words, #bubblenomics
@stephenharper 21/ What was the ultimate impact of the #oilsands bubble? 1) Projects went over budget. 2) Project overruns delayed higher royalty rates 3) The public purse is currently suffering for it.
@stephenharper 22/ When it comes to the idea of the #Alberta Advantage, maybe it was an illusion caused by forces beyond our control: Ownership of a resource whose price is determined by global economic forces. Resource rents allowed us to afford to be a low tax jurisdiction.
@stephenharper 23/ In 2010, #oil production in #Libya went offline, and came back in 2014, just as OPEC decided to keep the taps on in order to break the #shale revolution. ogj.com/articles/print…
@stephenharper 24/ As #WTI prices began to slide downwards in Q4 2014 , we initially thought the market would correct. No, the market was correcting. Jittery markets in Asia and the EU were looking for a safe haven, and capital began pouring back into US Treasuries, which strengthened the $USD
26/ By the spring of 2015, #WTI was at $51/bbl, and one man had an unpopular message for #Alberta voters: "Look in the Mirror". We didn't want to. We collectively thought we had gotten here by our own ingenuity, hard work and fiscal discipline.
calgaryherald.com/news/politics/…
calgaryherald.com/news/politics/…
27/ This, along with other foibles (Math is hard), led to Prentice's defeat. He basically gave the election away by not understanding voters and communicating his message effectively.
28/ So what was going on in #Alberta politics in 2006? How did the PC Party machine deliver a string of leaders like Stelmach, Redford and Hancock, who put such a sour taste in Albertan's mouths? You'll have to ask Ted Morton. revparl.ca/english/issue.…
29/ Morton's "Two Minute Tories" thesis is compelling: the Public Sector mobilized its trojan horse to exploit the PC party's open membership in order to block fiscal conservatives such as Dinning and replace them with the "least worst" alternatives.
30/ And by "Least worst" they obviously meant "Least likely to cut the public sector in order to balance the budget".
31/ Ted Morton's Two Minute Tories theory basically implies that the PC Party was destroyed from within via the party's open membership, which backfired. You also have to realize where the public sector was coming from: stagnant wages, rising costs. This was payback.
32/ Stelmach and Redford didn't exactly deliver in terms of public sector hiring, though. Throughout their terms, payrolls in Education, Health Care and Public Administration more or less hovered around 441,000. But Hancock delivered.
33/ As soon as the 2014 recession began to manifest in Alberta, public sector payrolls started to surge, probably to buffer against a rising unemployment rate heading into an election.
34/ BTW, this data is from Survey of Employment, Payrolls and Hours (SEPH) www23.statcan.gc.ca/imdb/p2SV.pl?F…
35/ The way to read that graph is to understand that 0 = the pre-recession average public payroll of 441,000. This includes health care, teachers, public servants at the provincial and municipal level. In a few years, this sector has expanded significantly, so has debt.
36/ The question worth answering is... did the NDP and Hancock restore public services to an optimal level? Or did they ramp up public sector hiring to: 1) create a pool of loyal voters, 2) absorb the unemployed and 3) boost employment numbers?
37/ Or, dare I ask.... What has been the impact of the recent trend in Alberta's public sector growth on public pensions? Many of these are defined benefit pensions. An influx of new pension contributors definitely improves the solvency of the fund for those retiring.
38/ It appears we have traded one bubble for another. The #Oilsands boom was a bubble, and when it popped, both public hiring (with its future pension obligations) and our provincial debt went up. This may be compassionate in the present, but not to future voters.
39/ Again, let's look at the data another way. What's the story here? Much of the improvement in the #ABEconomy employment is being driven by public sector growth in Health Care, Education and Public Administration.
40/ It seems as though there are some tough choices ahead: Pay down debt, or fund public services? Without a clear recovery in private sector employment, the current trajectory is unsustainable.
41/ What if #ABgov instituted a hiring freeze in January 2014, capping all public sector employment at 441,000 (shown in red)? Without adding 89,000 people in education, health care and public administration (orange), payrolls remain flat.
