Danielle Smith’s win in Alberta ups tension with Ottawa and economic uncertainty

Open this photo in gallery:

Duane Bratt is a political science professor and chair of the department of economics, justice and policy studies at Mount Royal University in Calgary.

In her victory speech late Monday night, re-elected Alberta Premier Danielle Smith threw down the gauntlet. To a roaring crowd of UCP supporters she warned of “soon-to-be-announced Ottawa policies that would significantly harm our provincial economy.” These included “new restrictions on electricity generation from natural gas that will not only massively increase your power bills, but will also endanger the integrity and reliability of our power grid.” In addition, the Trudeau government will “introduce a de facto production cap on our oil and gas sector.” Obviously, if Ms. Smith is correct in her assessment, this would have dire economic consequences for Alberta.

On the other hand, it is more possible that Ms. Smith’s response may be what creates investor uncertainty in the province. In her speech, the Premier vowed that she would not allow these “contemplated federal policies to be inflicted on Albertans.” What happens if the Smith government decided to invoke the Sovereignty Act (officially called the Alberta Sovereignty Act within a United Canada)? The Sovereignty Act was the centrepiece of Ms. Smith’s UCP leadership race in the summer of 2022 and was her first piece of legislation, passing in December, 2022. The act would allow Alberta to nullify federal laws and regulations if the provincial legislature unilaterally determines that they infringed on provincial jurisdiction.

Now that she has been re-elected, and likely with strong encouragement from the Take Back Alberta faction within the UCP, it is expected that she will use the act against some part of the Trudeau government’s climate policy. To do so, as members of the Alberta business community and former UCP finance minister Travis Toews warned last year, could create economic uncertainty in Alberta because it would violate the rule of law by usurping the traditional role of the courts from arbitrating jurisdictional disputes and hand those rights to the provincial legislature.

Danielle Smith’s UCP has won the Alberta election. What now? Analyzing the results of a razor-thin race

This economic uncertainty accompanying an Ottawa-Alberta fight over energy policies comes at a time when the government’s fiscal plan may be hamstrung by a series of UCP campaign promises. On Day 1 of the official campaign, Ms. Smith promised a $1-billion personal tax cut by reducing the rate to 8 per cent from 10 per cent on the first $60,000 of income. Ms. Smith also promised to extend the fuel-tax holiday (13 cents a litre) throughout 2023. Ms. Smith later pledged to make these tax cuts difficult to reverse, by saying that Bill 1 of a re-elected Smith government would amend the Taxpayer Protection Act to require a provincial referendum to pass any tax increases for individuals or corporations in the province. This is already the case if a government wants to introduce a provincial sales tax.

https://www.theglobeandmail.com/business/commentary/article-alberta-danielle-smith-provincial-pension-plan/

These tax-cut promises, and the contrast with the NDP’s pledge to raise corporate taxes, resonated with voters. However, they would also further Alberta’s dependence on the fluctuations of global oil and gas prices. Ms. Smith’s pre-election budget in February was the largest spending budget in Alberta’s history, with billions in new money flowing into health care and education. The UCP also used a large government budget surplus – the result of high oil and gas prices – to provide direct payments to Albertans; in spring, 2023, every parent and senior in Alberta received $600 cheques.

But what happens if oil prices fall? Right now, oil royalties represent about 30 per cent of government revenue. The February budget requires a price of US$76 a barrel in order to be balanced. (At the time of writing, crude is trading at US$70.) Every one-dollar drop in the price of oil equals a drop of $680-million in government revenue. If the price remains lower than US$76, it means that because the UCP would have locked in tax cuts, the UCP government will have to cut spending to prevent going into deficit.

The UCP successfully used the politics of the economy to win re-election, but a battle over energy policy with Ottawa could be economically damaging. Nobody wins in a war. Moreover, this economic damage could be compounded by the tax-and-spend promises of the Smith government’s campaign.