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Fortis et Liber


									Fortis et Liber:
Alberta Strong and Free

            Accountable Government
             for Alberta’s Debt Free

              A Submission to the
             Alberta Future Summit

                                          Prepared by:

                                         John Carpay
                                     Alberta Director
                        Canadian Taxpayers Federation
                              #410, 9707 – 110 Street
                                   Edmonton, Alberta
                                            T5K 2L9

                                 Phone: (780) 448-0159
                                   Fax: (780) 482-1744

                                        February, 2002
                                      Table of contents

I. Alberta in the new millenium                                               2
Alberta has much to be proud of                                               2
Increased government spending threatens taxpayers                             2
Alberta could have been debt-free already                                     3
Have the fiscal preferences of Albertans been ignored?                        4
The problems of “roller coaster” budgeting                                    4
Spending control legislation works in Washington state                        4
Why Alberta needs spending control legislation                                5
The shortcomings of the Fiscal Responsibility Act                             6

II. A taxpayers’ vision for prosperity and freedom                            6
Why lower taxes?                                                              6
How to cut spending                                                           7
Give taxpayers the final say on taxes                                         8
Smaller is better: reduce the size of cabinet                                 8
Lower corporate taxes benefit everyone                                        9
The term “one-time spending” has no place in Alberta’s political vocabulary   9
Income tax freedom for Alberta: realistic and desirable                       10
Learning from the Alaska Permanent Fund                                       10
Amend the Alberta Heritage Savings Trust Fund Act                             11

III. A taxpayers’ vision for accountable government                           12
The democratic deficit                                                        12
Elections are not good enough                                                 13
Real accountability through citizens’ initiative                              13
79% of Albertans want the right to initiate and vote in referendums           14
The benefits of citizens’ initiative                                          15
Referendums are the Canadian way                                              15
Alberta’s heritage of direct democracy                                        16
Citizens’ initiative – the taxpayer’s friend                                  17
Responding to criticisms of citizens’ initiative                              17
Albertans deserve the right to recall MLAs                                    19
Establish a fair process to determine MLA compensation                        19
Penalize ministers who exceed their budgets                                   20
Choice and diversity in education                                             20
I. Alberta in the new millenium
Alberta has much to be proud of
In the past decade, Alberta has made considerable progress towards becoming a taxpayer-friendly
province. Although some individuals in B.C. and Ontario may pay less provincial income tax, their
overall tax burden is heavier than that of Albertans. It is no coincidence that the province with Canada’s
lowest tax burden also has Canada’s lowest unemployment rate.

Provincial taxes have gone down in the past five years. In 1996-97, the Alberta government collected
$4,561 in taxes per person ($5,177 in 2001 constant dollars) from sources other than non-renewable
resources. In fiscal 2001-02, the Alberta government collects an average of $4,915 from every Albertan
from sources other than non-renewable resources. This means that the overall provincial tax burden of
Albertans, per person, has decreased 5% in real terms.

Alberta ranked first in the Fraser Institute’s 2001 Budget Performance Index. In the sub-indexes for “Tax
Rates and Revenue” and “Debt and Deficit,” Alberta ranked ahead of the other nine provinces and the
federal government.

Considerable progress has been made in reducing Alberta’s debt. In 1994-95, Albertans paid $1.75
billion in debt servicing costs: the equivalent of $2.07 billion in 2001 constant dollars. At $825 million in
2001-02, debt servicing costs today are 40% of what they were seven years ago. In light of Alberta’
population growth, debt servicing costs per person are 65% less than in 1994-95.

According to the November 2001 report of the Dominion Bond Rating Service (“The Wind has Turned”),
Alberta has the lowest debt-to-GDP ratio in Canada at 2.2%, down from 30.1% in 1993-94. By way of
comparison, the province with the second-lowest debt-to-GDP ratio is British Columbia, where the ratio
in recent years has steadily increased to 23.4%. Federally the ratio is 50.3%. According to a TD
Economics Report on Canadian Government Finances (October 12, 2001), debt service costs in Alberta
absorb less than four cents of every revenue dollar – about one-third of Canada’s all-province average.

Alberta’s Fiscal Responsibility Act requires budgets to be balanced, and imposes a timetable for the
repayment of debt. Many people attribute Alberta’s economic success to the existence of legislation
which imposes this fiscal discipline on legislators. Legislation has made it easier for MLAs and Ministers
to resist pressure from the many groups and organizations who lobby aggressively and persistently for
more spending.

Increased government spending threatens taxpayers
Alberta’s taxpayer-friendly status is threatened by massive increases in government spending in the past
five years. From 1996-97 to 2001-02, Alberta’s spending on government programs increased 56%, while
population grew 10% and inflation was 14% during the same period. Alberta government spending on
programs in 2001-02, per person, is 21% higher than the Canadian provincial average.

                 Program spending (excluding debt servicing costs) for 2001-02
Province               2001-02 budget            population       per person
                       (in $ millions)           (in millions)    spending

Aberta                 19,957                    3.064            $6,513
Prince Edward Island      850                    0.139            $6,115
Saskatchewan            6,188                    1.016            $6,091
Quebec                 43,506                    7.411            $5,870
British Columbia       23,927                    4.096            $5,842
Newfoundland            2,976                    0.534            $5,573
Manitoba                6,299                    1.150            $5,477
New Brunswick           4,056                    0.757            $5,358
Nova Scotia             4,344                    0.943            $4,607
Ontario                54,156                    11.874           $4,561

Total/Average          166,259                   30.984           $5,366
       Source: Provincial Budget Documents, 2001-02, and Statistics Canada
       Source for Alberta program spending: Alberta Finance, Second Quarter Fiscal Update

Alberta could have been debt-free already
Alberta’s accumulated debt at March 31, 2002 is projected to be $6.3 billion.

Alberta could have implemented spending control legislation in 1996, to index the growth in government
spending to inflation and population growth. Program spending would have risen steadily each year, and
Alberta would have been completely debt free by the end of 2001 or sooner. Billions of dollars paid in
extra debt servicing costs from 1997 to 2002 would have been available for tax cuts and/or more debt

                Program spending        Alberta           Total annual savings (in $ millions)
                Per person              population        with spending control legislation
Year            (constant 2001 $)       (millions)        (constant 2001 $)

1996-97      $5,212                  2.781          0
1997-98      $5,455                  2.837          $689
1998-99      $5,465                  2.907          $735
1999-00      $5,954                  2.959          $2,196
2000-01      $6,250                  2.997          $3,111
2001-02      $6,513                  3.064          $3,986
      Savings available for tax cuts and/or debt repayment:                $10.717 billion

If Alberta had implemented spending control legislation in 1996, Albertans today would not be paying
$825 million in debt servicing costs in 2001-02: about $269 per person, or $1077 for a family of four.

Have the fiscal preferences of Albertans been ignored?
The Alberta government conducted two large-scale surveys on dealing with government surpluses.
Alberans had the opportunity to rank the importance of debt repayment, tax cuts, increased spending, and
increased saving in the Heritage Fund.

In response to the Alberta government’s 1998 “Talk it up, Talk it out” survey, Albertans attributed the
highest importance to paying down debt (74.8%), followed by reducing taxes (61.4%). Increasing
priority spending ranked third (56.1%), followed by increasing savings in the Heritage Fund (19.2%).

In response to the Alberta government’s 2000 “It’s Your Money” survey, Albertans attributed the highest
importance to tax cuts (73%), with more spending on programs a distant second (44%). Regarding the
use of one-time revenues, spending ranked third behind one-time tax rebates and savings.

Adjusted for inflation and population growth since 1996, taxes (per Albertan) are down 5% while
spending (per Albertan) is up 25%. The government has largely failed to implement Albertans’ clear
preference for tax cuts and debt repayment over spending increases.

The problems of “roller coaster” budgeting
Since the mid-eighties, Albertans have experienced periods of high spending under Peter Lougheed and
Don Getty, then cost-cutting under Ralph Klein, then huge spending increases under Ralph Klein, and
recently some cost-cutting again.

Alberta’s “roller coaster” budgeting is bad for taxpayers.

First, long-term planning is difficult for all government departments in the absence of steady, reliable
funding. Funding instability does not promote prudent spending decisions. If an individual earns $45,000
one year, $60,000 the next, and $30,000 the year after that, it will be difficult for him to make prudent
decisions about spending, saving and investing. The same principle applies to government.

Second, infrastructure funding usually suffers the most when spending is reduced. When necessary
repairs and maintenance are neglected, fixing the problem costs taxpayers far more in the long run. Like
health care and education, infrastructure deserves steady, reliable funding.

Spending control legislation works in Washington state
Chapter 43.135 of the Revised Code of Washington imposes a state expenditure limit on the General
Fund, into which sales, business, property and other taxes are placed for state expenditures. Since 1995,

this law has allowed Washington taxpayers to keep billions of dollars more of their own hard-earned

This spending control law indexes the maximum growth in government spending to a “fiscal growth
factor” based on inflation and population growth. The fiscal growth factor is applied to the previous state
expenditure limit, and is used to set a new state expenditure limit for the upcoming budget. The fiscal
growth factor also applies to fees and licences, unless the Legislature specifically votes for a larger

The state expenditure limit may be exceeded upon declaration of an emergency for a period up to one
budget cycle (twenty-four months) by a law approved by a two-thirds vote of each house of the
Legislature and signed by the governor. The definition of “emergency” is limited to natural disasters that
require immediate government action to alleviate human suffering and provide humanitarian assistance.

Washington’s law also requires voter approval for any tax increases or new taxes. This applies to
expanding the base for a tax, or increasing the rate of any and all taxes, including sales and use taxes,
property taxes, business and occupation taxes, and fuel taxes.

In contrast, the Alberta Taxpayer Protection Act only requires a referendum to be held on the issue of
introducing a sales tax; other new taxes or tax increases do not require the approval of Albertans.

       Source: Washington state web site at

Why Alberta needs spending control legislation
Alberta needs spending control legislation for the following reasons:

       •   to arrest and reverse the trend of the past five years towards bigger government.
       •   to put an end to roller coaster budgeting and the problems which it causes: unreliable funding
           for infrastructure, and imprudent planning and spending decisions.
       •   to ensure that Albertans start enjoying debt freedom – liberation from debt servicing costs – as
           soon as possible.
       •   to ensure that Albertans’ clearly stated preference for tax cuts and debt repayment over
           increased spending will be implemented.
       •   to put Alberta on track to eliminate provincial income tax, a realistic and desirable goal.
       •   to protect Alberta taxpayers from losing recent cuts to personal income tax, corporate income
           tax, and property tax.
       •   to empower caucus and cabinet to resist pressure from special interest groups to spend more.
       •   to force politicians to prioritize spending rather than looking to taxpayers for more money.

Critics of spending control legislation point out that it would interfere with the political discretion of
elected representatives. The critics are correct. That’s the whole point. The balanced budget requirement
and the debt repayment requirement of the Fiscal Responsibility Act also “interfere” with a government’s
fiscal choices, and so they should. This kind of “interference” is good for taxpayers.

Alberta would not have achieved the same degree of fiscal success without legislation requiring the
budget to be balanced, and requiring 75% of a surplus to go to debt repayment. In the same way,
legislators need the help of spending control legislation to say “no” to the special interest groups who
lobby aggressively, continuously and persistently for more spending.

The shortcomings of the Fiscal Responsibility Act
In its current form, Alberta’s Fiscal Responsibility Act does not provide taxpayers with the benefits of
spending control legislation described above. The Fiscal Responsibility Act does not protect Alberta
taxpayers from tax increases, or from the spending increases which invariably lead to higher taxes.

When projected revenues from oil and gas exceed their historic average, the Fiscal Responsibility Act
does not prevent government from taking the portion which exceeds the historic average and budgeting it
for spending rather than for debt repayment and tax cuts. The Fiscal Responsibility Act has not prevented
the government from favouring spending increases over tax cuts and debt repayment.

In its current form, the Fiscal Responsibility Act has not prevented – and cannot prevent – the trend
towards larger government which Albertans have witnessed the past five years. Without a spending
control component, the Fiscal Responsibility Act does not benefit taxpayers nearly as much as it could or

II. A taxpayers’ vision for prosperity and freedom

Why lower taxes?
Economic wealth is generated in the private sector by businesses, employees, managers and investors
working together. Through taxes government redistributes wealth, but does not create wealth. Every time
government takes a dollar away from a person in taxes, government creates a disincentive to work, save
and invest.

If the total value of goods and services produced can be thought of as the economic “pie,” then taxes
reduce the size of this pie. Not only do taxes take a bite out of the pie, but they prevent the pie from
getting bigger. Dollars multiply more rapidly in private hands than in government pockets. In “The
Distortionary Effect of Rising Taxes” (1994, C.D. Howe Institute), University of Alberta economist Bev
Dahlby estimates that each dollar in tax relief in Alberta creates an additional 40 cents in value for the
economy. Put another way, the sacrifice of one dollar of government spending effectively adds $1.40 of
worth into the pockets of taxpayers.

High taxes kill jobs by diminishing consumer purchasing power. When government taxes money away
from people, they have less to spend. The less consumers purchase, the fewer employees will be hired by
businesses. It is no coincidence that Alberta, with the lowest taxes in Canada, also has the lowest
unemployment rate.

High taxes impair economic growth and job creation by discouraging investment (both foreign and
domestic), and by encouraging productive and talented people to move away to other jurisdictions.

High taxes reduce the standard of living for everyone, especially people with lower incomes. In Alberta
in 2002, the first $13,339 an individual earns is exempt from provincial income tax. Although Alberta
has the highest personal exemption of any Canadian province, an Albertan working full-time for as little
as $7.00 per hour must still pay provincial income tax. Lower income Albertans also pay corporate tax
whenever they purchase a product or service, and property tax when they pay rent.

Lower taxes leave people with more money in their pockets, wallets, and purses. This is why every tax
cut is a pay raise, and every tax increase is a cut in pay. Lower taxes enhance the dignity and self-respect
of every individual, by allowing him more freedom to allocate the money which he himself has earned.
The choice is his to make: saving, investing, giving to charities, and providing for himself and his family.

In Alberta and the rest of Canada, taxes have become the single largest item in a family’s budget, ahead of
food, rent and clothing. A high-tax regime assumes that citizens lack intelligence, compassion or both.
For example, government involvement in business, usually conducted in the name of “economic
diversification” or “regional development,” assumes that individuals don’t really know what they are
doing when they decline to invest their own money in a particular business venture. The corresponding
assumption is that politicians and bureaucrats possess special wisdom and insight when they put
taxpayers’ money into “economic diversification” or “regional development” schemes that private
investors refuse to fund. A similar assumption operates when government takes money from citizens to
build bureaucracies to solve social problems: that citizens will not be generous in supporting worthwhile
charities and voluntary associations to solve social problems.

Ironically, lower tax rates often result in more tax revenues for government. By stimulating economic
growth and job creation, lower taxes result in more people working, which results in government
receiving more revenues from income tax. Increased consumer spending leads to more business profits,
resulting in the government receiving more corporate tax revenues. Lower taxes also reduce the size of
the underground economy.

The quality of life and the dignity of citizens is enhanced when people have more money to support their
own families, churches and communities. Albertans are generous with their time and money when they
know that they can make a real difference. Albertans can and will solve social problems with more
compassion, and less waste and bureaucracy, than any government program ever can.

How to cut spending
The Alberta government should ask the following questions about every government ministry, program,
and project: is it really necessary for government to perform this task? Is it impossible for families,
charities, community and other voluntary associations, and the private sector to accomplish the goal? Is
this program or project so important that it justifies taking money away from a young family? Only when
the answers to these three questions are “yes,” “yes,” and “yes” should the government take money from
the taxpayers who have earned it.

All government programs should be subject to “sunset” laws, by which the program automatically expires
after five years, or a shorter or longer time period. As the program approaches its legislated expiry,
MLAs should measure the program’s results, ask the same three questions listed above, and then vote to
renew, alter or discontinue the program.

At the municipal level, citizens should have the right to veto tax hikes and new program spending with a
petition signed by two thirds of the affected ratepayers. Municipal tax increases, spending on major
capital projects, and any borrowing should go to a municipal referendum for taxpayer approval. The
government should amend Alberta’s Municipal Government Act accordingly.

The Alberta government should not be in the business of owning and running a bank. Alberta Treasury
Branch should be privatized. Revenues raised should go towards repaying Alberta’s debt, projected to be
$6.3 billion in March of 2002.

The taxpayer-subsidized Alberta Opportunities Company, which provides loans to businesses, should be

If an Alberta provincial police force can provide policing services at a lesser cost than the RCMP, the
Alberta government should create such a force to take over when existing contracts with the RCMP

Give taxpayers the final say on taxes
Currently, Alberta’s Taxpayer Protection Act requires that a referendum be held prior to the introduction
of a provincial sales tax. Why limit this legislation to a provincial sales tax? As taxpayers are the people
who foot the bills, should they not be consulted on any and all tax increases? A tax increase can come in
the form of an increase in the rate of an existing tax (such as health care premiums), a broadening of the
base to which an existing tax is applied, or the introduction of a new tax, like a sales tax. The Taxpayer
Protection Act should be amended to require the consent of Alberta taxpayers in a province-wide
referendum for any tax increase, regardless of its form.

Smaller is better: reduce the size of cabinet
In 2001 the size of Alberta’s cabinet was increased to 24 ministers. This helped to open the door to more
spending and bigger government. Each minister is under constant pressure to get more money for her or
his department. Bureaucrats have the time, the talent and the resources to lobby their minister for more
spending: “How much more good we could accomplish, if only our budget was a tad larger.”

Various interest groups (natives, seniors, businesses looking for hand-outs, etc.) present compelling cases
to the minister about how deserving of taxpayers' money their special causes are. It's much easier for
special interest groups to lobby a minister for tax dollars than to go to taxpayers directly and ask them to
contribute voluntarily to a worthwhile cause. Even if a minister is personally committed to reduced
spending and lower taxes, it's still hard to say "no." The short-term political benefit of a happy special
interest group always looks much bigger than the long-term political benefit of happy taxpayers. It pays
to please the person sitting in front of you now, rather than pleasing a large anonymous group of
taxpayers down the road.

Does Alberta need two separate ministers for Justice and for Solicitor General? Two separate ministers
for Infrastructure and for Transportation? Two separate ministers for Children’s Services and for Human
Resources? Two separate ministers for Energy and for Sustainable Resource Development? Do
government services, economic development, seniors, community development, and gaming each need
their own spending advocate in cabinet?

The larger cabinet is, the more voices there are to advocate for increased spending. A smaller cabinet
symbolizes and leads to smaller government.

Lower corporate taxes benefit everyone
Ultimately taxes are paid by individuals, and individuals alone.

Whether the government’s revenues come from natural resources, VLTs, personal income tax, property
tax, fuel tax, liquor tax, tobacco tax, or corporate income tax, Albertans are the people who pay the
government’s bills.

Corporate income tax is paid by Albertans as consumers, because taxes boost the price of a can of soup, a
haircut, and every good and service purchased in Alberta. Corporate income tax is paid by Albertans as
employees, because this tax leaves less money available for salary increases. As investors and
shareholders, Albertans pay corporate income tax in the form of lower returns and profits.

In today’s global economy, businesses can relocate quickly and easily to lower-tax jurisdictions. To
compete nationally and internationally, it is important for Alberta to proceed with gradually lowering
corporate income tax from its current 13.5% down to 8%, as Ontario is doing. This will benefit all
Albertans as employees, investors, shareholders and consumers.

The term “one-time spending” has no place in Alberta’s political vocabulary
Every dollar spent by government is a dollar taken from taxpayers. When an employee looks at his pay
stub and sees income tax taken from his earnings, it really makes no difference whether two percent or
twenty percent of that money is going to “one-time” spending.

At a September 7, 2001 conference at the University of Alberta on “Government Policies in a Surplus
Economy,” former Saskatchewan Deputy Finance Minister Paul Boothe warned that the term “one-time
spending” can be easily misused and abused. It can be applied to different projects and programs in
different years, providing continuous camouflage for growth in the size of government.

Aggregate levels of taxation and government spending are the only things which really matter to Alberta
taxpayers. Designating some spending as “one time” makes no difference to the taxpayers who pay for all
of the government’s spending, whether “one time” or not.

Criticizing the designation of some spending as “one time” does not mean that the object of this spending
lacks merit. For example, Alberta government spending on infrastructure is no less valid than spending
on health or education. But the term is dangerous because it can potentially lead to manipulation and
abuse. The terms draws attention away from the important fact that government spending is government
spending, period.
For these reasons, greater clarity will prevail, and Albertans will be better off, when the expression “one
time spending” is removed from Alberta’s political vocabulary.

Income tax freedom for Alberta: realistic and desirable
In February of 2001 the Canadian Taxpayers Federation released a commissioned study which sets forth
Alberta’s potential for income tax freedom by 2015. Dr. Jean-Francois Wen of the University of Calgary
Economics Department shows how the Heritage Fund can be built up with oil and gas revenues until it
becomes large enough to provide a steady, reliable source of revenue to replace what the government
takes from Albertans in personal income tax. At $55 billion, the Heritage Fund would produce income of
$5 billion per year, enough to replace what the provincial government takes from Albertans in personal
income tax. To achieve this, the government must control its spending, put 50% of oil and gas revenues
into the Heritage Fund, and reinvest all of the Fund’s income back into the Fund.

Available from and from the CTF’s Edmonton office, the study
demonstrates that eliminating provincial income tax is both desirable and possible. The study’s target
date for income tax elimination is based on historic averages for oil and gas prices. The study assumes
that Alberta’s population will grow by 1.5% per year, and the economy by 2.5% per year. The study also
assumes that government spending will increase only to keep pace with population growth and inflation.

The benefits of eliminating personal income tax are numerous. First, taxpayers would be able to keep
more of their hard-earned money. They can save, spend or invest it as they see fit, creating more jobs and
economic growth in the process. Second, the absence of income tax will attract highly skilled and highly
paid workers, new businesses, and more investment to Alberta. All Albertans will benefit from a strong
economy and low unemployment rate. Third, a $55 billion Heritage Fund can provide the government
with a steady and reliable source of income. Annual revenues produced by the Heritage Fund would not
fluctuate as wildly or as unpredictably as the prices of oil and gas. For example, the Alberta government
received $2.4 billion in resource revenues in 1998-99, and $10.6 billion in 2000-01. Fourth, unlike
revenues from natural resources, Heritage Fund income will continue for future generations long after
Alberta’s oil and gas are gone.

Learning from the Alaska Permanent Fund
Alaska started its Permanent Fund in 1976 to provide future generations with income for when the state
would run out of oil. Alaskan law requires at least 50% of oil royalties to go into the Fund, which is now
worth over $27 billion US, or roughly $40 billion Canadian. Since 1982 Alaskans have been paid annual
dividends based on the state’s oil wealth. In 2000, a cheque for $1963.68 (US) was paid out to each man,
woman and child in Alaska.

The value of the Alaska Permanent Fund’s assets has never been eroded by inflation, because each year
the Fund reinvests a portion of its earnings back into principal. This “inflation-proofing” is required by
Alaskan law. The Fund’s investment strategies are also established by law, not by the government of the

The Fund is not controlled by the Alaskan government. Instead, it is managed as a separate trust by the
Alaska Permanent Fund Corporation, an agency at arm’s length from the government. Politicians have no
access to the Fund, or discretion over the annual income it produces.

Changes to laws governing the Fund require the approval of Alaskans in a state-wide referendum. The
Permanent Fund protects Alaskans from the severe and unpredictable changes in oil prices. And when
Alaska runs out of oil, the Fund will continue producing income for future generations.

Like its Alaskan counterpart, Alberta’s Heritage Fund was also started in 1976, as a means to “save for a
rainy day.”

But the Heritage Fund is worth $12.3 billion, in contrast to Alaska’s $40 billion. The Heritage Fund’s
annual income goes into the government’s general revenues, and is spent on education, infrastructure and
other programs.

The Heritage Fund is managed by the Minister of Revenue. The government of the day has discretion to
spend portions of the Heritage Fund’s principal. Alberta’s laws governing the Heritage Fund can be
changed by politicians at any time, without obtaining the approval of Albertans in a referendum.

Unlike mandatory “inflation-proofing” in Alaska, there is no absolute requirement in Alberta that a
portion of the Heritage Fund’s earnings be returned to principal. As a result, the Heritage Fund in real
terms is worth less today than in 1987. Over the years, politicians have spent Heritage Fund income on
projects and Crown corporations in the name of “economic diversification,” according to a “government
knows best” philosophy. The Heritage Fund does not protect Albertans from sudden and extreme
changes in oil prices. Its assets are not large enough to provide Albertans with substantial income for the
day when our province runs out of oil and gas.

Amend the Alberta Heritage Savings Trust Fund Act
Dr. Wen holds out the Alaska Permanent Fund as an example of how legislation can help to achieve fiscal
goals, in the same way that Alberta’s 1995 Balanced Budget and Debt Retirement Act and 1999 Fiscal
Responsibility Act have. Alaskan legislation requires 50% of resource revenues to go into the Alaska
Permanent Fund (APF); legislation protects the APF from inflation by requiring an appropriate amount to
be added yearly; APF revenues do not go into the government’s general revenues; the APF is managed as
a separate trust at arm’s length from the government of the day; voter approval in a state-wide referendum
is required to change the legislation governing the APF.

The Alberta Heritage Savings Trust Fund Act should be amended as follows:

1.     The current preamble is vague and ambiguous. It speaks of saving “for” current and future
       generations of Albertans without indicating whether or not the money should be spent, and if so,
       when and how. The Act should be amended to set out clearly the specific goal of saving in order
       to create a revenue-generating asset which can enable income tax freedom or another permanent
       tax reduction in the future. The Act should expressly prohibit the use of savings to finance future
       “economic diversification” or “regional development” schemes, in view of the track record of
       disasters and boondoggles which are the inevitable result of government involving itself in

2.     The Act should require a set portion or percentage of revenues from non-renewable resources to be
       put into the Heritage Fund. Currently, section 9 of the Act allows for this but does not require it.
       A set portion of annual revenues could mean, for example, “revenues in excess of three billion
       dollars” or “revenues in excess of three quarters of the historical average of the past ten years.” Or
       the Act could require that 50%, or 20%, or some other percentage, of annual resource revenues go
       into the Heritage Fund. Alaskan legislation requires 50% of oil and gas revenues to be placed in
       the Alaska Permanent Fund.

3.     The Act should require that the income produced by the Heritage Fund be reinvested in the
       Heritage Fund, rather than going to the government’s General Revenue Fund (section 8). Income
       produced by the Alaska Permanent Fund goes back into the Alaska Permanent Fund, and the
       government of the day has no access to this money. Income from the Alaska Permanent Fund is
       beyond the reach of special interest groups which lobby for government spending.

4.     The Act should establish a separate Board of Directors, at arm’s length from the government of the
       day, to hold, manage, invest and dispose of the assets of the Heritage Fund.

5.     The Act should require that changes to its provisions, and in particular any changes to the goal,
       mission or purpose of the Heritage Fund, be permitted only after they have been approved by the
       majority of Albertans voting in a province-wide referendum.

6.     Like Alaska’s legislation, this Act has an inflation-proofing provision (section 11), although it
       does not come into effect until Alberta’s accumulated debt is eliminated, which could be as late as
       2017. If the rate of return on the Heritage Fund’s portfolios is greater than the rate of interest paid
       on Alberta’s accumulated debt, it would be advisable to remove section 11(4) from this Act, and
       have the inflation-proofing provision go into effect immediately.

The purpose of these six changes is to reduce the discretion of politicians to use and spend the Heritage
Fund’s income and principal as they see fit. The establishment of a clear goal – a permanent tax reduction
– is crucial to success.

III. A taxpayers’ vision for accountable government

The democratic deficit
Canada and Alberta have a democratic deficit. On election day, politicians are servants of the people, and
the taxpaying public is in charge. But the other 99.9% of the time, MPs and MLAs have an absolute
monopoly on power. Once elected, a government has a blank cheque to do whatever it wants to do. If
MPs and MLAs do not respond to voter concerns about a particular issue, voters must wait up to five
years for the next election before anything can be done to address that specific problem. Taxpayers can
ask their politicians to do something, but politicians have the power to ignore voters for up to five years at
a time.

The Alberta government alone has the right to initiate a referendum on an important issue; citizens do not.
Issues which are difficult or controversial tend to be avoided or ignored. Special interest groups can often
influence politicians behind closed doors, without having to explain or justify their agendas to the public.
The average voter is powerless to rein in politicians who are out of touch. This lack of accountability
results in apathy and cynicism.

Elections are not good enough
In theory, voters can have their specific concerns addressed during an election. But that's not reality.
Elections do not provide Albertans with a direct say on any issue, but rather with a choice as to which
party should run the province.

A vote for an opposition party candidate is a vote to replace the Government Party, and a vote for the
government party candidate is a rejection of the opposition parties' bid for power. But Albertans cannot
use their ballots to implement – or to reject – any specific policy concerning health, education, labour,
social services, justice, fiscal issues, the environment, energy, infrastructure, agriculture, or other areas of
provincial responsibility.

Total control remains with the politicians, five years at a time. And when voting day finally arrives,
issues are drowned out by one big question: which leader/party should be premier/government? Even
when issues are debated in the election, voters do not have a direct and specific say on any of them
individually. You cannot say whether spending is too high or too low, or whether taxes have been cut too
far or not enough. All you can really say is whether the government party should be re-elected, or
replaced with an opposition party.

During elections, debate on issues is often dominated by media commentary and special interest groups;
most voters just watch and listen. The people themselves have limited power to determine which issues
are appropriate for discussion in the public arena. Voters are limited to placing an “x” beside one
candidate, unable to indicate what portion of the party platform they agree with or disagree with. Voting
choice is limited to a “blank cheque” endorsement of a party, without any means of expressing an opinion
on important issues. The winning political party (even if it only received 45% of the vote) interprets its
victory as complete approval of its entire platform.

Real accountability through citizens’ initiative
Voters in Switzerland, Italy, New Zealand, B.C. and 23 American states have the right to initiate and vote
in referendums on issues of concern.

Switzerland allows for citizen-initiated referendums in its 26 cantons (provinces) and on the federal level.
Direct democracy has been a Swiss tradition ever since the Swiss voted to ratify their constitution in
1848. In a country whose seven million people are divided among French-, German-, and Italian-
speaking citizens, the signatures of 100,000 voters will put a proposal for constitutional change to a
national referendum. For laws passed by the federal Parliament, 50,000 signatures are required to force a
referendum on its acceptance or rejection by the people. Through referendums, the Swiss have

successfully dealt with issues such as immigration, tax increases, the ratification of international treaties,
and constitutional change.

The B.C. Legislature passed citizens’ initiative legislation in 1995. B.C.’s law requires the signatures of
10% of registered voters (not 10% of the number of people who voted in the last election) to put a
proposal on the ballot – a threshold so high that the legislation has proven to be unworkable. The new
B.C. Liberal government of Gordon Campbell has pledged to amend the legislation to make it workable.
Other jurisdictions with workable citizens’ initiative legislation require signatures from 1% to 3% of the
voting population to put a proposal on the ballot.

Since 1898, Americans in 23 different states have voted on issues including: giving women the right to
vote; reducing property taxes; physician-assisted suicide; defining marriage; requiring future tax increases
to be subjected to voter approval; racial preferences in hiring; Sunday shopping; legalizing the medicinal
use of marijuana; outlawing steel traps in hunting; campaign finance reform; term limits for politicians;
the minimum wage; the eight-hour work day; limiting government spending increases to inflation and
population growth; controlling pollution; funding for private schools; banning cockfighting; raising
tobacco taxes.

When voting on proposals, citizens prove themselves to be discriminating and cautious. In U.S. states,
only 40% of citizens’ initiatives are approved by voters.

79% of Albertans want the right to initiate and vote in referendums
In September 2001 an Environics poll of over 1,000 Albertans revealed that 79% want direct democracy
legislation, with only 15% opposed and 6% undecided.

Commissioned by the Canadian Taxpayers Federation, the question was put to Albertans as follows:
"Citizens in Switzerland, in many U.S. states, and in British Columbia have the right to initiate a
referendum on an important issue. The referendum is held at the same time as the general election, so
people vote on the issue and then also vote for the candidate of their choice. Currently Alberta does not
have legislation to allow citizens to initiate referendums. Thinking about having this kind of legislation in
Alberta, would you strongly support, somewhat support, somewhat oppose or strongly oppose this kind of

The 1,004 Albertans interviewed by telephone were 41% strongly supportive, 38% somewhat supportive,
9% somewhat opposed, 6% strongly opposed, and 6% undecided.

Support for citizen-initiated referendums was overwhelming in Calgary (80%), Edmonton (78%), and
rural Alberta (78%), and 79% in Grande Prairie, Fort McMurray, Lloydminster, Red Deer, Lethbridge and
Medicine Hat. Support was high among all Albertans, regardless of age, gender, income level and marital

The benefits of citizens’ initiative
Citizens’ initiative legislation would provide Albertans with accountable government, which Albertans do
not currently have.

Citizens’ initiative legislation would improve democracy by changing the focus of politics towards issues
rather than personalities. Citizens’ initiative respects the intelligence of voters by recognizing that voters
are wise enough to vote for MLAs, and wise enough to vote in a referendum on an issue of their choice.

Citizens’ initiative protects taxpayers and putting them on the same playing field as special interest
groups. It forces organized pressure groups to make their case to the taxpaying public, not just to a small
number of politicians and bureaucrats.

By increasing the individual voter’s effectiveness, citizens’ initiative decreases voter apathy and cynicism.
Citizens’ initiative enables the active participation of all voters in their democracy. It reduces the
influence of those who lobby politicians behind closed doors. Citizens’ initiative gives voters more
choice, and gives taxpayers the power to ensure that difficult and controversial issues cannot be avoided
or ignored.

Citizens’ initiative makes politicians more accountable and more responsive to taxpayer concerns at all
times. The fact that citizens could put a proposal on the ballot puts pressure on politicians to reflect
Albertans’ views.

In short, the citizens’ initiative legislation would increase accountability and openness in Alberta,
empower taxpayers, and improve our representative democracy.

Referendums are the Canadian way
Contrary to popular myth, Canada has a rich tradition of referendums on issues: giving women the right to
vote, daylight savings time, liquor prohibition, regulation of the sale of liquor, military conscription,
public health insurance, direct democracy legislation, balanced budget legislation, and constitutional

In addition to hundreds of municipal referendums held in towns and cities across Canada, there have been
over 60 referendums at the federal and provincial levels since 1878.

National referendums were held on liquor prohibition (1898), mandatory military conscription (1942),
and constitutional changes proposed in the Charlottetown Accord (1992).

In a 1916 referendum, men in British Columbia voted 68% in favour of giving women the right to vote.
British Columbians have also voted on daylight savings time (1952 and 1972), public health insurance
(1948), and laws to prohibit or regulate the sale of alcohol (1909, 1916, 1924 and 1952). In a plebiscite
held concurrently with the 1991 provincial election, over 80% of British Columbians voted in favour of
having legislation to enable citizens’ initiative as well as the recall of MLAs.

Voters in Saskatchewan have had their say in referendums on direct democracy legislation (1913), the
prohibition of liquor and the regulation of its sale (1916, 1920, 1924, and 1934), choice of local time
zones (1956), balanced budget legislation (1991), legislation requiring that constitutional amendments be
ratified by referendum (1991), and government funding of hospital abortions (1991).

Manitobans have voted on liquor-related issues (1892, 1902, 1916, 1923 (twice), and 1927) and the
marketing of coarse grains (1952).

Ontarians have voted on the prohibition of liquor and the regulation of its sale in 1894, 1902, 1919 and

Quebecers voted on prohibiting beer and wine in 1919, and on sovereignty in 1980 and 1995. In 1987 the
residents of northern Quebec voted on the constitutional future of northern Quebec.

In the Northwest Territories, a referendum was held in May of 1992 on the location of a new boundary
line, and in November of that year the residents of the eastern Arctic voted to create Nunavut.

Newfoundlanders voted to join Canada in 1948. The residents of Prince Edward Island voted for a fixed-
link crossing to the mainland in 1988. Nova Scotia, P.E.I. and Newfoundland have also held numerous
referendums on prohibiting liquor and regulating its sale.

Alberta’s heritage of direct democracy
Like the other provinces, Alberta’s history of referendums includes votes on the prohibition of alcohol
and the regulation of its sale (1915, 1920, 1923, and 1957).

From 1913 to 1958, Alberta had a Direct Legislation Act, by which 20% of the voters could petition the
Legislature to pass a proposed law. The Legislature had to enact the proposed law, or submit it to voters
in a binding referendum.

In 1948, Albertans voted 50.03% in favour of “the generation and distribution of electricity being
continued by the Power Companies as at present,” and 49.97% in favour of “the generation and
distribution of electricity being made a publicly owned utility administered by the Alberta Government
Power Commission.” Ernest Manning’s Social Credit party favoured private ownership, but promised to
honour the results of the referendum, which was held the same day as the provincial election.

Albertans voted 51% against switching to daylight savings time in 1967, and 61% in favour in 1971.
These two referendums were also held in conjunction with provincial elections, allowing Albertans to
vote for the candidates and parties of their choice, and also have a direct say on a matter of concern.

In 1992 Albertans, along with other Canadians, voted on the constitutional changes proposed in the
Charlottetown Accord.

Albertans already have the right to initiate referendums on issues of their choice at the municipal level.

Under Alberta’s Election Act, the provincial cabinet can authorize a non-binding referendum on new
legislation, or changes to existing legislation, on any subject matter, when and as often as it appears

Under Alberta’s Constitutional Referendum Act, the cabinet can authorize a binding referendum on a
question “relating to the constitution of Canada or relating to or arising out of a possible change to the
Constitution of Canada.”

Citizens’ initiative legislation would simply give Albertans the same right that is now enjoyed only by

Citizens’ initiative – the taxpayer’s friend
Property taxes in California in the 1970s increased so much that elderly people on fixed incomes were
forced to sell their homes. Property taxes were based on house values, and sometimes rose as much as
200% in one year. Politicians did not address the problem. Unable to pay the ever-rising rates, low-
income families continued to be forced out of their homes. In 1978, citizens collected enough signatures
to put Proposition 13 on the ballot, which would limit property tax increases to 2% per year. Although
only four out of 120 legislators supported Proposition 13, it passed with 65% voter support in a state-wide
referendum. Proposition 13 slowed down the growth in property taxes, enabling people on lower or fixed
incomes to keep their homes. It is still the law in California today.

Californians have also voted to raise tobacco taxes, something which their politicians had refused to do in
the face of powerful pressure from tobacco corporations.

Voters in Maryland and Florida have approved citizen-initiated laws which require that any future tax
increase be submitted to voters for their approval in a referendum.

In Washington state, voters approved a citizen-initiated law to index the growth in government spending
to the rate of inflation and population increases. In force since 1995, this spending control law protects
taxpayers by forcing legislators to prioritize spending within reliable and predictable parameters.

Oregon voters in 1996 approved a citizen-initiated law to cut property taxes and control their future

A more recent example of taxpayer empowerment took place in the state of Massachusetts. In 2000, 59%
voted in favour of a citizens’ initiative to reduce the state income tax rate back down to 5%. In the midst
of a fiscal crisis in 1989, Massachusetts legislators passed a “temporary” increase in the income tax rate
from 5% to 6.25%. Politicians promised the tax hike would be temporary. But once the crisis passed,
“temporary” became “permanent” even while government spending increased faster than inflation and
population growth. The majority of politicians refused to take action to see to it that the promise was
honoured. Citizens gathered signatures to place the tax cut proposal on the ballot, and 59% of voters saw
to it that the promise was kept. Income tax will be back down to 5% by 2003.

Responding to criticisms of citizens’ initiative
“Referendums oversimplify issues”
Elections – not referendums – oversimplify issues by limiting the voter to placing one “x” beside one
candidate, in the face of a myriad of issues, parties, personalities, and policies. By voting for that one
candidate, the voter cannot express any disagreement with particular policies of that candidate or her/his
party. In contrast, a referendum enables real and meaningful debate on a specific issue. This debate
involves all citizens, not just political party candidates, opinion leaders, and media elites.

“Referendums will erode the social fabric”
Referendums give more control to taxpayers, and put a small dent in the politicians’ absolute monopoly
on power. Giving taxpayers a greater and more direct say in how their province is run strengthens the
social fabric. Referendums also strengthen the social fabric by getting citizens to communicate with each
other, rather than just lobbying the politicians and listening to media elites.

“Referendums can be bought by special interest groups”
In Canada’s 1992 referendum on the Charlottetown Accord, the “yes” side spent more than ten times as
much as the “no” side, and lost. A ridiculous proposal (eg. a law requiring all cars to be painted yellow)
will fail no matter how much money is spent promoting it. Organized pressure groups already influence
politicians at all three levels of government – usually behind closed doors. Referendums force lobby
groups out into the open to explain and justify their agendas to all citizens, rather than focussing on
swaying politicians behind closed doors. Referendums reduce the power of special interest groups
because they take place in the open and involve all citizens.

“Referendums are a poor substitute for representative democracy”
Referendums are not a substitute for representative democracy. Referendums enhance representative
democracy by enabling voters to have a real and direct say on key issues of concern. That is a far cry
from holding a referendum on every issue.

“Referendums stop government from doing its job”
In jurisdictions where citizens have the right to initiate referendums, the politicians still vote on
legislation, and cabinet ministers run their departments. Citizens’ initiative legislation would not make
Albertans responsible for the day-to-day running of a province, or for putting together the province’s
annual budget.

“Voters will be confused by emotional oratory and manipulated by special interest groups”
How can voters be smart when electing their MLAs, and at the same time be unwise when voting on a
specific issue in a referendum? If citizens are able to vote for a candidate without being manipulated by
emotional oratory, why would they be confused by special interest groups in a referendum? Taxpayers
are quite capable of deciding major issues of principle, whereas MLAs sometimes suffer from “Dome

“Referendums trample on minority rights”
There is no guarantee that elected representatives do a better job – or a worse job – than the public at large
in safeguarding minority rights. In a 1916 referendum in B.C., men voted more than two-to-one in favour
of giving women the right to vote.

“Referendums are divisive”
Some issues are divisive; referendums are merely a way of deciding them. When MLAs decide on a
divisive issue, it does not make that issue any less divisive. The advantage of referendums is that they
involve all voters, not just the politicians. Therefore, the losing side of a referendum is better able to
accept the result, knowing that its viewpoint has been heard and considered.

“Citizens’ initiative is too costly”
As in other jurisdictions, citizens’ initiative legislation in Alberta would provide for a referendum to be
held on the same day as a provincial election, or on the same days as province-wide municipal elections.
The only additional cost to taxpayers is printing an extra set of ballots. That is a very small price to pay
for enhancing democracy and increasing accountability.

“We elect representatives because today’s issues are too complex for ordinary people”
Politicians often vote along party lines without fully understanding an issue. Getting elected, in and of
itself, does not raise a person’s IQ to a higher level. Further, citizens’ initiative legislation does not allow
Albertans to make day-to-day decisions on running the province; it merely allows for the holding of a
referendum on a major issue of concern.

“The citizens’ initiative process would be abused to promote frivolous or trivial matters”
Citizens’ initiative legislation has safeguards which guarantee that the process cannot be abused. Placing
an issue on the ballot requires a number of signatures equal to a percentage of the number of voters.
Signatures must be gathered within a specified time period. No person or group would spend that much
time and effort on a trivial matter. Not many voters would sign a petition to place a frivolous item on the
ballot for a province-wide vote.

“Having citizens’ initiative in place will cause politicians to avoid responsibility”
To the contrary, jurisdictions with citizens’ initiative see them used to tackle the tough issues that
politicians avoid to protect their popularity. Voters need not concern themselves with staying in office;
their only concern is having to live with the referendum’s result.

Albertans deserve the right to recall MLAs
For the reasons set out above, accountability requires that citizens have the right to initiate and vote in
referendums. Albertans should also have the right to recall their MLA. No person – regardless of
position or occupation – should have complete immunity from getting fired for a five-year period. The
ability of voters to remove their MLA from office at the next election, which could b several years down
the road, is not sufficient. The right to recall one’s MLA by collecting a set number of signatures to force
a by-election is like having a bumper on one’s car: one hopes it will never need to be used, but it should
be there just in case.

Establish a fair process to determine MLA compensation
The stock of Alberta’s MLAs went down on August 7, 2001, when an all-party Committee of MLAs
voted themselves a 10% after-inflation pay raise, which went into effect immediately. The Committee
also increased severance pay to three months’ salary for every year in office. Notice of this meeting was
limited to the posting of a sheet of paper on a bulletin board on the inside of the Legislature. Members of
the taxpaying public had no notice of the date, time or place of the meeting. Taxpayers had not been
consulted about these significant increases during the provincial election held only five months earlier.

The Alberta government should institute a fair and open process for determining MLA compensation.
Although MLA compensation is a “drop in the bucket” in the context of roughly $20 billion in annual
spending, accountability requires that taxpayers be consulted and informed.

Issues must be voted on in the Legislature by MLAs for all to see, not by a Committee which practically
meets in secret.

Changes voted on by MLAs should not go into effect until after the next provincial election, to remove
the conflict of interest which now exists when MLAs vote to increase their compensation effective

MLA compensation must be simple and transparent. If MLAs earn the taxable equivalent of $76,000, as
they do currently (February 2002), then they should be paid a $76,000 salary rather than a $41,052
“indemnity” plus a $20,526 “tax free allowance” plus a $6,750 “RSP allowance” which is not even listed
on the government’s web site as being part of MLA compensation. It should be readily and easily
understood by members of the public that MLAs earn $76,000 per year.

Penalize ministers who exceed their budgets
A minister who fails to keep her or his department’s spending within the limit set out in the annual budget
should have her or his salary reduced accordingly. The minister’s salary should be reduced by five
percent for every percent that the department has exceeded its budget. For example, if total health
spending for 2001-02 turns out to be $6.39 billion instead of the budgeted $6.27 billion, that 1.9% excess
should result in a 9.5% salary reduction for the health minister.

British Columbia recently adopted legislation to hold cabinet minsters accountable in this fashion.

Choice and diversity in education
The Alberta government should study the possibility of implementing a voucher system for schools, in
which education tax dollars follow students to whatever school they attend, according to the parents’
wishes. There is no reason why a publicly funded system – in which education is available to all children
regardless of the income level of their parents – cannot provide real diversity and real choice.


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