Alberta Premier Danielle Smith speaks at the Calgary Chamber of Commerce on Nov. 18.TODD KOROL/Reuters
Trevor Tombe is a professor of economics at the University of Calgary and a research fellow at the School of Public Policy.
The rising cost of food, fuel, shelter and more is straining everyone.
Dollars purchase less than they once did, and our living standards are lower. Many naturally look to governments to provide support and ease the pressure.
Luckily, while inflation strains individuals, it is often a boon to the government.
Income-tax revenues tend to rise, as do consumption taxes. But there is perhaps no greater beneficiary of the current inflationary environment than Alberta. The principal driver of rising prices, after all, is high oil and gas prices. This means massive windfall revenues.
The province is projecting a surplus of more than $13-billion this year, equivalent to nearly $3,000 for every single Albertan. So the provincial government – now under new leadership with Premier Danielle Smith – is deploying some significant fiscal firepower to address the rising cost of living.
In an evening televised address earlier this week, the Premier announced several measures: suspending fuel taxes for six more months, $200 in utility bill rebates, $600 payments to seniors or families with children, and more.
Overall, it is a $2.4-billion package – on top of past measures from former premier Jason Kenney, and recent federal increases to the GST credit.
Will this help? For many, it will.
Let’s start with families with children. October’s inflation rate of 6.8 per cent represents, I estimate, more than $330 per month in additional expenses for these families compared with if inflation was a normal 2 per cent.
A monthly amount of $100 per child per month for six months, plus all the other measures, means families with two or three kids may soon be fully shielded against inflation’s bite.
Support for children is welcome. Inflation, it turns out, hits families with children harder than others. They purchase more food and fuel, on average, and these are precisely the items having rapid price increases. I estimate these families face one-third higher costs from inflation exceeding 2 per cent than do families without children. Over the span of a year, this gap may be equivalent to about $1,000.
In fact, valuing all the measures implemented since April and the new measures from the Premier, I find that the additional benefits for families with children roughly corresponds to the disproportionately higher costs those families face.
But the package does have flaws.
Consider an individual earning minimum wage, or a low-income family without kids. They may benefit from lower gasoline prices or from the utility bill rebate. But those who take transit or have no utility bills (such as many renters) are almost entirely left out. All while a senior earning as much as $180,000 per year significantly benefits.
To exclude many struggling Albertans was an odd choice by the Premier.
If seniors received no special treatment and families with children faced a lower income threshold to qualify, say $120,000, then something on the order of $500-million could have been redeployed to better support low- and middle-income Albertans. For perspective, that’s (very roughly) enough to provide $300 to single individuals with incomes below $45,000 and $450 to couples with incomes below $90,000.
Better yet, scrap it all and keep it simple: lump-sum cash to all Albertans.
Whatever structure support takes, some raise concerns that it will fuel inflation further.
Indeed, the Premier raised this very point, claiming inflation was “primarily caused by years of record spending and debt by the federal government in Ottawa.”
The Premier is mistaken, as are her critics.
In recent work, my University of Calgary colleague Professor Sonja Chen and I explore the latest inflation data. Our analysis is simple and intuitive. If inflation is driven by rising demand for goods and services, then prices and quantities purchased of most items will rise together. But if inflation is driven by higher production costs or other supply-side factors, then prices rise while people’s purchases fall.
We find that three-quarters of the acceleration in Canada’s inflation through June of this year was supply-driven. Demand-side factors added some, but very little.
This should not be too surprising. The key drivers of inflation are items whose prices are set on global markets (such as energy and agricultural goods).
Albertans should be confident that additional provincial spending will not affect those global markets. And if people use benefits to repay debt or increase savings, then there’s even less reason to worry.
There are many details yet to be announced, and more analysis to come. But Alberta’s new Premier announced a set of meaningful supports for many Albertans. But not all.
Those who win, win big. Those who don’t – however in need they may be – must look elsewhere.