Entering Alberta’s new dark age?

Blown out of the water after 40 years, the Progressive Conservative (PC) party was tried, found guilty and hung from the neck until dead.
Their atrocious track record of mismanaging opportunities and funds have come to an end.

But is the devil you know better than the one you don’t?

Is Alberta entering into a new dark age of NDP reign?

Will Alberta default on a replay of Ontario’s early 90’s when NDP leader Bob Rae was in power?

toronto_niteMost voters don’t recall out of province politics 20 plus years ago. When longtime NDP leader Bob Rae was elected in 1990, the Ontario Government was running a deficit of about $1.9 billion. The election premise was that the NDP was going to cut government spending, introduce California style unpaid holidays for government workers, cut health care spending, and increase taxes.

Called the “Social Contract”, those massive cuts eliminated jobs, training programs, social & community programs, and increased taxation. For these cuts, Rae’s government was able to sextuple the deficit to $12.4 billion (6.5 times increase) in less than 2 years in power. (higher is worse) To give a backdrop, Ontario was in recession, the NDP thought they could spend their way out.

When the NDP couldn’t keep the charade up anymore, it was thrown out the next chance the public got in ’95. Leaving the incoming party with a $10.1 billion dollar deficit. All the while leaving the province and its infrastructure in a much worse place.

The reader is encouraged to see the truly massive cuts here:

http://www.fin.gov.on.ca/en/budget/fallstatement/1995/finalj21.html

http://www.fin.gov.on.ca/en/budget/ontariobudgets/1996/c-tbls.html

http://www.theglobeandmail.com/news/national/ontario-deficit-hits-24-billion-but-no-exit-plan/article4326597/

 

“Those who don’t know history are doomed to repeat it.”
Edmund Burke

 

The outgoing Prentice party made their campaign on the old Ontario NDP promises, the incoming NDP made theirs on not cutting spending and continuing to spend. Prentice was correct, Alberta does spend about 10 times as much per person on healthcare than the rest of Canada.

So what does this new government mean for the populous? Looking at the current Alberta deficit and heritage fund, we can assume the former will rise exponentially and the latter will be spent.

Modeling for a high bad case 5 year scenario. We could see the deficit increase by three times over this term, and like Ontario, nothing to show for it, but reduced public services and a HST of 12-14% enacted.

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Necessary infrastructure spending will probably be delayed and kicked downfield. Same with schools.

All in all, a NDP government will probably be bad for regular Albertans, with tax increases, the introduction of a provincial sales tax and business tax rates will increase mildly. It’s not anticipated that the NDP will repatriate any regulated private businesses such as Insurance, registry services or liquor.

If, spending by NDP really gets out of hand Alberta would have to blow $83 billion to hit Ontario levels of debt per person.

It’s our consensus that the “glory days” of Alberta are gone.

If the PC party did get elected, who knows how much they would mismanage it? Healthy gains in any of the metrics will not be what they were. But the further devaluation in Canadian dollar, low inflation and low interest rates will help buoy GDP impacts. It’s a new government, so no one really knows, it could be good, and it’s early days yet.

That being said, the province will still be in a nice place in 5 years from now, better than the G7 and certainly better than the Canadian average. Fear and uncertainty, causes the weak to run but the strong to profit. We think this is a buying opportunity, and still feel the overall economy is in a good place, the resources and fundamentals are in place.

 

 

Source: Trebuchet Research
This material is contains information from publications prepared by the Trebuchet Capital Partners and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of June 2015 and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by Trebuchet to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Trebuchet, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this post is at the sole discretion of the reader.
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