Despite big deficit, Alberta leads the country in spending growth

The provincial government has made no meaningful efforts to slow the rate of spending growth to stem the flood of red ink

By Ben Eisen
and Steve Lafleur
The Fraser Institute

VANCOUVER, B.C. Feb. 16, 2017 /Troy Media/ – Rapid spending growth by successive Alberta governments – and not depressed commodity prices – are primarily responsible for the province’s big deficit, according to a Fraser Institute study.

But Finance Minister Joe Ceci describes the New Democratic government’s approach to fiscal management and spending growth as “prudent” and states that “severe cuts” would make a bad situation worse.

However, the choice set out between the government’s spending trajectory and “severe cuts” to important public services is a false one.

deficits alberta
Ben Eisen

Despite a daunting budget deficit of more than $10 billion, the Alberta government has made no meaningful efforts to slow the rate of spending growth to stem the flood of red ink. In fact, it has significantly increased the growth rate of spending this year and that spending will grow faster this year than in any province in Canada.

Last year, program spending in Alberta (all spending aside from debt service payments) was $48.2 billion. This year, spending is projected at $51.8 billion – a 7.5 per cent increase. About $1 billion of this increase was necessitated by the response to the Fort McMurray wildfires. But even after stripping that out, program spending is still up 5.4 per cent.

Given the severity of the challenges facing the province, a 5.4 per cent spending increase seems out of touch with fiscal reality.

It’s also out of line with what’s happening elsewhere in the country. Saskatchewan and Newfoundland, two other energy jurisdictions facing fiscal challenges, plan to reduce program spending this year. And every other province forecasts to increase spending by 2.3 to 3.9 per cent.

alberta deficit
Steve Lafleur

In the face of a $10-billion deficit, Alberta is jacking up spending significantly more than any other province. Surely “severe cuts” to core public services are not the only alternative.

The big spending growth in Alberta is even more concerning when you consider the historical context: Alberta’s spending levels have already been inflated substantially over the past decade. Program spending has approximately doubled since 2004-05, increasing far faster than what would have been needed to keep pace with pressures from inflation plus population growth.

Ceci’s fiscal plan is not expected to balance the budget until 2024. And so he suggests that the only alternative is unsavoury: severe cuts to the most essential public services.

But the evidence doesn’t back him up.

In fact, by 2018-19, government revenues in Alberta are forecasted to exceed spending levels from 2015-16 – the year the government took office. If the government had held spending at the high levels it inherited and initiated no further growth, Alberta would be just two years away from a balanced budget. Instead, the government chose rapid spending growth, which will mean long-term deficits.

Of course, achieving a four-year spending freeze would require reforms to some areas of spending, but the rapid growth of the past decade suggests there’s room for savings without harming vital public services. Recent research shows public-sector workers in Alberta enjoy a pay premium of 6.9 per cent compared to comparably skilled and educated private-sector employees. This comes on top of greater non-wage benefits. Shrinking this compensation gap is one important way the government could find savings.

The government inherited difficult fiscal circumstances, but it has made a bad situation worse by ramping up spending growth faster than any other province and growing the deficit. Ceci calls this approach “prudent.”

We call it a burdensome tax on future generations of Albertans, who will have to service the mountain of debt the government is creating.

Ben Eisen and Steve Lafleur are policy analysts with the Fraser Institute’s Alberta Prosperity Initiative.

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