By Steve Lafleur
and Ben Eisen
The Fraser Institute
VANCOUVER, B.C. Feb. 27, 2017/ Troy Media/ – Alberta Finance Minister Joe Ceci recently unveiled Alberta’s Third Quarter Fiscal and Economic Update. Many observers expected the deficit to be reduced somewhat due to increased oil prices since the last update. And, thanks to the uptick in oil prices, the province has collected significantly more money – about $1.5 billion – than expected at the start of the year.
But despite this good news on the revenue front, the government’s deficit forecast has actually gone up over the course of the year – from $10.3 billion to $10.8 billion. Why? Partly for the same reason Alberta has run nearly uninterrupted deficits since 2008/09: imprudent increases in government spending.
Specifically, the spring budget projected $51.1 billion in total spending this year, but the government has increased that projection to $53.8 billion – a nearly 10 per cent increase from last year.
Some of the increase is due to unplanned emergency spending resulting from the wildfires in Fort McMurray, and some is the result of the accounting treatment of the coal power phase-out. But several hundred million dollars in additional spending stems from day-to-day expenses above and beyond what was expected in the spring.
Even after stripping out the wildfires and coal phase-out, Alberta’s program spending is still up by more than five per cent from last year’s level, the biggest spending increase of any provincial government in Canada.
The government’s justification for these spending increases is unconvincing. The finance minister insists that his government must spend freely and run big deficits to act as a “shock absorber” against economic headwinds. But in reality, the provincial economy is now moving out of recession and is actually projected to grow 2.4 per cent this year. Even if one is convinced that spending growth and deficits are justifiable during recessions, it isn’t clear why they are still needed after the economy recovers.
The finance minister, when pressed on how the deficit could remain the same despite the influx of new revenue, pushed back with his standard answer – steep spending cuts would hurt Albertans. That is a false dichotomy. There are in fact many options in between the government’s current course of leading the country in spending growth and severe cuts to core public services.
For example, if the government had simply stuck to its original spending plan, plus the unplanned emergency spending, the deficit would be hundreds of millions of dollars lower than it’s now expected to be. The deficit would still be big, but the debt burden on Albertans would be much lighter.
Or if the government had been willing to hold spending at 2015/16 levels – plus unplanned emergency spending and adjusting for the accounting treatment of the coal phase-out – the deficit would be more than $2.5 billion smaller than currently forecasted. Mild spending reductions would have shrunk the deficit further still, and put the province on track to potentially balance the budget in the next few years rather than sometime in the middle of the 2020s.
In short, the evidence doesn’t support the claim that Alberta’s deficit is as big as it is because of forces outside of the province’s control, and that the only way to reduce it would be to harm the economy and hurt Albertans through sharp cuts to core public services. The government has simply chosen a path of rapid spending growth that’s causing the deficit to swell even larger.
Steve Lafleur and Ben Eisen are analysts with the Fraser Institute’s Alberta Prosperity Initiative.
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