By Ben Eisen
and Steve Lafleur
The Fraser Institute
Just over two years ago, Rachel Notley became the 17th premier of Alberta. Notley’s government was immediately confronted with serious fiscal challenges. Oil prices were down, the economy was entering recession and the province’s persistent budget deficits were ballooning.
It wasn’t obvious how the newly-elected government would tackle the daunting fiscal challenges it inherited from the Progressive Conservatives. Political branding is a poor predictor of how a government will manage public finances. Various governing political parties, including Notley’s New Democrats, have had successes and failures at different places in Canadian history.
Consider the NDP governments of Roy Romanow in Saskatchewan and Bob Rae in Ontario in the 1990s.
Like Notley, Rae and Romanow inherited significant fiscal challenges.
The Rae government immediately and significantly increased government spending, enacting a budget that increased nominal program spending by 11.9 per cent in one year. The government slowed the rate of spending growth in later years, but never really reformed and reduced spending. Not surprisingly, large budget deficits persisted in Ontario throughout Rae’s tenure and the province accumulated substantial new debt.
By contrast, Romanow’s government cut nominal program spending by approximately three per cent in each of its first three years in office, resulting in a 10 per cent reduction between the 1991 and 1994 fiscal years. This resulted in a balanced budget in just three years. The successful spending reforms and deficit reduction set the table for important tax reform, which contributed to the province’s prosperity over the ensuing years.
Unfortunately, halfway through its mandate, the Notley government has looked too much like the Rae government and not enough like the Romanow government.
The province had run nearly uninterrupted deficits since 2008-09. Many Albertans hoped a change in government would rein in some of the excesses of previous administrations, which often spent as though the energy boom would never end. The change in government was an opportunity to re-evaluate priorities and develop a plan to quickly eliminate the province’s persistent deficits and bring spending to more affordable levels.
That hope was put to bed almost immediately, as the Notley government increased spending despite a large projected budget deficit, which ended up totalling $6.4 billion. And while there were initially hopes that annual deficits would at least shrink as revenue rebounded, the government has continued to increase spending. Indeed, program spending will be 11 per cent higher in 2017-18 than when Notley took over in 2015-16. In fact, despite the big deficits, Alberta led the country in spending growth last year.
This spending growth has contributed to stunning $10-billion-plus deficits in 2016-17 and 2017-18. And the government doesn’t plan to balance the budget until 2023-24 – well after the expected end of the recession.
This wait-and-hope approach to deficit-reduction relies heavily on optimistic revenue projections, which may not come to pass.
In short, Notley’s government chose the Rae model of raising spending while hoping for revenue growth to shrink the deficit over time, instead of the Romanow approach of reforming and reducing spending to eliminate the deficit quickly.
But while the first two years of the Notley government have been marked by rapid spending (and tax) increases, it isn’t too late to change course. The government can bring the deficit under control if it exercises spending discipline just as Roy Romanow did.
Otherwise, Alberta will likely continue to pile on debt at a worrying pace.
Ben Eisen and Steve Lafleur are policy analysts with the Fraser Institute’s Alberta Prosperity Initiative.
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