Alberta’s fiscal fiasco threat to future generations of Albertans

Despite an improving economy, the provincial government still projects $9.1-billion deficit

By Steve Lafleur
and Ben Eisen
The Fraser Institute

The Alberta government recently released its third-quarter fiscal update. While the update contains some good news about the economy, the outlook for provincial finances remains dire. The government expects a $9.1-billion deficit this fiscal year and it has no intention of balancing the budget until 2023-24.

First, the good news. With 90,000 full-time jobs created and a 4.5 per cent increase in real provincial gross domestic product (GDP) this fiscal year, the province is regaining some ground after the punishing recession that saw GDP drop by 16.4 per cent between 2014 and 2016, while Alberta shed hundreds of thousands of jobs.

Steve Lafleur
Steve
Lafleur

The good news means government revenue for 2017-18 is stronger than previously expected. The government will collect approximately $2 billion more in revenue than it forecasted in last spring’s budget.

This unexpected revenue should have put a substantial dent in the province’s significant budget deficit, which was forecasted to be $10.1 billion in last spring’s budget (after removing a “risk adjustment” cushion included in that forecast). Instead, despite the fiscal challenges facing Alberta, the government spent half of the unexpected extra revenue. Spending is now forecasted to be $1 billion higher than predicted in last spring’s budget.

This has been a recurring theme for this government. Revenues have regularly beat forecasts and expectations as Alberta’s economy has recovered, but the government has simply increased spending to largely or completely offset the potential fiscal benefit to the bottom line. As a result, Alberta is stuck with the $9.1-billion deficit projected in the recent fiscal update, despite the fact that revenue has grown by $4 billion since last year.

Ben Eisen
Ben
Eisen

In its budget in March, the government has an opportunity to finally begin closing the gap between spending and revenue. But it must demonstrate a level of spending discipline that has so far been absent. A recent Fraser Institute study estimated that to meet its timeline of balancing the budget by 2023-24, the government must hold spending growth to 0.8 per cent annually between now and then. This would be a marked reversal from the government’s approach so far, which has been to increase spending at an average annual rate of 6.8 per cent in its first three years.

Given its spending record, and the fact that the recent fiscal update shows it will overshoot its spending target for this year by $1 billion, it’s clear that without a new commitment to spending discipline, this government is unlikely to achieve its own modest target of balancing the budget by 2023-24.

The government’s spendthrift approach and large resulting deficits mean debt is piling up. The cost of servicing this debt will, of course, be passed along to future taxpayers. Even if the government meets its 2023-24 balanced budget target date, debt-service costs will roughly double to more than $600 per year per Albertan.

The evidence clearly shows the need for a more disciplined approach to spending and a more ambitious approach to deficit reduction. The next generation of Albertans deserves better than to pay the bill for this government’s refusal to rein in spending.

Steve Lafleur and Ben Eisen are analysts at the Fraser Institute.


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