Alberta careening towards fiscal disaster

Successive Alberta governments have mismanaged the province’s finances for decades. The recent oil price drop and stock market crash means Alberta’s finances, already in trouble, are now potentially careening towards disaster.

Economists and analysts across the ideological spectrum have warned government after government in Edmonton about the risks of relying on volatile natural resource revenues to fund day-to-day activities. These warnings were ignored. Government spending soared during resource booms, and Alberta predictably faced large budget deficits when oil prices collapsed in 2014. In subsequent years, the government essentially ignored the problem, making little progress on deficit-reduction. Now, the bill for bipartisan profligacy and irresponsibility has come due.

In 2007/08, Alberta was the only “debt-free” province in Canada. In fact, its assets exceeded its debts by $35 billion. Then things went sour. Thanks largely to rapid spending increases that actually began in the later stages of the Klein era, Alberta’s net assets started falling in 2008/09. By 2016/17 the province had burned through all its net assets and started racking up debt.

Alberta has added an average of nearly $10 billion in debt annually since 2015/16, and provincial net debt is projected to hit $35.6 billion this year (2019/20).

The Kenney government’s recently-released 2020 budget calls for gradual deficit-elimination and a substantial slowdown in the pace of debt accumulation. But energy prices have fallen so far that the budget’s revenue projections are no longer worth the paper they’re printed on. And stock markets have crashed. And the coronavirus, trade wars and other factors threaten to trigger a global recession.

So what happens if Alberta’s debt accumulation continues at something like its current pace?

Alberta’s net debt has climbed to almost $8,200 per person, which puts us in spitting distance of British Columbia ($8,782) and Saskatchewan ($10,210). If Alberta continues to rack up debt in the next five years like it has over the past five—now a plausible scenario—the government’s net debt will hit $85.1 billion by 2024 or $18,500 per Albertan.

Under this scenario, Alberta will carry more debt per person than any Maritime province, where fiscal problems are well documented. And while it once seemed unthinkable, formerly “debt free” Alberta is in danger of catching Quebec, once the poster-child for fiscal mismanagement, in per-person debt, hitting approximately $20,500 by the middle of the decade.

The consequences of this type of debt accumulation would be painful. Government debt interest, negligible as recently as 2009, has climbed to $2 billion annually. The 2020 budget forecasts an increase to $3 billion annually by 2022/23—but again, that now looks very optimistic.

It’s been two decades since Ralph Klein held up his “debt-free” sign. Since then, irresponsible choices have derailed Alberta’s finances. Of course, no one should engage in panic-driven policymaking. The Kenney government should move calmly but expeditiously to present Albertans with a credible plan to end the province’s reliance on resource revenues to fund current spending, which is at the root of Alberta’s fiscal problems.

For years, governments in Alberta have ignored expertise, failed to plan with prudence, and seemingly (perhaps astonishingly) misunderstood that the good times may not last forever. Now Alberta is in a terrible situation. We’ll soon know whether or not Premier Kenney’s government will finally right the fiscal ship.