Alberta government ignores warnings about overspending

Alberta is once again staring down the possibility of budget deficits. And the culprit is once again overspending of windfall oil and gas revenues. Between the end of 2021/22 and second quarter 2023/24, the Alberta government’s operating spending (excluding COVID-related spending) has increased by more than $7.8 billion or nearly 16 per cent. Meanwhile non-renewable resource revenues have grown by nearly $3.5 billion, a 22 per cent increase. In other words, revenue is once again driving high spending in Alberta.

The Alberta government is ignoring warnings and several key recommendations from the 2019 Blue Ribbon Panel on Alberta’s Finances, and similar warnings and solutions from economists and public policy experts, which centre on the importance of reining in government spending and establishing a plan for long-term fiscal sustainability.

During the 2019 provincial election campaign, former premier Jason Kenney pledged to appoint an independent panel of experts to conduct a “deep dive” into Alberta’s fiscal situation, recommend a path to balance the budget, and propose a realistic plan to start paying down provincial government debt. The panel was appointed in May 2019, with terms of reference centered around establishing a credible long-term fiscal plan for Alberta.

In September 2019, the panel released its final report, making a number of recommendations focusing on achieving long-term fiscal sustainability, resisting the temptation to overspend windfall resource revenues, and bringing spending more in line with the other large provinces (Ontario, Quebec and British Columbia).

Unfortunately, the Alberta government still has a long way to go to solve Alberta’s overspending problem and prioritizing long-term fiscal sustainability.

While the UCP government showed some initial success in holding the line on spending, the major reason for finally balancing the budget in 2021/22 was windfall resource revenues. And according to RBC Economics, in 2022/23 (the latest year of data), Alberta’s program spending was $13,570 per person, which was still more than $1,200 higher than Ontario. And if resource revenues were to return to their 20-year average of $9.3 billion per year, the Alberta government would face a deficit of $4.8 billion in 2023/24.

Not only has the Alberta government repeated past mistakes by increasing government spending amid the windfall in resource revenue, it also has yet to fully address other key recommendations from the panel including the development of a new, legislated and long-term oriented fiscal framework; establishment of a comprehensive annual program review process; improved revenue forecasting practises; and a legislated plan to eliminate the province’s debt.

These recommendations are important to reduce and prevent government debt accumulation over the long term, which Albertans are ultimately responsible for financing through their taxes. Albertans are already projected to spend $3.2 billion on government debt interest in 2023/24—that’s money no longer available for health care, education or even tax relief.

In its upcoming budget, the Alberta government must heed the warnings from the blue ribbon panel and others and put an end to its habit of increasing spending with temporary windfalls of resource revenues. Otherwise, it risks plunging Alberta into budget deficits again and accumulating more debt once relatively high resource revenues inevitably decline.