Dear Alberta, please don’t make the same mistakes we did in Ontario

Alberta recently released its first quarter fiscal update, which showed that the province’s budget deficit this year will be even bigger than expected, weighing in at $10.9 billion.

The grim headlines and eye-popping debt statistics would have been very familiar to someone visiting Alberta from Ontario, a province that has seen more than its fair share of depressing budgets and fiscal updates in recent years.

Indeed, Ontario’s recent history provides an instructive example of what a province should not do when confronted with a big budget deficit. Hopefully Albertans will learn from our unhappy recent fiscal history and avoid the type of rapid, expensive and economically harmful run-up in debt that has happened here.

Let’s go back in time to 2009 when Ontario saw its budget deficit climb to $19.3 billion due to a combination of unsustainable spending growth in the preceding years and the onset of a recession in the province. Incidentally, this is the exact same combination of factors responsible for the size of the deficit in Alberta today.

The outlook for Ontario’s budget at the time was bleak, and it was clear that without meaningful spending reform the province would pile up tens of billions in new debt. Sadly, Ontario’s government didn’t deliver the type of reform needed to get the provinces finances on sound footing. Instead, the government continued to increase spending, albeit at a somewhat slower pace than before the recession. The government also raised taxes, hoping that revenue gains would quickly take care of the deficit, saving them from having to confront the province’s spending problem.

This “wait and hope” approach to public finances failed miserably.

In its 2009/2010 budget, Ontario projected it would balance the budget by 2015/16 while running a cumulative budget deficit of $52.9 billion over those years.

In fact, things turned out even worse. The budget is still not balanced, and the cumulative budget from 2009/10 to 2015/16 turned out to be $81.9 billion—about 50 per cent more than had been projected. Meanwhile, the province’s net debt has increased by $126.5 billion since 2008/09, a 75 per cent increase.

In short, despite the obvious need to move quickly and reduce the huge budget deficit it faced in 2009/10, the Ontario government refused to take decisive action to reform and reduce spending, actually allowing spending to continue rising despite big deficits. The mountain of new debt in Ontario is the legacy of those decisions.

Given the fiscal train wreck in Ontario, it’s discouraging to see Alberta now making the same mistakes. If you adjust for population differences between the provinces, Alberta’s deficit today is even bigger than Ontario’s was in 2009. And yet, just as happened here, Alberta’s government is blithely implementing a fiscal plan that calls for regular spending increases year-after-year even as the deficit swells and debt piles up at an alarming rate.

Ontario’s experiment with a passive “wait and hope” approach to deficit reduction has resulted in an expensive and economically harmful increase in the province’s debt burden, sticking Ontario taxpayers with the bill. It would be a faint silver lining if at least Ontario’s fiscal experience can provide a cautionary tale for other governments, in Alberta and beyond.