At this rate, Alberta’s debt could look like Ontario’s in a decade

Alberta has a reputation for being a low-debt jurisdiction. In fact, heading into the 2008-09 financial crisis, the province had amassed $35 billion in net financial assets. In other words, unlike every other province, Alberta’s government had more financial assets (for instance, the Heritage Fund) than debt. But while the low-debt reputation persists, it doesn’t match today’s realities.

As budget season approaches, the Alberta government, which had no net debt until 2016/17, is adding debt at an alarming rate. Again, it bears repeating—the province went from $35 billion of net assets in 2007/08 to $36.6 billion in net debt by 2019/20, which amounts to $71.7 billion of debt accumulation in just over a decade.

To put that number into context, consider the province’s debt-to-GDP ratio, an important measure of fiscal sustainability, which has increased 24 percentage points over the same time period (from -13.4 per cent to 10.6 per cent). While that’s still the lowest ratio of any province, it’s rapidly approaching the levels of British Columbia and Saskatchewan (14.4 per cent and 14.6 per cent).

If Alberta keeps adding debt at a pace even close to what’s happened over the past decade, the province will soon surpass B.C. and Saskatchewan and rapidly close in on higher-debt provinces such as Manitoba, and might even approach levels seen in Quebec and Ontario. There isn’t as much fiscal runway as people think.

So how can the Alberta government prevent this from happening?

Simply put, it must finally begin to rein in spending. Successive governments in Edmonton have increased spending quickly over the past decades, at many points doubling the combined rate of inflation-plus-population growth. Alberta now spends roughly 20 per cent more per person on day-to-day government expenditures than neighbouring B.C. Through good economic times and bad, revenue simply hasn’t been able to keep pace with program spending. That’s a structural problem, not a statistical artifact of two recessions.

And it’s why Alberta has only balanced its budget once since 2008/09, even running deficits in years when oil prices were high.

Fortunately, government program spending is now getting the attention it deserves, particularly since the last provincial budget. The Kenney government plans to reduce nominal program spending by 1.6 per cent between 2019/20 and 2022/23. While that does not sound like a large reduction, it will present challenges for a growing province such as Alberta. But it pales in comparison with previous fiscal consolidations in Canada. For instance, the Saskatchewan NDP in the 1990s reduced nominal program spending by 8.9 per cent to return to budget balance. Similarly, the Chretien Liberals balanced the federal budget by reducing program spending by 9.7 per cent. And here at home, the Klein government reduced nominal program spending by 21.6 per cent.

Again, even small nominal program spending cuts present challenges. But clearly the reductions are minimal compared to previous budget-balancing efforts. Failure to make progress now could lead to more difficult choices down the road.

Now that Alberta has lost is unique “debt-free” status and is quickly catching up to other provinces in terms of debt levels, it’s time to recognize we are not immune to the consequences of debt accumulation, something the Kenney government should remember as it prepares its next budget.

As proud as Albertans were of having a “debt-free” government, that time has passed. Now it seems more a question of whether we can keep our debt levels close to B.C.’s and Saskatchewan’s, or whether we continue down this road and end up closer to Quebec and Ontario.