Alberta’s government finances require swift reform, reduction in spending

Soon the “Blue Ribbon Panel on Alberta’s Finances,” tasked with developing a plan to eliminate Alberta’s sizeable budget deficit and restore the province to fiscal sustainability, will deliver its long-awaited report.

When considering possible solutions to Alberta’s fiscal challenges, it’s important for the panel to recognize the root cause—the province is spending beyond its means.

Consider this. In 2018/19, government program spending in Alberta stood at $12,622 per person compared to $10,647 in British Columbia. This means there’s an 18.5 per cent gap between the two provinces. Alberta’s per-person spending levels are also substantially higher than in the other two large provinces, Quebec and Ontario.

It’s important to recognize that Alberta’s status as a high-spending outlier compared to other large provinces is a relatively recent phenomenon. In fact, in 2000/01, per-person program spending in B.C. was higher. Since then, however, spending has increased much faster in Alberta than in its western neighbour. The chart below shows how the spending gap between the two provinces emerged over time. 

Some might think Alberta’s higher spending level is justified it produced better public services for Albertans—but there’s no evidence that it does. In fact, the best evidence suggests that in key areas including health care and education, public services are actually superior (according to important metrics) in B.C. than in Alberta.

The prolonged spending growth under successive Alberta governments put the province in a risky fiscal position. When revenues fell during the recession that began in late-2014, even larger deficits emerged. Unfortunately, instead reforming and reducing spending to address the large deficit, Alberta’s government carried on with a “business as usual” approach, continuing with nominal spending growth.

Consequently, large deficits emerged in 2015/16 after the recession hit and government revenues fell. Since then, Alberta’s government has continued to increase spending despite large deficits.

The Blue Ribbon Panel and the Kenney government face a daunting fiscal challenge. To address this challenge, both should recognize that Alberta now spends far more money per person than any other large province. Shrinking that gap is the best way to eliminate Alberta’s deficit and slow the rapid accumulation of debt.