Smart reform can fix Alberta’s finances

The severity of Alberta’s fiscal problems hit home with many Albertans this week as Premier Prentice announced that the upcoming provincial budget will include an across-the-board five per cent spending cut. In light of falling oil prices and the growing deficit, tough choices had to be made, so credit goes to the premier for showing leadership.

While commentators have been quick to draw parallels with former premier Ralph Klein, it may be too early for such comparisons. Klein more aggressively cut spending and faced a much larger deficit along with mounting debt. Critically, Klein combined spending cuts with program reform, enabling the government to spend less while maintaining, and in some cases improving, the quality of services.

Prentice should take note. In times of crisis, special interests—including public sector unions—lose some of their power because the public understands and accepts the need for dramatic change. In this environment, governments have an opportunity to reform, not just cut, spending.

Flashback to May 1993 when Premier Klein delivered his first budget. He charted a new course to deal with the province’s fiscal problems including a plan to significantly reduce program spending, decrease government employment, and balance the budget in four years. Klein ultimately surpassed his original goals and balanced the budget in just two years.

But he not only cut spending; he introduced major reforms. For example, Alberta reformed the welfare system with changes focused on preventing Albertans from entering welfare before other avenues of support, including employment, were exhausted. Other changes targeted and reduced welfare fraud. Ultimately, 172,000 people left the province’s welfare rolls between 1993 and 1996 and social assistance spending fell by 20 per cent.

Now back to the present. Given that spending reductions are coming, the question is: what reforms could mitigate the cuts?

The first place to start is the compensation of provincial government employees, which totals $22.5 billion (nearly half of the budget). Yet research shows that government workers in Alberta currently enjoy a nearly seven per cent average wage premium compared with similar positions in the private sector. This is on top of more generous pensions, an earlier average age of retirement, and much greater job security.

Alberta could also save money by reforming K-12 education based on the British Columbia model. Alberta relies much more heavily on its public education system than B.C. Specifically, B.C. uses an expansive system of independent schools to deliver not only religiously-based education but other innovative approaches as well. Roughly one-in-eight B.C. students attend independent schools compared to one-in-20 in Alberta.

On health care, the government’s single largest program expense item, Albertans certainly don’t want to see increased rationing of health services resulting from reduced expenditures. The key to avoiding that outcome is to reform the way health care is financed and delivered.

Alberta could learn from other countries that deliver higher quality health care for similar or less money, and adopt two key health policies: consumer cost-sharing (with exceptions for both low-income households and the chronically ill) and competition in the financing and delivery of health care services.

Alberta has a long history of innovation in program delivery within Canada. The upcoming budget is an opportunity for the province to begin changing the way it spends money—in addition to how much it spends.