Servicing government debt imposes real costs on Albertans

We mustn’t forget that government debt has an immediate cost. Governments have to make interest payment on their debt every year. It’s not a choice. And doing so consumes government resources, leaving less money for other public priorities such as health care, education or even tax relief.

Alberta, thanks to its legacy of low debt, is currently in a better position than other provinces when it comes to the cost of servicing debt—but that’s changing as the province is set to continue racking up debt in the years ahead.

Provincial debt servicing costs now total approximately $1 billion this year and constitute 2.4 per cent of total provincial revenues. That is up from 1.8 per cent in the previous year. And according to the latest provincial budget, debt servicing costs are projected to increase to 4.0 per cent of provincial revenues by 2018/19. Although Alberta’s debt servicing costs are relatively low today, debt-servicing costs are consuming increasingly more resources that could otherwise be used for other public priorities.

Critically, however, Albertans must also pay interest on their portion of the federal debt, which has also grown in recent years. After factoring in Alberta’s share of federal debt, the total debt-servicing costs for Albertans in 2016/17 is expected to reach $5.3 billion. That is more than the provincial government expects to spend on social services aimed at vulnerable Albertans, including welfare ($5.1 billion). It’s also more than what the Insurance Bureau of Canada estimates to be the value of the insured property damaged by the Fort McMurray wildfires in 2016 ($3.6 billion).

In fact, if the total annual cost of servicing provincial and federal government debt were distributed equally, every Albertan would pay $1,250 per year. That’s $5,000 for a family of four. Clearly, there’s a direct and immediate cost to government debt.

Albertans should not be complacent about chronic deficits and growing government debt. The money used to service the debt could be used more productively to pay for programs that matter to Albertans, tax relief, or both.