Another tough year for Alberta finances

Another year, another deficit. The Government of Alberta has run nearly uninterrupted deficits since 2008/09, and this year is no exception. In fact, that $10.3 billion deficit the province plans to run this year is just shy of the provincial record ($10.8 billion) set last year.

One might expect that the minimal progress on deficit-reduction is due to slow revenue growth. In fact, revenue is projected to come in nearly $2.4 billion (5.6 per cent) higher in 2017/18 than in 2016/17.

So why is the deficit only projected to shrink by half a billion dollars? Simply put, spending.

There were two key spending factors that prevented meaningful deficit-reduction. The first, though smallest, is the $377 million increase in debt-service charges from last year. As the provincial debt increases, it costs more in interest payments annually. In 2008/09, when the province had only minimal debt (though no net debt, since it had amassed billions of dollars in financial assets), the province paid just $208 million in debt charges. Thanks to the recent increase in debt, that’s expected to increase more than tenfold to more than $2 billion in 2019/20. This increase has taken a toll on the province’s bottom line.

The second more important factor is continued program spending increases. Program spending is projected to increase by nearly 2.5 per cent ($1.3 billion) this year. That may seem modest, but it comes on top of more than a decade or rapid spending increases. As prior research has shown, program spending increased by roughly 100 per cent between 2004/05 and 2014/15—nearly twice what would have been required to account for inflation and population growth. And it isn’t as though the province was starting from particularly low levels of expenditures. In 2004/05, per capita program spending had already returned to levels seen before the fiscal contraction of the late-1990s. Successive provincial governments simply chose to increase spending, as the Notley government did when it boosted program spending by 11 per cent in its first two years.

The province’s habit of rapid program spending increases is not only a key driver of the province’s chronic deficits—which persisted even during the height of the oil boom—but is a factor the provincial government can generally control. Rather than waiting and hoping that resource revenue will roar back to new heights, wiping out the deficit, the provincial government should focus on the side of the ledger it can control.

Hopefully the new year will bring some meaningful progress on deficit reduction. That would be a gift not only to current Albertans, but future generations who may be responsible for funding current deficits.