Welcome to Alberta—and to the 1980s

If, as the newly released census data indicates, you’re one of many arrivals to Alberta in the last half-decade, here’s the shortcut to understanding Alberta’s politicians: On budget day, they replay their favourite “spend-now, tax-later” 1980s tunes.

Some history: Between the fiscal years 1986 and 1994 (fiscal years end March 31), the province of Alberta ran nine consecutive deficits. That happened because for too long, politicians assumed boom-time revenues would soon return. They were mistaken.

If that sounds familiar, it’s because successive Alberta finance ministers since 2009 (and the first budget deficit after 14 years of surpluses) keep promising surpluses would soon return.

Alberta is now in the fourth deficit year and 2013 will be year five. The new provincial budget predicts a surplus in 2014 on the operating side. But in 2014, the province will still withdraw $1.3 billion from the Sustainability Fund for capital expenditures. Point is, it’ll be 2015 before the province actually spends less than it takes in—and this more than five years after the recession ended in mid-2009.

Before looking at the budget numbers in more detail, consider the rhetorical similarities between the 1980s and now.

Back then, the politicians initially emphasized that Alberta could “afford” deficits given our fiscal assets—our savings. For example, in 1988, Premier Don Getty, in an attempt to divert attention from the annual deficits, noted how Alberta was really “debt-free” because of the assets in the Alberta Heritage Savings and Trust Fund.

Compare to Finance Minister Ron Liepert in this year’s budget speech: “We, of course, have no debt that is not covered off by cash reserves.” Right. But it’s the direction that counts. Alberta’s net financial assets are dropping like a rock just like they did the last time.

By this time next year, the decline in Alberta’s net financial assets will total $19 billion, this to pay for all the red ink since fiscal 2009.

For the record, in the 1980s and in the most recent deficit era, the first deficit year was preceded by years of unsustainable growth in program spending which significantly outpaced the growth in revenues.

For example, program spending was 85 per cent higher in fiscal 1986 (the first deficit year) when compared to 1981. In contrast, revenues were only 49 per cent higher, and would soon fall sharply. In other words, before oil prices dropped through the floor (in 1986), Alberta’s expenditures already soared way above revenue growth.

More recently, program spending was 70 per cent higher in fiscal 2009 (the first deficit year) compared to 2004. In contrast, revenues were only 38 per cent higher. In other words, before resource prices dropped through the floor, Alberta’s expenditures already soared way above revenue growth.

Alberta’s habit of binge spending is obvious from a look at real per capita numbers on program spending (which thus account for inflation and population growth and also excludes the question of necessary capital expenditures). In the last deficit era, such spending hit a high of $11,781 per person in fiscal 1986 and was cut to a low of $6,659 in 1997 (all figures in 2011 dollars). After 1997, real per capita program spending then bounced around between $7,100 and $8,100 until 2005 when it again soared.

Per capita program spending hit $10,489 in 2009. It will be $10,401 per person this year and about $10,300 next year, if spending stays within its budgeted amounts. 

Here’s one similarity between the two deficit eras not yet actualized but watch for it, especially if the province’s surplus estimates are off: A massive tax increase to eliminate obviously chronic deficits.

“We will increase taxes substantially at the outset of this deficit reduction plan,” said Treasurer Dick Johnston in his March 1987 budget address, and who then proceeded to do just that.  

Fast forward to 2012: “We need to look at our fiscal framework: at where and how we collect revenues,” said Finance Minister Liepert in his budget speech.

Changing the tax structure is not unwise, if such changes are revenue-neutral. But it’s clear from the budget rhetoric which brags about avoiding spending reductions, that the finance minister and his colleagues think there is only one side to the balance sheet—the revenue side, and they want more money.

So, as with 1980s-era politicians who hiked taxes before considering reductions in historically high per capita program spending, the finance minister just signalled he’d rather introduce new taxes or raise existing ones. Look for that sometime after the next election. For Alberta’s political class, that appears easier than restraining public sector wage and pension increases, and dealing with other items on the expenditure side of the province’s fiscal ledger.