It’s official—Alberta’s 2015/16 deficit larger than initially thought

There’s no doubt that 2015/16 was a bad year for Alberta’s public finances. And with the recent release of the provincial government’s 2015/16 annual report, we now know just how bad it was.

According to the report, the province’s operating deficit for the year was even larger than expected, with the final tally checking in at $6.4 billion—about $300 million more than projected by the Notley government in its October budget.

Once you factor in capital spending (roads, bridges, etc.), the province’s fiscal position looks worse. When that spending is factored in, the annual report shows that the province’s overall net financial assets (that’s all the government’s financial assets minus its debts) deteriorated by $9.2 billion last year alone, leaving the province with just $3.9 billion in remaining net financial assets at year end. Since the provincial government is still spending much more than it takes in, it‘s now just a few months away from entering a net debt position for the first time since 2000/01.

So why is this happening?

The government and a number of news reports blame depressed commodity prices for the province’s weak fiscal performance last year. But this narrative ignores the fact that the 2015/16 deficit (and the six additional deficits the province ran in the previous seven years) could have been avoided if successive governments had not increased spending at such rapid rates over the decade.
 
Consider that between 2004/05 and 2015/16 program spending more than doubled from $24 billion to $49 billion. Had the provincial government merely increased program spending to keep pace with population growth and inflation, it would have spent roughly $10 billion less in 2015/16. With the provincial government taking in $42.5 billion in revenue, that would have meant an operating surplus—not a deficit.

So it’s not quite right to solely blame depressed oil prices for last year’s deficit. More accurately, decisions by successive governments brought spending to unaffordable levels—a fact painfully exposed when commodity prices finally dropped. Successive Alberta governments spent like the boom times would never end. When they did, the predictable result was a rapid deterioration of the province’s fiscal position.

In short, spending choices are primarily responsible for last week’s grim annual report—not low oil prices.

Misdiagnosing the cause of Alberta’s fiscal problems can be dangerous, as it may distract from the solutions. In fact, the misguided belief that Alberta’s fiscal problems stem from inadequate revenues has already led to growth-inhibiting tax increases and calls for further tax hikes. These actions focus on the wrong side of the ledger. Again, the government must reform and reduce provincial spending.

If it doesn’t, Albertans can expect more grim news in the future. This year, for example, the province expects an even bigger deficit than in 2015/16.

Hopefully, last week’s annual report showing a $9.2 billion decline in net financial assets, over just one year, will serve as a wakeup call and spur the government to finally strike at the root of the problem—uncontrolled government spending.