Alberta taxpayers on the hook (again) for government debt interest

Premier Danielle Smith’s UCP government recently released Alberta’s fiscal update. Many of the headlines focused on the good news including a large budget surplus. This is a big change from recent Alberta history, which has seen nearly uninterrupted deficits since 2008/09. However, the update also showed that, despite the improved fiscal balance, taxpayers in the province will continue to pay interest on recently accumulated debt for the foreseeable future.

Alberta’s recent history with government debt and related interest costs is unique in Canada. All other provinces have carried debt (and debt interest costs, paid by taxpayers) throughout recent decades. Alberta is different.

In the early 2000s, following an ambitious reform period during the 1990s that included both tax and spending reductions, Alberta essentially achieved “debt free” status, and actually saw its financial assets exceed the miniscule debt that remained on the balance sheet.

This fiscal advantage had the potential to allow the province to keep taxes low and ensure that tax dollars were spent on public services or savings for the future, prompting Premier Ralph Klein to say that “never again will this government or the people of this province have to set aside another tax dollar on debt.”

Premier Klein was right to articulate the benefits of debt-free status but, as the recent fiscal update reminds us, his prediction proved incorrect and over time the burden of debt on Albertan taxpayers has returned. More specifically, as the province ran deficit after deficit in the 2010s, and debt started piling up as the decade went on, annual debt interest payments increased.

For example, in 2008/09 Alberta’s government debt interest costs were negligible at just $58 per person. By 2022/23, this number is projected to reach $595 per person.

And despite this year’s large surplus and expected surpluses in the next few years, Alberta’s debt interest costs will not change significantly. According to the fiscal update, debt interest costs will reach a forecasted $2.7 billion this year, with little change throughout the fiscal forecast that extends to 2024/25. This leaves debt interest at around $540 per person, barely unchanged from the start of the decade.

To avoid further increases in the debt burden for Albertans, the Smith government should understand why debt interest payments have reappeared as a meaningful line item on the provincial budget. Successive governments ran large deficits, which led to the rapid increase in debt and related growth of debt interest payments in recent years.

And yet, a recent analysis published by the Fraser Institute shows that with a more restrained approach to spending, Alberta could have avoided much of this debt accumulation. The current and future governments can avoid repeating a run-up in debt and interest costs in future years—especially when resource revenues fall—by reforming and restraining provincial spending.

The Smith government’s recent fiscal update had some good news about this year’s budget balance, but also included a sobering reminder about the loss of Alberta’s debt-free status and the related fiscal benefit of near-zero debt interest costs, which the province’s taxpayers until recently enjoyed.