Alberta’s Debt – “Built to Last” Part One

The Alberta government issued its latest budget on March 22nd. The subtitle of the budget was “A Recovery Built to Last”.  But with a projected public debt of $96 Billion by 2023 ‘Built to Last’ might apply to Alberta’s public debt.  The budget had the newspaper headlines using extra-large fonts next day.  Many expected that the budget would contain “compassionate reductions” that the Premier had referenced before the budget was announced.

The opposition parties spoke to the disappointment many people feel about growing debt.  Political commentators seized on the problems within the revenue projections and the fuzzy forecast for the future. The projections for later years are far too vague to inspire confidence that a genuine plan exists.

Budget 2018 really kicks in the run up (the ‘Red Zone’) to the 2019 election.  The budget reveals the policy choices of the NDP’s tenure that will define some of the debate in the next year. Government test drove three themes that will show up on campaign brochures next year.

  • Returning to a balanced budget by 2023
  • Economic diversification and pipeline access as the province regains its footing after the recession
  • Continuing public services despite a revenue crunch

The NDP’s budget projects a deficit of $8.8 billion this year.  By 2021, government projects revenue of $53 billion (up from $45 Billion this year) and expenses of almost $60 billion.  The budget projects a balanced budget in 2023.

The Alberta Party published a shadow budget that proposed a balanced budget by 2021-22.  The budget assumes reduction of capital spending of about $2 billion and a slight decline in operating spending.

The Opposition UPC party vigorously challenge the notion of continuing to accumulate debt.  The UCP have not presented a budget proposal beyond suggesting that flat expenditure levels and 3% economic growth will result in a return to balance.

Severely Normal Albertans should prepare themselves for the following debates about growing debt and balanced budgets.

“Debt is bad” – The mounting debt will have to paid by future generations.  And annual debt servicing costs rob government services of billions of dollars.

“Debt is OK” – Needed services were preserved through the recession and capital projects put people to work.  Compared to other provinces, Alberta still has a strong balance sheet, so the debt is manageable.

“Government has a Spending Problem” – Expenditures have risen from $49.3 Billion in 2015 to and forecast of $59.8 in by 2021-22. That 21% increase is higher than the inflation plus population growth equation that is a commonly used benchmark of fiscal prudence.  Per capita, Alberta spends more than most other Canadian jurisdictions.

“Government has a Revenue Problem” –  The volatility of energy revenues has plagued Alberta’s fiscal plan for decades.  Unlike every other province we count on royalties and land sales instead of a sales tax.  A sudden drop in energy revenue of $6B threw the budget into disarray in 2014 and 2015.