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The Rhetoric and the Reality of Alberta's Deficits in the 1980s, 1990s, and Now

Type: Research Studies
Date Published: August 15, 2011
Authors:
Research Topics:
Government Spending
Almost one-quarter of Alberta’s current population either was not born or did not live in Alberta during the previous deficit era (1985-1994). As a result, these new Albertans may take Alberta’s prosperity and recent balanced budgets for granted, or assume that deficits are a temporary problem caused by the recession. In reality, this is a longer-term phenomenon created by short-sighted spending choices—no matter how the politicians spin it.

This paper reviews political rhetoric from the previous deficit era and compares it with the present, revealing important parallels. Between 1985-86 and 1993-94, Alberta ran nine consecutive deficits. As a consequence, Canada’s wealthiest province saw its financial position deteriorate into net debt; deficits diverted tax dollars into interest; and taxes were raised to finance the growing debt. Yet the political rhetoric side-stepped these problems.

Early signs indicate optimistic expectations about Alberta’s current finances are again in error. Alberta already faces deficits of a magnitude similar to those of the mid-1980s to early 1990s. As before, the province’s net financial position has deteriorated rapidly. And predictably, the rhetoric and rationalizations sound familiar.

For instance: In the 1980s and more recently, the political rhetoric emphasized that Alberta could “afford” deficits given its overall net asset position. In both eras, there was a net decline in provincial assets. Capital and operating spending was then, and is now, seen as untouchable. In the 1980s and again recently, politicians promised balanced budgets but didn’t deliver. In both deficit eras, politicians counted on rising energy prices to balance the budget for them. In both eras, program growth out-paced revenue growth.
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