Alberta government wastes generational opportunity to restore provincial finances

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Appeared in National Newswatch, March 3, 2023
Alberta government wastes generational opportunity to restore provincial finances

In its first budget, the Smith government had a golden opportunity to use Alberta’s surpluses—fuelled by a temporary windfall in resource revenue—to improve the province for the long-term. Unfortunately, it wasted that opportunity and simply continued the spending habit of many of its predecessors, which has fuelled a boom-and-bust cycle in provincial finances for decades. When resource revenue is high, the province enjoys surpluses and largely spends them away, but once resource revenue inevitably declines, the province falls into deficits.

It didn’t have to be this way. The Smith government had choices.

For instance, it could have used the surpluses to lower personal income taxes to a single rate of 8 per cent. This would have kept more money in Albertans’ pockets while helping attract entrepreneurs, businessowners and skilled workers that spur strong economic growth. To replace the lost personal income tax revenue, the government could, for example, have repatriated the federal consumer carbon tax so Edmonton—not Ottawa—receives the revenue.

Or, the government could have used Alberta’s surpluses to put the province on track to eliminate its net debt (total debt minus financial assets) by 2030, which could have saved nearly $20 billion in cumulative debt interest payments; costs that Albertans ultimately must pay.

Finally, the government could have used the surpluses to re-establish a rainy-day account based on the previous Alberta Sustainability Fund. After determining a stable amount of resource revenue to include in the budget annually, the government would automatically save any resource revenue above that amount in this rainy-day account to be withdrawn in years when resource revenue falls below the stable amount. The idea is simple—save during good times to help avoid deficits during bad times. This time, the fund’s rules should be constitutional, which would help ensure it’s sustained over time.

The first step towards accomplishing any of these priorities, however, was to not spend the windfall. Unfortunately, the Smith government gave into this temptation.

Consider that just a few months ago in the fall fiscal update, the Smith government projected a $5.6 billion surplus in 2023/24. Since that update, revenues increased by $1.1 billion in budget 2023. Put differently, if it just held the line on spending, the Smith government could have run a $6.7 billion surplus in 2023/24—that’s a lot of money to put towards debt repayment, lowering personal income taxes, and/or establishing a rainy-day account. Instead, the government increased program spending by $4.2 billion (again, compared to the fall update) leaving Alberta with a projected $2.4 billion surplus in 2023/24.

And while the government is heralding debt repayment and a “new fiscal framework,” the budget allocates about $1 billion less to debt repayment than was planned just months ago. Moreover, the new fiscal framework, which will prohibit budget deficits and guide the use of future surpluses (options include paying down debt, saving in the Heritage Fund and/or onetime spending initiatives), will be based in statutory law, which means future governments can ignore or change the plan at their discretion.

In its first budget, the Smith government squandered an opportunity to forge a new fiscal path in Alberta and sustain the province’s finances for the future. The consequences of this choice may be felt in Alberta for many years to come.

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