Alberta’s 10-year, $49 billion boom in program spending

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Appeared in the Calgary Herald

Over the last decade, higher energy prices and entrepreneur-friendly policies drove Alberta’s booming economy, generating a significant windfall in government revenue.

Looking back, however, Albertans might ask themselves: Where did all that extra money go?

That question is particularly relevant for young families in new neighbourhoods, built during the recent surge of in-migration, families who still don’t have a neighbourhood school or nearby hospital.

Here are some facts to help explain where some of the province’s money went.

Back in 2004/05, program spending in Alberta amounted to $8,965 per person. That was already close to the 1993/94 high of $8,978 (and the numbers here are adjusted for inflation). In other words, by the mid-2000s, the province again spent as much per person, annually, as it did before government cuts in the mid-1990s.

After the mid-2000s though, the province increased program spending beyond the combined effect of population growth and inflation.

As a result, by 2013/14, the province spent $10,967 per person on government programs.  That was $2,002 more per person than in 2004/05.

Why does this matter? Because once oil and gas prices weakened, and government revenues fell, the extra spending, beyond inflation and population growth, made it hard for the province to balance the books.

The math is simple. Had the province increased program spending after 2004/05 within the prudent limits of population growth and inflation, it would have spent $295.4 billion between 2005/06 and 2013/14. Instead, it spent $344.6 billion on programs. That’s a $49.2 billion difference.

Broken down annually, by 2013/14, the province would have spent $35.9 billion on programs last year instead of what it did spend: $43.9 billion. That’s an $8 billion difference in one year alone.

Premier Jim Prentice recently said that provincial revenues have dropped by $7 billion. It doesn’t take a math professor to understand that moderated spending growth over the last decade would have reduced the need for deep cuts now (or higher taxes, as the premier frequently hints).

It’s important for Albertans to understand the above numbers are all adjusted for inflation and population. And that program spending does not include capital expenses (hospitals, schools, roads, etc.).

That matters. Had the province been more prudent on program spending, some of that extra $49.2 billion could have been redirected to new schools, hospitals, other infrastructure or deposits into the Alberta Heritage Savings Trust Fund.

So again, where did that extra money go?

Some examples: In 2007, the province signed a five-year contract with the Alberta Teachers Association. As the province later described that deal, that contract meant teacher salaries grew at “nearly double the rate of inflation over this period.”

Or consider the unreformed pension plans for government employees. In 2009/10, the Alberta government paid another $1.2 billion special payment towards the unfunded pre-1992 shortfall in the Teachers’ Pension Plan.

More broadly and annually, pension costs to the province (employer contributions and benefit payments) rose to more than $4.8 billion in 2013/14 from just under $4.1 billion two years previous (earlier totals are not available).  And Premier Prentice cancelled pension reform last September as one of his first acts in office.

Those who work for government and in the broader public sector deserve respect and competitive compensation packages. But the reality is that the wages and benefits of government employees in Alberta are out of step with private sector norms for similar positions—6.9 per cent higher after age, length of time in the workforce, and other relevant factors are accounted for.

Where did all that extra money go? For years, Alberta spent beyond inflation and population growth. With little thought, it seems, of the potential consequences.

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