Alberta’s budget will make life worse—not better
Alberta’s 2017 budget address is subtitled “Working to Make Life Better.” Unfortunately, the budget lays out a path towards higher taxes and more spending-fuelled deficits and debt.
Let’s start with the eye-popping bottom line figures. The deficit is expected to be a whopping $10.3 billion this year, almost identical to last year’s $10.8 billion. In the next two years, the deficit is expected to average about $8.5 billion and no plan is presented to bring the budget back to balance.
The consequence of these big deficits is a mountain of debt being placed on the shoulders of future generations. By 2019/20, the debt (after accounting for financial assets held by the government) is expected to reach $45 billion—$10,000 for every man, woman, and child.
Predictably, interest payments will climb. Specifically, debt interest payments will more than double from $1 billion last year, climbing to $2.3 billion by 2019/20. Interest payments are not discretionary, which mean they will take away resources that could have otherwise gone to programs that Albertans value such as health care and education. That will certainly not make life better for Albertans.
Perhaps most troubling is the fact that this level of debt accumulation could have—and indeed still can be—avoided. The reality is that the government is exacerbating Alberta’s difficult situation through unaffordable spending increases. Indeed, this year spending is projected to be up 11 per cent from the levels the Notley government inherited in 2015/16.
Given the fact Albertans across the province have been tightening their belts, an 11 per cent spike in spending over just two years seems out of touch with economic reality. Further spending increases are planned for the years ahead.
But the path laid out in the recent budget does not need to be Alberta’s future. If the government were to change course now, it could actually eliminate the deficit within the life of its current fiscal plan. The province expects galloping revenue growth in the coming years, as non-renewable resource revenues pick up and its new carbon tax takes hold. If these projections come to pass, the government could eliminate the deficit quickly, but only by exercising some spending discipline.
In the fiscal year that just ended (2016/17) Alberta spent about $51.7 billion, once you strip away emergency spending on the Fort McMurray wildfires and adjust for an accounting change surrounding the phase-out of coal power. If the government were to change course and hold spending at that level for the next three years, the deficit would be eliminated by 2019/20, with revenues coming in at $51.8 billion.
Under this scenario, the government would pass along to future generations far less debt than it currently plans to. If the government were to reform and reduce spending, not an unreasonable proposition after more than a decade of rapid spending growth, the pace of debt accumulation could be slowed further.
But instead the government is persisting in its approach of rapid spending growth, and stubbornly trying to fill the budget hole with more and more taxes. Even as Albertans face higher income taxes, corporate incomes taxes, and a broadened carbon levy, all the extra money flowing out of their pockets isn’t enough to stem the red ink in Edmonton because the government refuses to address its spending problem.
There’s no doubt that the NDP government inherited a difficult set of circumstances. But its tax-and-spend approach to public finances has a failed history within the province and the country more generally. It’s not too late to change course—spending discipline going forward could eliminate the deficit in short order. But Alberta’s 2017 budget gives little ground for optimism that the government will choose this option, which would actually make life better for Albertans.