Alberta's opaque budget represents a failure to learn from the past

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posted March 12, 2014

If you listen to Alberta Finance Minister Doug Horner, the province's public finances are under control.  The government's budget imposes no new taxes, spending growth has been moderated, and Alberta is running an operational budget surplus after successive years of budgetary deficits.

But there is reason to question this conventional view. The fact is the picture is less rosy (and more opaque) than the minister claims. The Alberta government has reverted back to a late 1980s pattern of high spending and missed opportunities. If Albertans want to position the province for a prosperous future, they should insist the government stops its current course and puts Alberta on a different path one guided by the successful policies of the past.

Previous Alberta governments reduced spending, lowered taxes, and reversed the province's growth in debt. The Klein government cut program spending by over 20 per cent between 1992-93 and 1996-97 and began making payments on the debt resulting in its elimination in 2004-05. This ambitious fiscal program positioned the province well relative to other Canadian provinces and U.S. states.

However, recent Alberta governments have undone much of this progress. Government spending has grown significantly since the debt was eliminated and the province has once again found itself in deficit.

Program spending has increased, on average, by 6.6 per cent per year over the past decade. This sustained level of spending growth has outstripped population growth and inflation. And the current budget still anticipates average annual spending growth of 3.15 per cent in the coming years.

But this only tells part of the story. The government also plans to spend $19.2 billion over the next three years on capital projects of which $12.2 billion is expected to be debt-financed.

This means that the province's debt is growing even while the government heralds its return to a balanced budget.

Albertans may be surprised to discover this, especially since the budget materials are so difficult to navigate. The government separates its operational budget (which is in surplus) from its capital budget (which is in deficit) and makes it difficult for observers to consolidate the two in order to get a full picture of the province's public finances. The province's Auditor General has previously criticized the government's fiscal transparency and last week's budget does little to improve in this regard.

How can regular Albertans hold their government to account and have a debate about priorities and trade-offs when the province's Auditor General can't even determine the true state of the government's finances?

While it may be difficult to figure out the government's year-over-year budgetary position, the overall trajectory is clear: the government has been growing spending, taking on debt, and drawing on the province's net financial assets.

To this point: Alberta's net financial assets accumulated as a result of the hard work of the 1990s have declined by about two-thirds to $12.1 billion in 2012-13 from $34.5 billion in 2006-07. This rapid decline in net financial assets is similar to what happened between 1984-85 and 1993-94 when the Alberta government took action to improve the province's public finances. And it is projected to continue. The budget estimates that the province's net financial assets will fall to $3.9 billion by 2016-17.

Chipping away at the net financial assets that were accumulated during the past period of fiscal discipline and not giving Albertans a clear picture of its bottom line has allowed the government to avoid hard choices about spending.

This type of approach however fails to reflect the lessons from the 1990s when the Albertan government levelled with the public about the state of the province's finances and then took action to improve them. This involved some tough choices but the results in the form of high economic growth, job creation, and other positive economic and social outcomes were worth it.

What can be done to get Alberta back on track?

The first step in reversing this trend of growing government debt is greater budget transparency. It should not be difficult to discern whether the budget is in deficit. This is the only way that Albertans can have a clear-eyed debate about their priorities and trade-offs.

The second is to revisit what worked for the province in the past. This means a broadened plan to balance the budget including both operational and capital spending and to stop the decline in Alberta's net financial assets.

Alberta could use a return to the successes of the 1990s. Unfortunately last week's opaque provincial budget seems to have taken its bearings from the failures of the 1980s.

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