Debt becoming the new normal in Alberta
Recently, the Government of Alberta published its annual report on the state of public finances for 2016/17. The report showed that Alberta’s provincial net debt (a measure that adjusts for financial assets held by the government) increased by an eye-popping $12.8 billion last year, which prompted credit rating agency DBRS to downgrade the province’s long-term outlook to negative.
It’s understandable that Alberta’s level of debt accumulation last year attracted a lot of attention. After all, after adjusting for population size and the size of provincial economies, it’s the most debt any provincial government in a large province added in one year this century.
But what’s most remarkable about Alberta’s debt binge last year is that current projections suggest there’s more to come. That’s because the government’s fiscal plan calls for adding roughly the same amount of new debt in 2017/18 and 2018/19. Incredibly, big debt accumulation is becoming the new normal in Alberta—a province that could once boast of being “debt free.”
This year (2017/18), even though the recession is over, annual debt accumulation will actually increase. Specifically, the government forecasts it will add $13.6 billion in debt this year. And because the government relied on optimistic oil price assumptions, which so far are not coming to pass, the provincial deficit and amount of new debt added this year may well be even bigger.
Unfortunately, things aren’t expected to get much better next year. The government’s fiscal plan calls for $12.0 billion in new debt in 2018/19, fully four years removed from the oil price shock that partially caused the provincial deficit to balloon.
Although the Notley government could reasonably blame the free-spending habits of its predecessors and the oil price shock for the fiscal situation it inherited, it can’t avoid responsibility for adding so much debt during its term.
Finally, in 2019/20, the government’s budget forecasts that debt accumulation will dip to $9.9 billion. But again, even this miniscule slowdown is contingent upon rosy oil price assumptions (and resource revenues) that are increasingly looking less probable. It’s therefore entirely possible that unless the government changes course and trims spending, Edmonton will once again add more than $10 billion to its books in 2019/20, the last year of the current government’s mandate.
The resulting debt burden foisted on future generations of Albertans is staggering. By 2019/20, Alberta’s provincial government net debt is expected to reach $45.2 billion. For context, that’s more than $10,000 for every man, woman and child in the province—up from zero as recently as last year. The cost of servicing this debt will, of course, fall on future taxpayers, leaving less money available for important public services or tax relief. And those costs may further increase if the government’s credit rating continues to drop.
As Alberta closes the book on 2016/17, it might be tempting to think this was an unusually bad year for public finances, and it’s now behind us. But it would be a mistake to assume that as the economy recovers from the recession that the government’s books will improve along with it. In fact, the province has no plan to meaningfully slow down the pace of debt accumulation. Instead, adding $10 billion or more in new debt per year is quickly becoming the new normal in Alberta.