Despite big deficit, Alberta leads the country in spending growth
In a recent study, we showed that rapid spending growth by successive Alberta governments—and not depressed commodity prices—are the primary reason for Alberta’s big deficit.
NDP Finance Minister Joe Ceci (pictured above) quickly shot back, describing his government’s approach to fiscal management and spending growth as “prudent” and stating “severe cuts” would make a bad situation worse.
But the binary choice set out between the government’s current spending trajectory and “severe cuts” to important public services is a false one.
The reality is that despite a daunting budget deficit of more than $10 billion, the government has made no meaningful efforts to slow the rate of spending growth to stem the flood of red ink. In fact, it has significantly increased the rate of spending growth this year, and will increase spending this year faster than any other provincial government in Canada.
A look at the numbers tells the story. Last year, program spending in Alberta (all spending aside from debt service payments) was $48.2 billion. This year, spending is projected to clock in at $51.8 billion—a 7.5 per cent increase. About $1 billion of this spending increase was necessitated by the response to the Fort McMurray wildfires, but even after stripping that out, program spending is still up 5.4 per cent.
Given the severity of the challenges facing the province, a 5.4 per cent spending increase seems out of touch with fiscal reality.
It’s also out of line with what’s happening elsewhere in the country. Saskatchewan and Newfoundland, two other energy jurisdictions facing fiscal challenges, plan to reduce program spending this year. And every other province is forecasted to increase spending by between 2.3 and 3.9 per cent.
In short, in the face of a $10 billion deficit, Alberta is jacking up spending significantly more than any other province. Surely “severe cuts” to core public services are not the only alternative.
The big spending growth in Alberta seems even more concerning when you consider the historical context—and the fact Alberta’s spending levels have already been inflated substantially over the past decade. In fact, program spending has approximately doubled since 2004/05, an increase far faster than what would have been needed to keep pace with pressures from inflation plus population growth.
Minister Ceci’s fiscal plan is not expected to balance the budget until 2024. And so he faces an incentive to suggest that the only alternative to this course is severe cuts to the most essential public services. But the evidence doesn’t back him up.
In fact, by 2018/19, government revenues in Alberta are forecasted to exceed spending levels from 2015/16—the year the government took office. In other words, if the government had held spending at the high levels it inherited and initiated no further growth, we would be just two years away from a balanced budget. Instead, the government chose rapid spending growth, which will mean deficits as far as the eye can see.
Of course, achieving a four-year nominal spending freeze would require reforms to some areas of spending, but the rapid spending growth of the past decade suggests there’s room for savings without harming vital public services. For example, consider that recent research shows public-sector workers in Alberta enjoy a significant pay premium of 6.9 per cent compared to comparably skilled and educated private-sector employees. This premium comes on top of greater non-wage benefits. Shrinking this compensation gap is one important way the government could find savings.
The government inherited difficult fiscal circumstances, but it has made a bad situation worse by ramping up spending growth faster than any other province and growing the deficit. Minister Ceci calls this approach “prudent.” We call it a burdensome tax on future generations of Albertans who will have to service the mountain of debt the government is creating.