Despite improving economy, Alberta government still projects $9.1 billion deficit

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Appeared in the Calgary Sun, March 9, 2018

The Notley government recently released its third quarter fiscal update. While the update contains some good news about the Alberta economy, the outlook for provincial finances remains dire as the province expects a $9.1 billion deficit for this fiscal year, and no intention to balance the budget until 2023/24.

First, the good news. With 90,000 fulltime jobs created and a 4.5 per cent increase in real provincial GDP this fiscal year, the province is regaining some ground after the punishing recession that saw GDP drop by 16.4 per cent between 2014 and 2016, while Alberta shed hundreds of thousands of jobs.

The good economic news means government revenue for 2017/18 is stronger than previously expected. In fact the government will collect approximately $2 billion more in revenue than it forecasted in last spring’s budget.

This unexpected additional revenue should have put a substantial dent in the province’s significant budget deficit, which was forecasted to be $10.1 billion in last spring’s budget (after removing a “risk adjustment” cushion included in that forecast). Instead, despite the fiscal challenges facing Alberta, the government spent half of the unexpected extra revenue. Spending is now forecast to be $1 billion higher than forecasted in last spring’s budget.

This has been a recurring theme for this government. Revenues have regularly beat forecasts and expectations as Alberta’s economy has recovered, but the government has simply increased spending to largely or completely offset the potential fiscal benefit to the bottom line. As a result, Alberta is stuck with the $9.1 billion deficit in the recent fiscal update, despite the fact that revenue has grown by $4 billion since last year.

In its upcoming budget in March, the Notley government has an opportunity to finally begin closing the gap between spending and revenue, but it must demonstrate a level of spending discipline that has so far been absent. A recent Fraser Institute study estimated that to meet its timeline of balancing the budget by 2023/24, the government must hold spending growth to 0.8 per cent annually between now and then. This would be a marked reversal from the government’s approach so far, which has increased spending at an average annual rate of 6.8 per cent in its first three years.

Given the government’s spending record to date, and the fact that the recent fiscal update shows it will overshoot its spending target for this year by $1 billion, it’s clear that without a new commitment to spending discipline, this government is unlikely to achieve its own modest target of balancing the budget by 2023/24.

The government’s spendthrift approach and large resulting deficits mean more and more debt is being piled up. The cost of servicing this debt via debt interest payments will, of course, be passed along to future taxpayers. We project that even if the government meets its 2023/24 balanced budget target date, debt-service costs will roughly double to more than $600 per year per Albertan.

The evidence clearly shows the need for a more disciplined approach to spending and a more ambitious approach to deficit reduction in Edmonton. The next generation of Albertans deserves better than to pay the bill for this government’s refusal to rein in spending.

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