How Alberta blew through an extra $41 billion

Printer-friendly version
Appeared in the National Post

Governments, like families, have choices. And governments, as with families, sometimes make picks that close off other options. Spend a lot of money on having dinner out every night and that might foreclose the purchase of a nicer automobile.

Now think about the Alberta government, its spending preferences and this question: if Albertans had $41 billion to spend via the provincial government, how would you allocate it?

I pose the question because in a retrospective look at provincial spending, that’s the extra money that would have been available had the province increased program spending in a more controlled manner since the mid-2000s.

Here’s the history: Back in 1993/94, the Alberta government spent $8,978 per person (and I emphasize, on programs, not capital, which I will address shortly). That was just before the Ralph Klein government began to cut government spending sharply in the mid-1990s.

Three years later (in 1996/97), per person program spending hit a low of $6,828. The province then steadily increased spending so that by 2004/05, it was spending $8,965 annually per Albertan on programs. (These numbers and all the following ones are adjusted for inflation to allow for apple to apple comparisons.)

So by the mid-point of the last decade, the Alberta government spent as much every year on programs per person as it did before budget cuts in the mid-1990s. Such program spending continued to soar and hit $10,747 per person by 2008/09, about where it has been ever since (down modestly to $10,672 by 2012/13).

About this point, someone will say: “Yes, but Alberta has all these new people. We need schools, hospitals, improved roads. That explains the higher spending.”

Except the above numbers are about just program spending (education, health care along with other programs and their associated staffing costs and pensions), not capital spending. And the numbers account for increases in population.

Now imagine this scenario: Imagine the province kept already high per person program spending where it was in 2004/05, but ever since, increased it every year only enough to cover inflation and population growth. Between 2005/06 and 2012/13 inclusive, the province would have then spent $41 billion less than it actually did on programs, about $259 billion in total rather than the $300-billion it spent.

Assuming no change in either the annual surplus or deficit in that period, what else could have been done with that $41 billion? In other words, what were the foregone opportunities for the $41 billion?

One option was to spend more on capital projects (i.e. schools, hospitals, roads) in part to help the movement of goods and services and to increase the province’s capacity to provide high quality education and health care. Between 2005/06 and 2012/13, the province spent $50 billion on capital projects. So imagine if some of the extra $41 billion in program spending was instead spent on new or improved infrastructure in Alberta.

Another foregone option was tax relief. Between 2004/05 and 2012/13, the province collected $67.5 billion in personal income taxes from Albertans. That means 61 per cent ($41 billion) of all the personal income tax collected during that period went to program spending that exceeded inflation and population growth. That was another missed opportunity.

Or consider this possibility, often a popular option when Albertans look at the much larger resource funds in Alaska or Norway: extra deposits into the Alberta Heritage Savings and Trust Fund, the rainy day fund for future generations of Albertans. Between 2005/06 and 2012/13, the province deposited a mere $4.5 billion (or roughly one-ninth of the extra $41 billion spent on programs) into the Heritage Fund.

Had the government concentrated just on bumping up the Heritage Fund balance and not the other options just noted—another $41 billion could have been plunked down into the Heritage Fund.

Regrettably, none of the above options (or combination thereof) were available. Instead, the money all went to program spending including some rather generous wage and pension agreements in the government sector. So, since the mid-point of the last decade, the result was at least three foregone options for $41 billion: capital spending, or tax relief, or Heritage Fund deposits, or some combination of the three. Call them the three lost opportunities.

Subscribe to the Fraser Institute

Get the latest news from the Fraser Institute on the latest research studies, news and events.