Let’s be clear—the Alberta government’s fiscal problems aren’t over

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Appeared in the Edmonton Sun, May 8, 2024
Let’s be clear—the Alberta government’s fiscal problems aren’t over

With government budget season now over, Alberta stands out as one of only two Canadian provinces (the other being New Brunswick) to project a budget surplus in 2024/25. That’s good news for Albertans—but it doesn’t mean we’re in the clear.

Alberta’s net debt burden (total debt minus financial assets) will reach a projected $45.5 billion this fiscal year. The government plans to slowly pay off debt over the next two fiscal years, falling to a projected $43.1 billion, but more work is required to prevent further debt accumulation in the future.

Indeed, Alberta’s current projected surplus this fiscal year ($367 million) is fuelled largely by historically high resource revenue. If resource revenue fell to its average over the past 10 years, Alberta’s surplus would immediately flip to a $7.4 billion deficit (unfortunately, this isn’t a far-fetched scenario, resource revenue has notoriously been extremely volatile). In other words, this year the Smith government plans to spend about $7.4 billion more than it receives in more predictable levels of revenue.

That’s the key problem—government spending levels don’t align with stable sources of revenue. While the Smith government has made some important changes, including a commitment to grow spending by no more than inflation and population growth, it hasn’t resolved this underlying issue.

Of course, if the province falls into deficit when relatively high resource revenues inevitably decline, that means more debt accumulation.

Government debt comes with serious costs for Albertans because just as they must pay interest on their own mortgage or car payment, they must pay interest on government debt. In 2023/24, debt interest payments will cost a projected $3.4 billion, equal to $691 per Albertan. And every dollar spent servicing government debt is a dollar unavailable for services such as health care and education.

So, what’s the solution?

Well, there are plenty of ways to rein in spending. For instance, the province spent at least $2.2 billion on subsidies (a.k.a. corporate welfare) to select industries and businesses in 2019/20 (the latest year of pre-COVID data). Given the large body of research that shows these subsidies generally fail to generate widespread economic benefit, it’s a clear area to rein in spending.

Government employee compensation is another area ripe for reform. Government-sector workers in Alberta (federal, provincial and local) enjoyed a 5.6 per cent wage premium, on average, over their private-sector counterparts in 2021, the latest year of available comparable data (after controlling for factors such as age, education and occupation). By bringing government-sector worker compensation in line with the private sector, the Smith government could help save taxpayer money.

A budget surplus doesn’t mean Alberta’s fiscal challenges are over. To prevent future deficits and costly debt accumulation, the Smith government should more closely align spending with stable levels of revenue.

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