Notley government at two years—too much Rae, not enough Romanow

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Appeared in the Calgary Herald, May 12, 2017
Notley government at two years

Just over two years ago, Rachel Notley became the 17th Premier of Alberta. Upon taking office, Premier Notley’s government was confronted with serious fiscal challenges. Oil prices were down, the economy was entering recession, and the province’s persistent budget deficits were ballooning.

It wasn’t obvious how the newly elected government would choose to tackle the daunting fiscal challenges it inherited from the Progressive Conservatives. After all, political branding is a poor predictor of how a government will manage public finances. Various governing political parties, including Premier Notley’s own NDP, have had successes and failures at different times and places in Canadian history.

For example, consider the NDP governments of Roy Romanow in Saskatchewan and Bob Rae in Ontario in the 1990s.

Like Premier Notley, both Rae and Romanow inherited significant fiscal challenges. In response, the Rae government immediately and significantly increased government spending, enacting a budget that increased nominal program spending by 11.9 per cent in one year. The government slowed the rate of spending growth in later years, but never really reformed and reduced spending. Not surprisingly, large budget deficits persisted in Ontario throughout Rae’s tenure and the province accumulated substantial new debt.

By contrast, Romanow’s government cut nominal program spending by approximately three per cent during each of its first three years in office, resulting in a 10 per cent spending reduction between the 1991 and 1994 fiscal years. This resulted in a balanced budget in just three years. The successful spending reforms and deficit-reduction set the table for important tax reform, which contributed to the province’s prosperity over the ensuing years.

Unfortunately, halfway through its mandate, the Notley government has looked too much like the Rae government, not enough like the Romanow government.

With Alberta having run nearly uninterrupted deficits since 2008/09, many Albertans hoped that a change in government would rein-in some of the excesses of previous administrations, which often spent as though the energy boom would never end. The change in government was an opportunity to re-evaluate priorities and develop a plan to quickly eliminate the province’s persistent deficits and bring spending to more affordable levels.

That hope was put to bed almost immediately, as the Notley government increased spending despite a large projected budget deficit, which ended up totalling $6.4 billion. And while there were initially hopes that annual deficits would at least shrink as revenue rebounded, the government has continued to increase spending. Indeed, program spending will be 11 per cent higher in 2017/18 than when Notley took over in 2015/16. In fact, despite the big deficits, Alberta led the country in spending growth last year.

This spending growth has contributed to stunning $10 billion-plus deficits in 2016/17 and 2017/18, and the government doesn’t plan to balance the budget until 2023/24—well after the end of the recession. And this wait-and-hope approach to deficit-reduction relies heavily on optimistic revenue projections, which may not come to pass.

In short, Premier Notley’s government chose the Rae model of raising spending while hoping for revenue growth to shrink the deficit over time instead of the Romanow approach of reforming and reducing spending to eliminate the deficit quickly.

But while the first two years of the Notley government have been marked by rapid spending (and tax) increases, it isn’t too late to change course. The government can bring the deficit under control, if it exercises discipline on the spending side of the ledger just as Roy Romanow did 25 years ago. Otherwise, Alberta will likely continue to pile on debt at a worrying pace.