Smith can right Alberta’s fiscal ship—if she exercises discipline
About one month before Danielle Smith was elected as the new leader of the United Conservative Party and ostensibly Alberta’s new premier, the Alberta government announced a projected $13.2 billion surplus in 2022/23 following the $3.9 billion surplus recorded in 2021/22. While this is positive news for provincial finances after nearly 13 years of routine deficits, the Smith government must resist the temptation to continue the era of high spending in the province.
Alberta owes its fiscal turnaround to a significant jump in government revenues. In 2022/23, total revenues increased by more than 20 per cent compared to previous estimates, due largely to a surge in resource revenue, which includes oil and gas royalties, fuelled by higher commodity prices. Higher commodity prices also contributed to higher corporate income tax revenue.
Again, the government must resist the temptation to increase spending because temporary surpluses do not fix the province’s long-standing fiscal issues. Alberta is in an era of generally high spending that began in the late-1990s and contributed to routine budget deficits from 2008/09 to 2020/21 when resource revenues were relatively low. While the government has restrained spending in recent years, spending levels remain elevated compared to levels of ongoing revenue sources. When volatile onetime resource revenues inevitably decline, Alberta will likely return to deficits.
Of course, budget deficits, which occur when governments spend more than they collect in revenue, fuel debt accumulation. All else equal, higher debt means more taxpayer dollars go towards paying interest costs on government debt. And every dollar spent financing the provincial debt is a dollar unavailable for services and programs for Albertans. Put simply, the Smith government must hold the line on spending, and if possible, find opportunities to reform and reduce spending.
For instance, a 2019 study published by the Fraser Institute found that Alberta’s government-sector workers (federal, provincial and local) enjoy a 9.3 per cent wage premium (on average) over their private-sector counterparts. The analysis controls for factors such as age, gender, education, tenure, experience, and type of work to ensure an apples-to-apples comparison. In other words, there may be an opportunity to rein in spending by more closely linking the wages and benefits of government employees to similar positions in the private sector.
The government can also pursue reforms in health care—the provincial government’s largest area of spending. For example, it can contract out certain health-care services, facilitate a parallel private system and allow physicians to work in both the private and public sectors. These reforms could improve Alberta’s health-care system while reducing costs.
Running a surplus is a good start for Alberta, but if the new Smith government fails to restrain spending, it will likely turn back to deficits, just like many of its predecessors. Ensuring provincial finances are sustainable over the long-term will require prudence and discipline in Edmonton now and in the years to come.
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