The Texas Advantage over Alberta

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Appeared in the Calgary Herald

Alberta and Texas have always had a lot in common. Ranching in the 19th century. A can-do entrepreneurial approach to oil and gas in the 20th century. And in the 21st century they are still somewhat similar; oil and gas remain a big part of both economies—26.8 per cent in Alberta and 11 per cent in Texas.

But as the Alberta government saddles Albertans with an extra $11.4 billion in taxes over the next five years, it’s important to understand where the two jurisdictions diverge—and what Alberta could learn from Texas about controlling the growth of government spending, even when the two places have different responsibilities.

First though, let’s step back and take a look at the two economies. On the economic side of things, Alberta mostly outperformed Texas between 2001 and 2013.

For example, consider private-sector employment growth.  Employment in Alberta’s private sector, on average in those dozen years, grew by 2.8 per cent annually compared to 1.9 per cent in Texas. In addition, Alberta’s annual unemployment rate was, on average lower between 2000 and 2013 at 4.1 per cent. In Texas, the average annual unemployment rate was 7.4 per cent.

On the other hand, Texas beat Alberta on a few things, such as per person GDP growth between 2001 and 2013 (1.2 per cent on average annually compared with 0.9 per cent in Alberta).

But in the main, Alberta’s economy outperformed the Texas economy on overall GDP growth, private-sector job creation and unemployment rates.

So Alberta’s government should boast of a superior fiscal record and balanced books. After all, a higher rate of private-sector job creation, combined with a lower unemployment rate, mean fewer people on welfare, more people employed, more taxpayers contributing to government coffers through provincial income tax.

And yet, on the fiscal side of things, Alberta has been bested by the Lone Star state.

As a share of the economy, Alberta’s provincial government has always been larger than that of Texas, at 13.1 per cent of GDP on average, annually. That compares to Texas at nine per cent of the economy (as an annual average between 2000/01 and 2012/13).

One can explain away some of that spending difference due to different responsibilities in Alberta and Texas.

However, what cannot be explained away is the difference in the growth in government spending. In Texas, per capita spending grew by 60 per cent over that 12-year period. Alberta’s per person government spending growth was up 70 per cent.

Part of the explanation for Alberta’s bigger-than-big-Texas government spending growth is found in public-sector employment figures. The size of the public sector in Alberta (those employed) grew at an annual average rate of 2.8 per cent between 2000 and 2013. That took place while annual population growth was just 2.2 per cent, on average.

In Texas, growth in public sector employment grew at 1.1 per cent, on average annually, while population growth averaged 1.8 per cent between 2000 and 2013. Texas thus kept the growth in public-sector employment below the increase in population.

Put simply, Texas had a better grip on the growth of government than did Alberta, even though Alberta had the better economy.

Ergo, between the recession year of 2008/09 and 2012/13, Texas recorded just one deficit, which happened in the recession year. It’s been surpluses ever since. And Alberta? Five straight deficits in and after the recession, more to come, and thanks to the recent provincial budget, new and higher taxes of Alberta’s other fiscal failures.  Advantage: Texas.