Alberta government increased program spending by $4 billion in three months
With commodity prices surging, Alberta has recently come into some good fortune. Unfortunately, the Kenney government is spending away what could be a generational opportunity.
First, some background.
Alberta’s provincial government is experiencing a windfall from resource revenue. According to Budget 2022 released in February, total nominal revenue from 2021/22 through 2023/24 will be $17.0 billion higher than projected in the 2021-22 Mid-year Fiscal Update released in November, excluding COVID-related revenue. Of that increase, total nominal resource revenue accounts for $9.4 billion (or 55.3 per cent).
When resource revenue is relatively high, the provincial government faces added pressure to increase spending. Indeed, excluding COVID-related measures, in Budget 2022 the Kenney government increased projected nominal program spending by $5.7 billion (over the three-year period) since the 2021 mid-year update.
Now, some of the increase in total program spending can be explained by the fact that the province expects higher rates of inflation and population growth. But just how much?
The chart below shows the change in program spending from the mid-year 2021 report to Budget 2022, highlighting the spending that can be attributed to higher expectations for inflation and population growth versus an actual increase in spending.
In 2021/22, all the higher program spending ($51 million) could be accounted for by the higher expected inflation and population growth. However, in 2022/23 and 2023/24, program spending increases go well beyond the level required to account for this. In 2022/23, $710 million could be accounted for by higher expected inflation and population growth, leaving an actual increase in program spending of roughly $1.8 billion. In 2023/24, $990 million could be accounted for by higher inflation and population growth, leaving an actual increase in program spending of roughly $2.4 billion.
Put differently, approximately $4.0 billion of the increase in program spending over the next three years is above and beyond anything linked to changes in expected inflation or population growth.
This has important implications, particularly as we move forward. Private-sector forecasts, current prices and forward markets for commodities indicate that Alberta’s revenue will likely be even higher than forecast in Budget 2022, which means an increased temptation for higher spending. Higher spending comes at the cost of pursuing other priorities. Indeed, the windfall—if not spent—will be an extraordinary opportunity to pay down debt, reduce taxes, or crucially, save for the day when resource revenues will inevitably decline in the future.
As additional resource revenues come in, the provincial government has a choice to make; continue to spend the windfall, or use it to pursue policies to benefit Albertans for the long-term.
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