Fraser Forum

Alberta private sector improving but government finances remain in bad shape

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Dave Mowat, president of ATB Financial, said recently that Alberta’s economy was “turning the corner” after a difficult year in 2016. His comment came as the Crown Corporation released its financial results for the past fiscal year.

Mowat’s suggestion was also corroborated by a recent announcement from the Conference Board of Canada, which projected stronger than expected economic growth for the province this year. It forecasts a GDP growth of 3.3 per cent for Alberta in 2017, up from their previous estimate of 2.8 per cent.

It’s great news that Alberta’s economy has ticked back up, but a number of recent policy developments in the province represent a threat to the kind of robust, sustained long-term economic growth that can restore Alberta as an economic powerhouse and consistent driver of economic growth within Canada. A wave of tax increases have undermined provincial competitiveness while new regulations have increased costs for many businesses, making it harder for them to survive and grow.

What’s more, Alberta’s public finances are still in bad shape. Although the province has climbed out of a recession, when it comes to the condition of the government’s books, we are not seeing similar progress. Yet another credit downgrade last week underscored the fact that when it comes to the health of our provincial government’s finances, Alberta is still far from out of the woods. This represents another major threat to sustained economic growth, as the province’s growing debt could contribute to policy uncertainty and discourage investors concerned about the prospect of future additional tax increases.

For the Alberta to be able to truly begin a new chapter in its economic history and establish the conditions for a sustained and robust recovery, it needs to address its public finance problems.

In recent years, unrestrained program spending and the drop in oil prices have led to a slew of deficits and a dramatic run up in the government debt. The 2017/18 budget presented last month will see the province run a $10.3 billion deficit this year, it’s ninth in the last 10 years. Additional big deficits of $9.7 billion and $7.2 billion are projected for the next two years. For a little bit of context, this run of deficits is substantially larger in per-capita terms and relative to the size of the provincial economies than the big budget deficits run by Ontario during its very worst years following the 2008/09 financial crisis.

This string of deficits will saddle the province with a heavy load of new debt that needs to be serviced by Albertan taxpayers. Last year, the government paid more than $1 billion in interest on the provincial debt. And with the continued borrowing scheduled for the next few years, that figure is set to more than double by 2019/20. Rising debt interest payments have real costs for Albertans—as they consume government funds that could otherwise be put toward priorities such as health care, education, or tax relief.

If the government wants to improve Alberta’s economic woes across the board, it needs to tackle the province’s consistent deficits and ballooning debts. While we should celebrate the fact that there are some economic green shoots, it should not distract us from the fact that the province’s finances are still in bad shape and continue to deteriorate over time. 


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