Alberta’s 2017 budget—a decade of fiscal deterioration with no end in sight
Ten years ago, Alberta’s finances were in good shape. What a difference a decade makes.
Despite high oil prices in many years since 2007/08, the province has run a nearly uninterrupted string of deficits ever since primarily due to rapid increases in government spending, with the result being a remarkably rapid deterioration in provincial finances.
Starting in 2016/17, Alberta fell into a net debt position with total government debt exceeding financial assets, for the first time since 2000/01.
Today’s budget shows that the fiscal deterioration is continuing. In fact, for the coming fiscal year the Notley government expects another budget deficit totalling $10.3 billion. After factoring the additional debt acquired through capital spending (which doesn’t show up in the budget deficit), Alberta’s single-year increase in net debt is forecasted to be $13.6 billion.
And the budget projects further deficits over the fiscal plan with no end in sight. Indeed, there’s no balanced budget planned.
The speed at which Alberta’s finances are deteriorating is nothing short of alarming. By 2019/20, Alberta’s net debt will reach $45 billion or $10,000 for every man, woman and child.
Of course, the burden of servicing all of this debt will fall on the shoulders of future generations of Albertans. Going forward, interest payments on the debt will reach $2.3 billion by 2019/20, more than double the level in 2016/17.
This added burden on the next generation could have been avoided had the Notley government made the tough decisions. Instead, it decided to increase spending over the next three years.
Meanwhile, revenues are projected to grow robustly in coming years (6.5 per cent annually), partly due to major increases in non-renewable resource revenues and the government’s new carbon tax. In fact, by 2019/20, the government expects revenues to surpass the peak in 2014/15.
This means Alberta’s deepening fiscal hole is partially self-inflicted.
If the government had recognized the severity of the fiscal situation and held spending at the same level it inherited in 2015/16, the deficit for the coming year would be half of what is in fact the case, and Alberta would be on track to achieve balance potentially within a few years.
While the Notley government can’t be blamed for the decisions of its predecessors, the fact remains that its rapid spending growth over the past two years has made a very tough situation even worse.
And spending will continue to increase in the years ahead, with the consequence being future deficits as far as the eye can see.
The story of the past decade has been one of fiscal deterioration in Alberta. Sadly, the path laid down in today’s budget leads to another decade with similar outcomes. Unless the province changes course, the result will be an ever-growing debt burden placed on the next generation of Albertans, who will be paying the price for the fiscal choices this government is making for years and perhaps decades to come.