Alberta’s net financial position has deteriorated by $68 billion in 11 years
Alberta Finance Minister Joe Ceci (pictured above) recently claimed that the provincial government will maintain its spending trajectory, regardless of whether the province suffers another credit downgrade.
With the province having already seen its credit rating downgraded, and with big budget deficits projected for the rest of this government’s fiscal plan, it’s not clear what evidence could possibly convince the Minister Ceci to realize the current strategy is not working and to change course.
Unfortunately the government’s failure to acknowledge Alberta’s fiscal problems and develop a credible strategy for addressing them quickly could have a devastating impact on the province’s finances going forward.
The numbers tell the story. Heading into 2008/09, Alberta’s provincial government had $35 billion in net financial assets. That means the province’s financial assets exceeded its debts by $35 billion. That year ended up being the first of a nearly unbroken string of deficits, which still has no clear end in sight.
Despite these big deficits, multiple successive governments continued to ratchet up spending. While much of the blame lies at the feet of some of his predecessors, Minister Ceci’s latest budget projects that program spending will be 11 per cent higher this year than when the Notley government took power in 2015/16. This made a bad fiscal situation even worse and increased the deficit further.
All of these budget deficits have eaten away the $35 billion in net assets the province had going into 2008/09, and are now driving a significant run-up in debt. In fact, by the end of the 2018/19 fiscal year, the province expects to have a net debt burden of $33 billion. This means that over just 11 years, the province’s net financial position will have deteriorated by a stunning $68 billion.
This run-up in debt will mean lots of taxpayer money will be spent paying interest on that debt. Consider that by 2018/19, the cost of servicing Alberta’s provincial debt (paying the interest, not the principle) will roughly double to $2 billion. As the province adds more debt, that cost will increase—especially if the province suffers further credit downgrades that would increase future borrowing costs.
Minister Ceci should take a step back and recognize that the province faces significant fiscal challenges, and recognize the role increased program spending plays in driving up provincial deficits and debt accumulation.
Credit agencies are watching, and if he isn’t going to listen to their concerns, the province’s problems could spiral out of control. Minister Ceci and his government should recognize these facts and change course, rather than waiting and hoping that the budget is balanced sometime in the future.
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