Fraser Forum

Balance Alberta’s budget sooner—limit growth of debt interest costs

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Balance Alberta’s budget sooner—limit growth of debt interest costs

The Government of Alberta has run nearly uninterrupted deficits since 2008/09, through good economic times and bad. These deficits have taken a serious toll on Alberta’s once strong public finances. Before this string of deficits, the province was in the unique position in Canada of having a surplus of financial assets. While most provincial governments have billions of dollars of net debt, Alberta had $35 billion in net financial assets as of 2007/08. As a result, the cost of servicing Alberta’s debt was miniscule.

Sadly, that’s no longer the case.

Just how light was the debt-interest burden back then? While per-person debt service payments in several provinces were exceeding $1,000 per person, debt-service per person in Alberta cost just $58 as recently as 2008/09. The chart below illustrates the dramatic shift.

As of May 2018 (when the data above was collected), annual debt-servicing costs had risen to $442 per person. And costs are projected to keep growing. In fact, one recent study showed that the per-person cost of debt servicing in Alberta was expected to hit $655 by 2020/21.

These statistics underscore the risks of balancing the budget slowly over time instead of taking decisive action to slow the deficit quickly. The longer Alberta runs deficits (assuming the rate of capital debt accumulation is the same), the more debt it will rack up and the more debt-service payments will rise.

Alberta still has time to right the ship, but a great deal of damage has already been done. If current forecasts come to pass, Alberta’s debt-servicing costs will exceed British Columbia’s and possibly even Saskatchewan’s in the early years of the 2020s. What’s more, current forecasts show per-person debt-service costs rising to roughly half of Quebec’s in less than five years. That would have been hard to fathom a decade ago.

There are many advantages associated with moving to a balanced budget quickly rather than slowly including faster deficit-elimination, which will slow the growth rate of debt-service payments. This would, in turn, free up more resources for other priorities such as tax relief and public services.

As the Kenney government prepares to table its first budget, a lot of work must be done to repair Alberta’s finances. The sooner, the better.

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