Four reasons why Alberta’s vague balance budget plan may fall short
Last month, when Finance Minister Joe Ceci unveiled Alberta’s 2018 budget, despite weeks stoking expectations of a detailed plan to eliminate the province’s budget deficit, he instead delivered a risky plan almost entirely reliant on growing natural resource revenue—which may or may not materialize.
What’s more, the plan is extremely vague and provides few details of what the budget will look like beyond 2020/21, at which point the deficit is still expected to be almost as large as it is today, at just under $7 billion.
Even if the Notley government’s shaky balanced budget timeline pans out, Alberta will still pile up tens of billions of dollars in new debt (and the subsequent debt interest payments, paid for by taxpayers). But the government could easily fall short of its unambitious target to balance the budget in 2023/24, which would lead to more debt in the future.
There are four major risks to this government’s timeline.
First, it plans to backload deficit-reduction efforts. In fact, over the next three years (from 2018/19 to 2020/21) the government plans almost no deficit-reduction at all, with the budget balance staying in the red by just under $7 billion. But then, in subsequent years (without showing how, via a detailed plan) the government forecasts the deficit will start shrinking at a pace of $2.3 billion per year, finally achieving balance in 2023/24. Again, the government fails to present a compelling case for delaying any effort at deficit-reduction for three years.
Upon what does the government base its projection of deficit-reduction in those years? The answer to this question relates to the second risk in the government’s plan. Simply put, the government hopes that natural resource revenue will grow and do the work of taming the deficit—projecting that non-renewable resource revenues will more than double between 2020/21 and 2023/24 to $10.4 billion.
Of course, there’s no guarantee a strong resource revenue rebound will in fact occur. And if it doesn’t, the government’s fiscal plan will be derailed. The government claims to want to get off the natural resource revenue roller coaster, but it’s clear it’s buying another ticket for the ride. In addition to the whim of global commodity prices, which are beyond the government’s control, there’s the added risk that needed pipeline infrastructure won’t get built.
Third, the government will actually have to meet its program spending targets. This will be particularly challenging for fiscal years 2018/19 to 2020/21, where the government projects average annual program spending growth to be 1.4 per cent—well below the 7.8 per cent growth in 2016/17 and 4.9 per cent in 2017/18. Unfortunately, its track record at meeting its own targets thus far isn’t great. The Notley government overshot its budgeted spending levels by $2 billion in 2016/17 and $1 billion in 2017/18. To be sure, things come up that can necessitate higher spending in certain areas (natural disasters, for example). But there’s no reason to expect that risks don’t exist, which could further challenge the government’s ability to meet its own spending targets.
Finally, the government’s plan could be upset by another global recession. Periodic recessions happen, and the last major global recession occurred in 2008/09. Can we go five more years without another major recession? Possibly. But with geopolitical tensions, potential trade wars, and the fact that global economic cycles eventually contract, it’s far from a sure thing.
Clearly, the government’s 2023/24 budget balance timeline is weak and unambitious, and guarantees Alberta will rack up tens of billions in debt between now and then. However, for the reasons outlined above, there are reasons to believe the government in Edmonton won’t achieve even this modest goal, which could mean an even more rapid escalation in provincial debt.
The prudent choice would have been to recognize the root of Alberta’s fiscal problems, which are found on the spending side of the ledger, and take action to reform and reduce provincial expenditures. Instead we’re going to take another ride on the resource revenue roller coaster, with all the attendant risks. Hold on tight!
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