Notley misdiagnoses Alberta’s fiscal problems and offers no workable solutions
A clear takeaway from Alberta Premier Rachel Notley’s recent state of the province address is that virtually all of Alberta’s fiscal woes can be blamed on depressed oil prices.
The reality is different.
While there’s no doubt that the decline in revenue resulting from the collapse in oil prices presents a challenge for provincial finances, a key reason for Alberta’s current fiscal predicament is that successive provincial governments have poorly controlled the growth in spending.
Indeed, for more than a decade the province has been rapidly increasing program spending as if the boom would never end. Had the provincial government been more prudent, increasing program spending since 2004/05 to simply offset the cost pressures resulting from inflation and a growing population, Alberta would be in a dramatically better fiscal position today.
By blaming this year’s projected deficit of $10.4 billion and further deficits through to 2024 on oil prices, Notley misdiagnoses the problem. She also overlooks the important fact that the province has run deficits in recent years even as the price of oil hovered around $100 per barrel. The narrative about oil prices being the culprit is a convenient scapegoat but unhelpful for addressing the real problems facing the province.
Equally concerning is that Notley’s address confirms that her government is unwilling to make the difficult choices to get Alberta on more sound fiscal and economic footing. She basically rules out the possibility of spending reductions, which are a key part of the solution since spending in Alberta is currently at an unaffordable level. More prudent spending during the boom would have allowed the province to cushion the effect when oil prices fell and the boom went bust.
What’s needed now is a significant rethink on how much the government spends and how it delivers its programs. Inaction risks further erosion of Alberta’s financial position as debt continues to grow.
But Notley’s plan to fix Alberta’s fiscal woes is instead to hope for stronger economic growth and a more diversified economy. The problem is that the provincial government is enacting policies that work against these ends.
Attracting investment in the resource sector—or any sector for that matter—requires a competitive economic environment, including competitive tax rates and sound public finances. Unfortunately, the Notley government has reduced the province’s tax competitiveness, moving from a single 10 per cent personal income tax rate to a five-bracket system with a top rate of 15 per cent, increasing the corporate income tax rate by 20 per cent, and introducing a carbon levy. These tax changes, along with other policies such as significant minimum wage hikes, have struck a major blow to the province’s business climate, and at the worse time as the energy sector deals with external shocks.
Not tackling spending, while allowing debt to grow and making the economic environment less competitive simply won’t solve Alberta’s fiscal problems.
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