Saskatchewan and Alberta—two vastly different fiscal paths
Earlier today, Premier Brad Wall’s government in Saskatchewan tabled its budget for 2017/18.
It was impossible not to immediately notice some obvious points of contrast between this document and the budget tabled by Premier Rachel Notley’s government in Alberta last week.
Both Alberta and Saskatchewan are energy-rich jurisdictions that have fallen on hard times in recent years when commodity prices fell. In addition to the broader economic pain in both provinces, both jurisdictions also face significant fiscal challenges, with large budget deficits and substantial debt accumulation.
And yet in their recent budgets, the two governments took very different approaches to dealing with the challenges they now face. One particularly important difference is that while Premier Notley’s government in Alberta has continued down the path of significant spending growth, Saskatchewan’s budget signals that their government is taking the need for spending restraint much more seriously.
Let’s consider Premier Notley’s budget first. The Alberta government forecasted that spending for the coming fiscal year (2017/18) will be up 11 per cent from 2015/16 levels. Given that Albertans across the province are tightening their belts, this 11 per cent hike over two years seems out of touch with economic reality. In the years ahead, spending is expected to continue to grow, albeit somewhat less briskly.
The government’s decision to plow forward with spending increases has had the predictable consequence of contributing to big deficits as far as the eye can see. That means more debt being placed on the shoulders of future generations of Albertans.
Saskatchewan’s recently released budget takes a different approach—in fact, it essentially calls for holding nominal spending flat for the remainder of its medium-term fiscal plan, which runs until 2020-21. The plan calls for small increases in some years, and small decreases in others, but essentially holds nominal spending flat. More precisely, spending is projected to grow by just 3.3 per cent in total between 2015/16 and 2020/21.
A couple caveats. Achieving a near nominal spending freeze for five years won’t be easy, given pressures from population growth and inflation. Achieving the goal will likely require significant restraint on public sector compensation (which has been announced) and program reform. And it would have been nice to see more detail in the budget, beyond the spending targets themselves, on exactly how those targets will be achieved. Lastly, natural resource revenue projections, especially in the out years, are optimistic and if they do not come to pass could cause additional problems.
With these caveats noted, Saskatchewan’s budget lays out a generally realistic quick path to balance and future generations in Saskatchewan will benefit from the reduced debt accumulation that will result.
Clearly this spending restraint in Saskatchewan, compared to the absence of such restraint in Alberta, is contributing to the very different bottom line outcomes in the two provinces. While Alberta expects big deficits throughout its fiscal plan, Saskatchewan is on track to eliminate the deficit quickly—the government forecasts it will cut its deficit in half next year, before eliminating it entirely in 2019/20.
Saskatchewan isn’t out of the fiscal woods yet, and hard work remains to convert its big picture medium-term fiscal plan into reality. Nevertheless, the budget released this week shows that Saskatchewan’s government understands that persistent deficits and ever-growing debt are problems that require a disciplined response on the spending side of the ledger.
This contrasts sharply with their neighbours in Alberta, who are set to see more spending growth and big deficits for many years to come.