Uncontrolled spending driving Alberta government towards net debt position
According to Alberta’s recently released annual report, the province’s operating deficit for the year was $6.4 billion—about $300 million more than projected by the Notley government in its October budget.
Factor in capital spending (roads, bridges, etc.), and the province’s overall net financial assets (that’s all the government’s financial assets minus its debts) deteriorated by $9.2 billion last year alone, leaving the province with just $3.9 billion in net financial assets at year end. Since the provincial government is still spending much more than it takes in, it‘s now just a few months away from entering a net debt position for the first time since 2000/01.
Of course, the government and a number of news reports blame depressed commodity prices, but this narrative ignores the fact that the 2015/16 deficit (and the six additional deficits the province ran in the previous seven years) could have been avoided if successive governments had not increased spending at such rapid rates over the past decade.
Consider that between 2004/05 and 2015/16 program spending more than doubled from $24 billion to $49 billion. Had the provincial government merely increased program spending to keep pace with population growth and inflation, it would have spent roughly $10 billion less in 2015/16. With the provincial government taking in $42.5 billion in revenue, that would have meant an operating surplus—not a deficit.
In short, spending choices are primarily responsible for last week’s grim annual report—not low oil prices.
Misdiagnosing the cause of Alberta’s fiscal problems can be dangerous, as it may distract from the solutions. In fact, the misguided belief that Alberta’s fiscal problems stem from inadequate revenues has already led to growth-inhibiting tax increases and calls for further tax hikes. These actions focus on the wrong side of the ledger. The government must reform and reduce provincial spending.
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