Premier Danielle Smith warned on Tuesday that her government may fall into a budget deficit this fiscal year due largely to lower than expected oil prices. Unfortunately, the news comes as no surprise. It’s all part of the boom-and-bust resource revenue rollercoaster that successive Alberta governments have ridden for years.
This year’s projected budget surplus of $367 million was based on West Texas Intermediate oil prices averaging US$74.00 per barrel, but prices have been as low as US$67.00 in the past month. According to Finance Minister Nate Horner, maintaining a surplus will be difficult “if there isn’t an uplift in the overall forecast for oil.”
In other words, the rollercoaster must climb for Alberta to stay out of the red.
Again, we’ve seen this same movie for decades. During periods of high resource revenue, the government increases spending but does not commensurately reduce spending when resource revenue declines. As a result, the government eventually runs deficits and accumulates debt.
When the government increased spending during years of relatively high resource revenue in the late 1990s and early 2000s, for example, it paved the way for a nearly uninterrupted string of deficits from 2008/09 to 2020/21 when resource revenue declined. Those deficits, which produced $60.0 billion in provincial net debt by 2020/21, only ended when the government experienced a windfall in resource revenue in 2021/22.
Of course, when the government rides the rollercoaster into deficit and racks up debt, Albertans must pay for it. Over this 14-year period, Albertans went from paying $58 per person in provincial debt interest costs in 2008/09 to $596 in 2021/22.
To be fair, the Smith government has committed to restrain operating spending to inflation and population growth, but that’s not enough to avoid budget deficits if resource revenues decline.
So what’s the solution?
Simply put, a renewed Alberta Sustainability Fund (ASF). Originally introduced in 2003, the ASF worked like a rainy-day account, which set a stable specific amount of resource revenue each year that the government could spend, and saved the rest. The idea was simple; save excess resource revenue during good times to ensure a stable amount of resource revenue for the government’s budget during bad times.
Unfortunately, the ASF was based in statutory law, which meant its rules were easily changed and the government discarded the fund entirely in 2013. The Smith government should resurrect the ASF and make the rules for spending and saving resource revenue “constitutional,” which would make it much more difficult for the government to change the rules and raid the fund in the future.
It’s official. According to the Smith government, it may run a budget deficit this fiscal year. But this news should come as no surprise to Albertans. Without a mechanism to limit and stabilize resource revenue in the budget, Alberta will continue on the rollercoaster and Albertans will continue to pay.
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Smith government should finally deboard Alberta’s resource revenue rollercoaster
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Premier Danielle Smith warned on Tuesday that her government may fall into a budget deficit this fiscal year due largely to lower than expected oil prices. Unfortunately, the news comes as no surprise. It’s all part of the boom-and-bust resource revenue rollercoaster that successive Alberta governments have ridden for years.
This year’s projected budget surplus of $367 million was based on West Texas Intermediate oil prices averaging US$74.00 per barrel, but prices have been as low as US$67.00 in the past month. According to Finance Minister Nate Horner, maintaining a surplus will be difficult “if there isn’t an uplift in the overall forecast for oil.”
In other words, the rollercoaster must climb for Alberta to stay out of the red.
Again, we’ve seen this same movie for decades. During periods of high resource revenue, the government increases spending but does not commensurately reduce spending when resource revenue declines. As a result, the government eventually runs deficits and accumulates debt.
When the government increased spending during years of relatively high resource revenue in the late 1990s and early 2000s, for example, it paved the way for a nearly uninterrupted string of deficits from 2008/09 to 2020/21 when resource revenue declined. Those deficits, which produced $60.0 billion in provincial net debt by 2020/21, only ended when the government experienced a windfall in resource revenue in 2021/22.
Of course, when the government rides the rollercoaster into deficit and racks up debt, Albertans must pay for it. Over this 14-year period, Albertans went from paying $58 per person in provincial debt interest costs in 2008/09 to $596 in 2021/22.
To be fair, the Smith government has committed to restrain operating spending to inflation and population growth, but that’s not enough to avoid budget deficits if resource revenues decline.
So what’s the solution?
Simply put, a renewed Alberta Sustainability Fund (ASF). Originally introduced in 2003, the ASF worked like a rainy-day account, which set a stable specific amount of resource revenue each year that the government could spend, and saved the rest. The idea was simple; save excess resource revenue during good times to ensure a stable amount of resource revenue for the government’s budget during bad times.
Unfortunately, the ASF was based in statutory law, which meant its rules were easily changed and the government discarded the fund entirely in 2013. The Smith government should resurrect the ASF and make the rules for spending and saving resource revenue “constitutional,” which would make it much more difficult for the government to change the rules and raid the fund in the future.
It’s official. According to the Smith government, it may run a budget deficit this fiscal year. But this news should come as no surprise to Albertans. Without a mechanism to limit and stabilize resource revenue in the budget, Alberta will continue on the rollercoaster and Albertans will continue to pay.
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