Alberta’s reign as Canada’s fiscal leader is over—and Albertans will pay the price
As the Kenney government prepares to table its latest budget next week, Albertans should understand a cold reality. The province’s reign as a fiscal leader among the provinces is over. In 2020/21, the province’s net debt (total debt minus financial assets) will reach a projected $14,350 per Albertan, more than in neighbouring British Columbia and Saskatchewan. For a province that once enjoyed a distinct fiscal advantage as a low-debt jurisdiction, this is more bad news for Albertans.
A bit of background.
For many years, Alberta was Canada’s only “debt-free” province. But that position began to deteriorate in 2007/08 and the province officially lost its debt-free status in 2016/17. Overall, Alberta’s net financial position has deteriorated from a net asset position of $43.0 billion in 2007/08 (inflation-adjusted) to a projected net debt position of $63.5 billion in fiscal year 2020/21. Put differently, Alberta’s financial position has deteriorated by $106.5 billion since 2007/08.
Even still, while Alberta’s government finances were rapidly deteriorating thanks to spending growth, which routinely outpaced inflation and population growth, and persistent budget deficits, Alberta still owned the lowest debt burden of any province (per-person and as a share of the economy) as recently as January 2020, according to the most recent available estimates.
Again, that’s no longer the case.
First, let’s review government debt per person—an important measure because it demonstrates how much government debt (on average) each citizen is responsible to repay. Alberta is projected to experience the largest increase in per-person net debt of any province from 2007/08 to 2020/21.
Indeed, because the province carried more in total financial assets (in the Heritage Fund, for example) than it held in debt, Albertans were responsible for no net provincial government debt in 2007/08. Now, every Albertan carries a projected $14,350 in net debt—about $2,000 more per person than British Columbians and Saskatchewanians.
A second useful measure is the debt-to-GDP ratio, which helps compare government debt between different jurisdictions and evaluate the sustainability of government debt. Again, Alberta is projected to experience the largest percentage point increase in its debt-to-GDP ratio, from -13.4 per cent to 20.6 per cent—an increase of 34.0 percentage points from 2007/08 to 2020/21. As a result, the province will no longer own the lowest debt-to-GDP ratio among provinces.
Unfortunately, it doesn’t don’t end there. As federal taxpayers, Albertans are also responsible for a significant portion of Ottawa’s debt.
Therefore, to assess the true overall government debt burden, Albertans must look at both provincial debt and their share of federal debt. In fiscal year 2020/21, each Albertan holds approximately $45,974 in combined (federal and provincial) net debt. Alberta’s projected combined government net debt burden will surpass B.C.’s and Saskatchewan’s this fiscal year.
Finally, these declining fiscal indicators have real consequences for Albertans. Not that long ago, Albertans spent very little on government debt interest. This fiscal advantage saved Albertan taxpayers billions each year and made it easier to maintain low tax rates. As this advantage quickly comes to an end, Albertans will see more of their hard-earned tax dollars pay for interest on government debt rather than on government services (health care, for example).
Alberta has lost its position as Canada’s fiscal leader. If the province does not change course, the consequences for Albertans and their families will continue to grow.