Alberta’s government debt interest costs continue to soar
When the Kenney government last month tabled its budget for 2021/22, much attention focused on Alberta’s $18.2 billion deficit. But the budget also confirmed that government debt interest payments, which have already been rising over the past decade, are set to soar in the years ahead.
First, a quick review to illustrate how quickly this problem has escalated. In 2010, Alberta had no net government debt. In other words, while the province did carry a small amount of debt on its books, its financial assets were greater than its liabilities. As a result, debt interest payments were minimal—$472 million or just 1.2 per cent of all revenue that year.
The next decade brought a string of almost uninterrupted (and in many cases very large) budget deficits. As a result, in 2019, Alberta’s government debt interest costs had climbed to $2.2 billion, eating up 4.8 per cent of government revenue.
Then the pandemic hit and government debt soared again—alongside debt interest payments. According to Kenney government forecasts, this fiscal year (2021/22) debt interest payments will total $2.8 billion and consume 6.3 per cent of all government revenue. Clearly, while debt interest payments have been on the rise for some time, the pace of growth has accelerated dramatically. In fact, according to budget forecasts, debt interest payments will reach $3.3 billion by 2023/24. And between fiscal years 2020/21 and 2023/24, debt interest costs will climb by more than 40 per cent.
This is a worrying trend, to say the least. In just over a decade, Alberta’s annual debt interest payments have gone from negligible to significant, taking a big bite out of the provincial budget, leaving less money available for other priorities such health care, education and pro-growth tax relief.
Higher debt interest costs will also make life harder for future governments. According to Kenney government forecasts, the province will still have a budget deficit of $8.0 billion in 2023/24. (Again, debt interest payments that year will total $3.3 billion.) As debt interest payments rise, it will be harder and harder for future finance ministers to balance the books.
Ten years ago, almost none of Alberta’s annual provincial government revenue went to debt interest. Over the course of one decade, much has changed and the situation is set to get much worse as annual debt interest payments are on track to rise by 40 per cent between fiscal years 2020/21 and 2023/24. As long as this trend persists, the cost of government debt to taxpayers will continue to climb and the goal of a balanced budget will become harder and harder to achieve.