Today’s Alberta budget represents a marked departure from recent fiscal policy in the province. Alberta governments of various stripes have run nearly uninterrupted deficits since 2008/09, and the province has gone from having $35 billion in net financial assets to over $37 billion in net debt—a roughly $70 billion deterioration in the province’s financial assets over the course of a decade.
After years of complacency, however, Thursday’s budget finally produced a serious plan to begin addressing Alberta’s fiscal challenges by actually reducing provincial government spending instead of simply hoping for oil revenues to bounce back and save the day.
The plan is not as ambitious as it could be. A faster path to deficit elimination (two to three years instead of four) would have reflected a recognition of Canadian history that faster plans have a much better track record of success. It also would have meant less new debt. What’s more, additional spending reductions would have created additional fiscal room for additional pro-growth tax reform beyond the steps that have already been made with respect to Corporate Income Taxes.
Nonetheless, if it’s fully implemented, the budget will have marked a major shift in Alberta provincial fiscal policy. Below are a few key takeaways from the budget, with a particular focus on comparing the new budget to the fiscal policy approach that has prevailed in recent years.
Finally, it should be noted that the plan laid out in today’s budget is modest compared to previous Canadian fiscal consolidations. While nominal spending reductions are a marked departure from recent Alberta history, these reductions pale in comparison to the approximately 20 per cent spending cut by the Klein government, and cuts by the Saskatchewan NDP and Chretien Liberals in the 1990s, which make Premier Kenney’s reductions look small.
Nevertheless, nominal spending will start going down instead of up, the plan for deficit reduction is no longer entirely dependent on oil revenue recovery, and the process of rapidly growing debt-to-GDP ratio is forecasted to end. Alberta’s 2019 budget is therefore a highly consequential one, and represents a major shift in provincial fiscal policy compared to the recent past.