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Alberta's 2012 Fiscal Time Bomb: A higher deficit and a steep decline in financial assets

Type: Research Studies
Date Published: August 1, 2012
Authors:
Research Topics:
Government Performance, Government Spending

In its February pre-election budget, Alberta relied on unrealistic economic assumptions, ignoring private sector forecasts that were more realistic than its own. It appears to have been overly optimistic about oil and gas forecasts, among others. As a consequence, Alberta’s provincial government is unlikely to hit its deficit forecast this year of $886 million—it will be higher—and the already substantial decline in Alberta’s net financial assets will continue unabated.

Alberta’s net financial assets have already dropped by 52% since 2008, mimicking a previous decline in Alberta’s financial condition that began in the mid-1980s and lasted until 1994. Given the province’s optimism on oil and gas prices—and its projections on estimates of growth for the economy, corporate prof its, and personal income that are significantly above those from private sector forecasters, the province’s deficit in 2012/13 is certain to be higher than expected. The result will be a further decline in Alberta’s net financial assets unless the province reforms and reduces its historically high per capita program spending. Clearly, Alberta’s politicians must acknowledge that the province is currently spending beyond its means. They must restrain and pare per capita program spending sooner rather than later.

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