Painful decade for Alberta finances finally over

As we begin the 2020s, let’s hope it’s a better decade for Alberta government finances, which took a beating over the last 10 years. Here’s a quick recap.

The province entered the decade in an enviable position, with $27.3 billion in net financial assets (that is, the government’s financial assets exceeded its debts). And yet, despite an energy boom during the first half of the decade, the provincial government only once balanced the budget—while blowing through billions of dollars in non-renewable resource revenue annually.

Consequently, the province closed out the decade with an estimated $36.6 billion in net debt at the end of the 2019/20 fiscal year—a roughly $64 billion decline in the province’s financial assets. That’s an alarming reversal of fortunes.

So what happened?

Simply put, government program spending consistently outpaced the combined rate of inflation-plus-population growth. In fact, between 2004/05 (when per-person spending had returned to pre-Klein levels) and 2014/15 (the end of the energy boom), program spending increased at roughly twice the rate required to account for inflation and population growth. While the Notley government had an opportunity to take decisive fiscal action, it instead passed off multi-billion-dollar deficits to the new government.

The province’s long string of deficits—again, 11 in 12 years—contributed to the growth of debt already burdening Albertans and putting further strain on the government’s budget. Consider this. In 2009/10, it cost about $200 million to service the province’s debt. Since then, debt-interest costs have increased roughly tenfold and continue to rise. That’s money that could be spent on important services or tax relief rather than paying debt interest.

In the dying days of the decade, the Kenney government presented a fiscal plan, which calls for moderate spending reductions over the next four years in an effort to finally balance the books. However, given the challenges facing the province and the damage that’s already been done, even full implementation of the government’s fiscal plan will only be a first step in cleaning up the fiscal mess.

Again, consider this. The provincial deficit for 2019/20 is expected to come in at $8.7 billion, and the government intends to run deficits until 2022/23. The government’s fiscal plan relies on non-renewable resource revenue to climb by $2 billion annually to balance the budget. If that happens, Alberta’s government finances will still be badly damaged, with the idea of no net government debt (not to mention the ability to make regular contributions to the Heritage Fund) still way out of reach.

Why? Because despite heated rhetoric from critics, the spending reductions in the government’s first budget are tepid compared to reductions enacted by other governments in Canadian history, which also grappled with big deficits. Nominal program spending will only decrease by 1.6 per cent between 2019/20 and 2022/23. To be sure, that won’t be easy. With a growing population and inflation, the real per capita decrease will be larger than the sticker price. But it will be nowhere near the 9.7 per cent nominal reduction in program spending at the federal level by the Chretien Liberals in the mid-1990s, let along the 21.6 per cent reduction by the Klein government.

Alberta’s government finances had a terrible decade. If the Kenney government fails to remain committed to fiscal restraint, finances could further deteriorate in the 2020s. While the fiscal blueprint is a starting point, much work remains to be done to repair the province’s books.