Kenney government squanders opportunity to strengthen path to balanced budget

In its recent budget, the Alberta government projected it will collect more revenue over the next few years than originally forecasted in its first budget last year. That’s good news for a province trying to balance its budget.

But this good news was quickly offset by the government’s immediate decision to spend more money than it previously planned between now and 2022/23—squandering an opportunity to strengthen Alberta’s path to a balanced budget.

Crucially, this decision looks even riskier as falling oil prices and a weakening global economy raise big questions about whether those revenue increases will in fact materialize.

If they do materialize (and that’s a big if), the new forecast projects $1.76 billion more revenue than previously been expected over the four-year period. That revenue could have helped the government reach budget balance by 2022/23 and slow the pace of debt accumulation in the province.

Instead, the new 2020 budget calls for $1.75 billion in additional spending over the course of four years—almost exactly offsetting the forecasted revenue gains.

And while the Kenney government still forecasts spending reductions in the years ahead, the spending reduction plan in Budget 2020 is even more tepid than last year’s plan.

Specifically, last year’s budget planned to reduce nominal program spending (all spending excluding interest costs) by 1.6 per cent over four years, a relatively mild reduction compared to past successful reform budgets. The new 2020 budget, however, calls for even more tepid spending reductions, totalling 0.8 per cent over four years.

If the Kenney government decided not to increase spending above and beyond the 2019 plan and instead used the unexpected revenue increases to further reduce the provincial deficit over the next two years, it could have prevented some debt accumulation in the years ahead. The advantages of slowing the pace of debt accumulation are significant.

Alberta is racking up debt faster than any other province in Canada. The province lost its debt-free status in 2016/17 and since then net debt (all debt minus financial assets) has grown to a projected $43.6 billion in 2020/21—about $9,820 per Albertan.

Correspondingly, the cost of financing this debt continues to grow. In 2020/21, the government will spend about $2.5 billion on debt interest, diverting billions away from important programs such as health care, education or even tax relief.

Moreover, the extra money the government is now counting on may not in fact materialize, meaning the fiscal plan could quickly go off track. Alberta’s own finance minister acknowledged that broad economic conditions could erode revenue projections. Budget 2020 includes its own caution, recognizing that “Alberta relies heavily on revenues that are volatile and unpredictable.”

In the budget speech, Finance Minister Travis Toews seemingly acknowledged these risks, stating that “we are focused on what we can control.” But the government can control spending, and it chose to step back from its spending-reduction plan at the first sign of a potential boost in revenues.

An additional $1.76 billion in unplanned revenues could have increased the government’s chances of meeting its goal of budget balance by 2022/23 and slowed the pace of debt accumulation for Albertans. Instead, the government opted for more spending and increased the possibility of provincial finances getting off track.