Alberta taxpayers on the hook for growing government debt interest payments

The Government of Alberta is awash in red ink. The province has gone from being “debt free” in 2015 to $35 billion in debt at the end of the 2019 fiscal year. This year, that debt load will grow much larger because of the COVID recession, and the provincial government expects budget deficits for years to come.

Of course, some of the debt being accumulated today is reasonable and necessary. For instance, borrowing money to provide additional public health services during the pandemic. Still, when Alberta emerges from this recession, the fiscal challenges will be even more daunting than when the Kenney government took office.

So why should Albertans care about mounting government debt?

Here’s one key reason—because more debt means higher debt interest payments every year. Consider this. In 2008/09, the provincial government paid a negligible $208 million in debt interest. By 2018/19, that number had increased to more than $2 billion. Whereas debt interest payments were negligible until just a few years ago, debt interest now represents a substantial cost to the government—which really means it represents a substantial cost to Alberta taxpayers.

And higher debt interest costs also mean less money for other priorities such as tax relief, health care and education.

Unfortunately, current trends suggest this problem will get worse in the years ahead. According to the Kenney government’s 2020 budget, debt interest costs will continue to rise, to $3 billion by fiscal year 2022/23. And that was before the COVID recession blew an even bigger hole in Alberta’s budget. Consequently, in coming years the province’s debt interest costs will be considerably higher than the government forecasted in the budget.

On top of it all, Alberta’s credit rating was recently downgraded, which means it may become more expensive for Alberta to borrow money in the future.

Of course, if the government in Edmonton allows the rapid accumulation of debt to keep growing in the years ahead, it will likely create a significant burden for the next generation of Albertans who’ll be on the hook for interest payments on debt that the provincial government is racking up today.

Clearly, once the COVID pandemic subsides and recession is over, the Kenney government must work to reduce and eliminate the provincial deficit. But because the government will be forced to spend billions of dollars each year paying interest on government debt, achieving this goal will be that much more difficult. The longer the government waits to address Alberta’s fiscal challenges, the more debt and interest payments will pile up, making it harder still for the government to fix things. Meanwhile, Alberta taxpayers will foot the bill.