Alberta faces long climb back to AAA credit rating
Government advised to review programs and workforce — and consider sales tax
Alberta once stood atop the AAA credit-rating mountain, but today the province’s borrowing position is a few steps removed from that lofty summit.
In 2016, as oil prices stayed low and the province charted a $10.8-billion deficit, ratings agencies gave Alberta’s outlook a thumbs down and dropped its credit rating to a AA+ or AA from that once-shining AAA.
That makes it more expensive to borrow cash — an issue opposition MLAs are sure to raise in question period with the legislature back in session today and a new provincial budget to be introduced on March 16.
Economists says there can be no return to AAA status unless the government leaps off its fiscal toboggan and takes concrete measures to rein in spending.
Bob Ascah, fellow at the University of Alberta’s Institute for Public Economics, envisages a three-pronged attack before the province can begin to win back its AAA rating.
First, he proposes bringing in an outside consultant to review every government program, looking at those that are nice to have but not strictly necessary.
Next, exercise some tough love in public sector contract negotiations.
And then have the government take a long, hard look at those three dirty words in Alberta — a provincial sales tax.
Finance Minister Joe Ceci is adamant the province is on its way back up, often referencing the economy’s “green shoots.”
With January unemployment edging to 8.8 per cent from 8.5 per cent, Ceci admits hiring numbers aren’t reflecting that growth, but says forecasts point to oil prices plodding their way back to something resembling not horrible and the economy regaining some steam.
AWAY FROM OIL
The province speaks often of diversification, and Ascah argues it’s imperative to put fewer of Alberta’s economic eggs in the non-renewable resource basket.
Too often, he says, Albertan governments have missed opportunities to improve the fiscal picture in good times, and reacted poorly to the bad.
Take the relative prosperity of the early 1920s.
The United Farmers of Alberta administration didn’t raise taxes when it could have, and a calamitous crash in grain prices played a role in the province defaulting on its debts in 1936.
“It’s the same thing now, with a different commodity,” Ascah says, referring to oil.
“This is why it’s so tragic to see a new government really struggling to figure out what to do with the legacy that’s been left to them, which ... is the high level of government spending and this aversion to raising taxes.”
University of Calgary economist Trevor Tombe is more optimistic, pointing to a recent shrinking of the gap between Alberta’s borrowing rate and British Columbia’s, even without a credit upgrade.
“The perceived riskiness of Alberta government debt has fallen, therefore our cost to borrow has fallen as well,” he says.
“The concern (ratings agencies) express is, ‘Where do we go from here? What’s the credible path out of deficit?’ ”
Ceci says his focus is on making sure government is as effective as possible and continues offering services Albertans need, “and then other things will take care of themselves.”
Wildrose finance critic Derek Fildebrandt wants Alberta to be back on the AAA mountain, but says the government has shown “zero inclination for fiscal correction” and missed the chance to curb spending when it won power two years ago.
Fildebrandt says alternate fiscal plans from the opposition are on their way.