Al­berta has gone from fis­cal leader to a lag­gard

Debt ac­cu­mu­la­tion is ac­cel­er­at­ing,

Calgary Herald - - OPINION - write Ben Eisen and Charles Lam­mam Ben Eisen and Charles Lam­mam are co-au­thors of the Fraser In­sti­tute study Canada’s Past Fis­cal Lead­ers Are Now Fis­cal Lag­gards: An Anal­y­sis of 2017 Provin­cial Bud­gets, avail­able at www. fraserin­sti­tute.org.

What a dif­fer­ence a decade makes.

In 2007/08, Al­berta had a bal­anced bud­get and was the only prov­ince whose fi­nan­cial as­sets ex­ceeded its debts.

In fact, the prov­ince’s net fi­nan­cial po­si­tion (af­ter ad­just­ing for debt) stood at $35 bil­lion — a nest egg to ben­e­fit fu­ture gen­er­a­tions. At the time, but not with­out chal­lenges brew­ing, Al­berta en­joyed the strong­est pub­lic fi­nances in Canada.

Ten years later, things have changed dra­mat­i­cally. Thanks to rapid spend­ing growth by suc­ces­sive gov­ern­ments, and a long string of bud­get deficits (ex­ac­er­bated in re­cent years by the drop in oil prices), Al­berta has frit­tered away its $35 bil­lion, and at the end of this year, will carry $23 bil­lion in net debt.

This year alone, the bud­get deficit stands at more than $10 bil­lion, and with no end to deficits in sight, the debt will reach $45 bil­lion by 2019/20, ac­cord­ing to the gov­ern­ment’s lat­est bud­get.

That means in just 12 years, the prov­ince’s net fi­nan­cial po­si­tion will have de­te­ri­o­rated by a stag­ger­ing $80 bil­lion.

Al­berta’s pace of debt ac­cu­mu­la­tion to­day is far faster than any other prov­ince. In fact, Al­berta is ex­pected to be re­spon­si­ble for 43 per cent of all provin­cial debt ac­cu­mu­la­tion in Canada this year, de­spite be­ing home to ap­prox­i­mately 12 per cent of the coun­try’s pop­u­la­tion.

Yes, Al­berta cur­rently has a smaller gov­ern­ment debt bur­den than any other prov­ince, but that may not be true for long. At the cur­rent pace, Al­berta’s debt per per­son will ex­ceed Bri­tish Columbia’s within two years and sur­pass Saskatchewan in a year or two more.

And if Al­berta con­tin­ues to rack up debt at its cur­rent rate (al­most $3,000 per Al­ber­tan per year) it will catch up with Canada’s most in­debted prov­inces, such as On­tario and Que­bec, within a decade.

Clearly, Al­berta has gone from be­ing a fis­cal leader to a lag­gard.

Al­berta’s fall from fis­cal grace is sad, but not un­com­mon. Canadian his­tory is re­plete with ex­am­ples of once strong and fis­cally sound prov­inces stum­bling, and of for­mer fis­cal lag­gards con­trol­ling spend­ing and shrink­ing their debt bur­dens.

Con­sider Que­bec, with its his­tor­i­cal rep­u­ta­tion for poor fis­cal man­age­ment.

That’s start­ing to change as the prov­ince ex­pects a third straight bal­anced bud­get this year, with plans to com­pletely stop adding new debt.

As a re­sult, the prov­ince is shrink­ing its debt bur­den and in­tro­duc­ing mod­est tax re­lief (al­though Que­bec has much work to do to en­hance its tax com­pet­i­tive­ness).

Of course, Que­bec re­ceives equal­iza­tion pay­ments, while Al­berta does not. But this shouldn’t dis­tract from the fact that Que­bec has made hard choices to elim­i­nate chronic deficits and get its fis­cal house in or­der.

Put sim­ply, there’s no guar­an­tee that a prov­ince’s sound fi­nances to­day will re­main sound to­mor­row. Things can, and of­ten do, change quickly.

It’s an im­por­tant les­son for Al­berta. Over the past 20 years, many Al­ber­tans have grown used to their prov­ince hav­ing the sound­est fi­nances in Canada.

How­ever, that’s quickly chang­ing and, if cur­rent trends con­tinue, Al­berta may lose even more ground and so­lid­ify its du­bi­ous po­si­tion as one of Canada’s fis­cal lag­gards.

Yes, Al­berta cur­rently has a smaller gov­ern­ment debt bur­den than any other prov­ince, but that may not be true for long. At the cur­rent pace, Al­berta’s debt per per­son will ex­ceed Bri­tish Columbia’s within two years and sur­pass Saskatchewan in a year or two more.

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