Alberta’s race to fiscal basket case

Arecent analysis from the federal government compared the economic damage done to Ontario’s auto sector during the financial crisis to the damage done to Alberta’s energy sector during the recent stretch of low energy prices.

Comparing t hese t wo provinces is interesting, not only because they have both endured economic shocks in recent years, but also because Alberta’s government is currently choosing similar policies to the ones that have dampened economic growth in Ontario for years.

Specifically, like Ontario, Alberta is now running large, sustained budget deficits. In fact, a look at the numbers reveals Alberta is currently faring even worse than Ontario in the years following the financial crisis when it comes to controlling the size of annual budget deficits.

Let’s be clear: Ontario’s fiscal performance in the years during and after the recession was nothing short of disastrous, with the province consistently running large budget deficits and racking up debt at record speed. In fact, after adjusting for population and the size of provin- cial economies, Ontario piled up debt at a much faster rate than any other province between 2003 and 2015.

It’s therefore alarming that Alberta is now running deficits that are even larger than those run in Ontario during the very worst years of the “great recession.”

Consider Ontario’s worst fiscal year, 2009/10, when the provincial government ran a budget deficit of $19.3 billion. That amounts to approximately $1,481 per person. Ontario’s deficit in that year and in several others partly drove its rapid and economically damaging run-up in debt.

Now consider Alberta’s situation today. This year Alberta, which released its firstquarter fiscal update yesterday, is projected to run a budget deficit of $10.9 billion. That’s approximately half as large as Ontario’s largest deficit in nominal terms. That might not sound so bad, until you consider that Alberta’s population is only about onethird of Ontario’s. A simple adjustment for population tells the story. Alberta’s perperson budget deficit for 2016/ 17 is projected to be about $2,557 per person.

And if you make an adjustment for inflation, Alberta’s per- person deficit this year in 2009 dollars clocks in at about $ 2,290, which is still approximately 55 per cent larger than Ontario’s deficit in 2009/10.

The picture looks even bleaker if we take a slightly longer view and consider the fact that Alberta expects to make almost no progress in terms of deficit reduction next year, projecting another $ 10 billion deficit in 2017/18. By comparison, Ontario managed to reduce its deficit somewhat in the year following its largest budget deficit.

Once next year’s projection is factored into the equation, the inescapable reality becomes clear — Alberta is running even bigger deficits than Ontario did during the worst years of its ongoing debt binge. What’s more, the situation could become even worse than the government currently projects if the province fails to deliver promised and long overdue spending discipline in the years ahead.

Ontario is now widely (and correctly) seen as Canada’s fiscal “basket case” with its government persistently running deficits and ratcheting up debt levels to record highs. Ontario’s debt accumulation has very likely harmed the province’s economic growth prospects and has saddled current and future generations of taxpayers with increased debt- service payments. It’s therefore sobering to realize that Alberta’s budget deficits are even larger than those run in Ontario during that province’s worst years.

Hopefully, Alberta’s government will recognize the seriousness of its current pace of debt accumulation and work quickly to bring provincial expenditures in line with revenues so that chronic deficits and annual multi-billion dollar increases in overall debt do not become the norm, as they have in Ontario.

ALBERTA IS RUNNING BIGGER DEFICITS THAN ONTARIO DID IN THE WORST YEARS OF ITS DEBT BINGE.