Paying down debt matters
There’s an Alberta bumper sticker that reads: “Please God, let there be another oil boom. I promise not to piss it all away this time.” Forgive the salty language, but the seasoning makes that nugget of wisdom memorable.
Alberta’s recent credit upgrade signals the province is back on track towards a time when the premier can hold a “paid-in-full” sign in the air again. Good budgeting and taxpayer protections can ensure we get back to black and not repeat the sins of the past.
The investment agency Moody’s upgraded Alberta’s credit rating from AA3 to AA2. Credit upgrades are important because they influence how much money the government has to spent on debt interest charges. The better the credit score, the less money interest charges are likely to cost.
The interest on the government credit card will cost Albertans about $2.6 billion this year. That’s about $565 per Albertan. And that money can’t be used to hire more nurses or lower taxes because it’s going to the bond fund managers on Bay Street.
Surging resource prices are helping to increase government revenues. But the credit upgrade isn’t all due to an act of God. The government is making good decisions. Moody’s gave the Alberta government a good report for three main reasons: low taxes, debt repayment and saving for the future.
“It’s (Alberta’s) tax regime remains highly competitive relative to most provincial peers given a lack of sales tax and favourable corporate and personal income tax rates,” the announcement reads.
Not having a provincial sales tax is part of our Alberta Advantage and it’s why the Taxpayer Protection Act exists – to make sure no government can impose a PST without a referendum. Albertans saved about $188 million during the holiday season because we didn’t have to pay a PST.
Paying down the debt also matters.
“The province is looking to prioritize repaying maturing debt obligations from its surpluses and cash position,” Moody’s announcement reads.
Finance Minister Travis Toews is projected to pay down $13.4 billion of debt this year, which would be the largest debt repayment in the province’s history. The government also committed to allocate another $10.8 billionover the next three years towards savings and debt reduction.
Saving money for the future is important. “Moody’s projects continued growth in the (Heritage) fund from anticipated surpluses and from retaining returns within the fund for inflation protection,” reads the announcement.
Right now there is about $17.9 billion in the Alberta Heritage Savings Trust Fund. The savings fund has been hovering between the $14 billion to $17 billion mark for more than a decade.
It’s long past time for the Alberta government to increase the province’s savings. Work done by the Fraser Institute shows if Alberta had mirrored Norway’s heritage fund management strategy, we would have about $170 billion stashed right now.
Moody’s also provides a warning for the future. It warned that Alberta’s credit rating could be downgraded if there’s “a return to material consolidated deficits and result in a trajectory of materially increasing debt burden.”
To translate that for anyone without a PhD in finance: don’t piss it away again.
Alberta seems to be kicking its deficit habit. That means now is a good time to put in safeguards against out-of-control spending.
The Klein government relied on balanced budget legislation in the 90s to climb out of the hole. This would require the government to balance the budget and if it goes into deficit, the premier and cabinet ministers would get a pay cut.
The budget will be delivered at the end of February. The Moody’s report is a timely reminder that fiscal discipline and smart decisions matter, and the government can’t rest on its laurels if Albertans are going to see that “paid in full” sign again.