CALL FOR NDP ‘ACTION’

Soaring deficit raises alarm

There’s no magic bullet to cure the province’s economic woes, according to Calgary-based economist Trevor Tombe, who says it will take long-term plans to fix Alberta’s “structural problems” and reduce a growing deficit.

In a report released by the University of Calgary’s School of Public Policy, Tombe shows how the province’s debt will continue to rise well past the NDP’s goal of balancing the books by 2030.

According to the projections, the province could see a deficit of almost $40 billion by 2040 unless there is “sustained action” from the government to tackle big problems.

But the first step to fixing a longterm problem is to recognize one exists — something politicians in any political camp have yet to do, Tombe said.

“Of course, politicians are going to like quick fixes,” Tombe said. “They’re going to like things that can be phrased in a very simple and sound bite kind of way. These challenges, though, are much bigger than that.”

The report ran long-term projections for Alberta’s spending and revenues from things such as resource royalties, federal transfer payments, property taxes, and health and education spending, among others.

He said fiscal issues — which include increased health-care costs for Alberta’s aging population (increasing to $6.5 billion annually by 2040) and the province’s reliance on declining oil revenues (which haven’t been this low since the 1940s) — will continue to increase provincial debt unless action is taken “sooner than later.”

“This is not a post-apocalyptic future by any stretch of the imagination, but that level of debt will require a significant level of the budget being allocated to interest costs … and it really does constrain the ability of a future government to respond to shocks in a more deliberate way,” he said.

The report showed Alberta continues to enjoy the lowest net debt to GDP ratio in Canada, at 8.7 per cent.

But Tombe said the province still needs to increase its GDP by roughly 2.7 per cent to end the deficit, suggesting there are a number of combined strategies to reach that goal.

Those options include cutting $1 of every $6 spent by the province or introducing sales taxes to equal 10 per cent — both solutions that could be “phased in gradually” to tackle “longer-term fiscal pressures,” increasing revenues while reducing the province’s reliance on oil royalties.

“They’re very real pressures — they’re not going to go away — but we can be a little more deliberate if we act sooner rather than later,” he said.

Speaking on Tuesday, Premier Rachel Notley scoffed at the report’s debtreduction suggestions, saying increasing taxes would be “devastating for economic growth,” while cutting spending could cause “massive damage to our economy.”

But Tombe said increasing sales taxes to Saskatchewan’s 11 per cent would simply erase the deficit, as would dialing back spending to levels seen in B.C., Ontario and Quebec.

If revenues and spending continue on their current trajectory, Tombe said the province’s net debt levels will be “approaching 50 per cent” by 2040.

Independent credit rating agency DBRS released its Canadian Provincial Government Outlook report on Tuesday.

The agency said the inability to solve Alberta’s debt issues are due to “the NDP-led government” and its inability to “demonstrate meaningful action to address its fiscal imbalances.”

DBRS maintained its negative rating of Alberta, saying inaction from the NDP continues to “erode” Alberta’s “low debt advantage.”

While other provinces — such as Ontario, Quebec and Newfoundland — have seen comparable net debts, Tombe said taking action now will avoid the province having to make tough economic decisions “at a time that isn’t your choosing.”

“That’s what’s happening to Newfoundland, where they had a very high level of debt, oil prices fall (and) affects their budget in a very similar way to what it does Alberta,” he said.

“But they’re really heavily constrained and are forced to take much larger and much more immediate action than Alberta needs to.”

Tombe said the province needs to engage with Albertans openly and honestly about future debt issues.

He suggested the province take advice from the auditor general’s recent report, which called for “better analysis, monitoring and reporting” within the government, and should also take cues from the federal government’s Parliamentary Budget Office to educate Albertans on the province’s revenue and spending options.

“It’s certainly a tough public relations challenge, but what we do in this report … (is) define the scope of the problem, show that action is required today, and the action that we need in the future gets larger the longer we wait,” he said.