A HISTORY OF ALBERTA'S DEBT
The rise and fall and rise again
When a cowboy hat-wearing Ralph Klein took to the steps of Mcdougall Centre on July 12, 2004, to declare the eradication of Alberta's debt, he likely didn't imagine the record-setting figures revealed in Thursday's budget by Jason Kenney's UCP government.
Hoisting an infamous “Paid in Full” sign above his head to symbolize the $3.7 billion in debt that had been paid off ahead of schedule, then-premier Klein vowed “never again will this government or the people of this province have to set aside another tax dollar on debt.”
Fast-forward 17 years and taxpayer-supported debt is expected to reach $98 billion in the 2020-21 fiscal year. That figure will climb to $115.8 billion by the end of 202122, according to forecasts in this week's budget, which projected debt servicing costs on taxpayer-supported debt to be $2.3 billion this year.
The question of how Alberta got here, ever since that fateful declaration one Calgary Stampede, takes on many possible yet simple explanations, according to economists and political watchers.
“It's not too hard to figure these things out,” said economist Ron Kneebone of the University of Calgary's School of Public Policy.
“(Former premier Jim) Prentice said, `We've got to look in the mirror.' He got tossed for it. But he was absolutely right because he said, `You guys keep electing us for spending all this money.'”
After he was first elected premier in 1992, Klein made good on his campaign commitment to cut government spending by upwards of 30 per cent — “and he did it really, really fast, too,” Kneebone recalled. The province reached a moment where it managed to balance the budget despite sinking oil and gas revenues.
“In some ways, we were no longer dependent upon oil and gas royalties to balance the budget,” he said. “And then the worst thing that could possibly happen happens — oil and gas royalties came back.”
The government faced a conundrum. It could either “spend like drunken sailors” or save those revenues.
The latter option would also mean raising taxes if new spending was later needed. Had it chosen to do so, the government “would have maintained a budget balance and they would have grown the Heritage Fund by leaps and bounds,” according to Kneebone.
“But they didn't. They continued to behave as they had always behaved,” he said.
“The government did not have the strength of character. Not only that, taxpayers rewarded them for it.”
Mount Royal University political scientist David Taras highlighted two “fundamental decisions” over the years that have inevitably led to skyrocketing debt in Alberta.
He said “all of Alberta's history could have been different” had former premier Don Getty not decided to drain Heritage Fund savings into general revenues.
“We could have had the levers that the province needed to diversify the economy and we chose not to,” Taras said.
He also pointed to the overarching elephant in the room, which lingers to this day. Alberta remains the only province without a provincial sales tax and it's led to an over-dependency on oil and gas revenues — a gamble that has especially hurt the province since the mid-2010s.
Klein's declaration of victory over debt came “at the expense of other kinds of debt,” according to Taras.
“Financial debt disappeared but other kinds of debt skyrocketed.
“The province was behind in terms of human infrastructure and spending on schools and hospitals because its population was burgeoning. He did it at the expense of neglecting things that needed to be taken care of.”
Debt figures released Thursday equate to more than $600 per Albertan, according to the Canadian Taxpayers Federation.
The organization, through its online debt clock calculator, projects Alberta's debt to continue increasing at a rate of $740 per second.
Finance Minister Travis Toews cited economic challenges associated with the COVID -19 pandemic, which have forced the government to “adjust,” when asked about the pace of the UCP'S commitment to rein in spending.
“I am also very disappointed that we can't present a balanced budget in our first term, but simply put, with the drastic drop in Alberta government revenues as a result of this pandemic and economic collapse, we simply can't do that,” he said.
“Our debt will be rising over the course of this fiscal plan, but we're pledging to keep our net debtto-gdp ratio below 30 per cent. Thirty per cent is approximately the national provincial average PRE-COVID.”
U of C economist Trevor Tombe predicted provincial debt potentially rising to 25 per cent of GDP by 2022, which would mark a higher debt-to- GDP ratio than Alberta has seen since the 1930s.
“It's a whole new territory,” he said.
For Tombe, the “real turning point” wasn't the recession Alberta experienced starting in 2015 as oil prices collapsed, but rather the financial crisis of the late 2000s.
“Since 2008, we have only balanced the budget once,” Tombe said.
“We've seen increasing debt-togdp in Alberta continually since the financial crisis. The 2015-16 recession really just accelerated it only modestly and then COVID, of course, leading it to double this year.”
Although the timing of recessions, let alone the timing of pandemics, is unpredictable, Tombe said it was a “certainty” that Alberta would see revenues decline significantly, given its reliance on oil and gas royalties.
While many blame the province's spending levels, Tombe said spending has actually been flat since the financial crisis, when adjusted for inflation and population growth.
“It's the lack of decisions that stand out for me,” said Tombe.
“When royalties are high and the books are balanced, government have it really easy, but it is guaranteed not to last. The spending side doesn't jump out as the recent cause of those deficits. It's that royalty revenues underperformed what governments were hoping for and that reliance on royalties, needing to bring in about a quarter of the entire budget in order to balance.”
Tombe said a fiscal gap will remain even once Alberta brings its spending in line with other large provinces, as the UCP government has committed to doing.
“It's a conversation we should have had years ago about saving resource revenues and funding public services, frankly, through taxes,” he said. “Had we saved more resource revenues, historically, we wouldn't be in the situation we're in today.”
University of Alberta economist Andrew Leach takes a different outlook.
To Leach, preserving royalty revenues or implementing a sales tax decades ago wouldn't necessarily have left Alberta in a vastly different place today. He said the will of consecutive Alberta governments to spend more money than they took in has persisted regardless of the circumstance
“I don't think it's a whole lot more complicated,” he said.
“It's always seemed false to me to say, `Well, if only we'd have had a really stable source of another $10 billion, that we would have just carried on.' To me, it's quite exactly the opposite. We've spent consistently more than what we've had.”
Kneebone said the most reasonable solution to Alberta's debt woes is actually one it has looked to in the past. He said legislation passed in the 2000s capped the government's ability to spend its booming oil and gas royalty revenues, ensuring savings were kept for a rainy day.
But those revenues were squandered as spending caps continually rose until they were eventually done away with entirely.
“I would sell it to Albertans as saying, `This is our commitment to you, citizens,'” Kneebone said. “We promised to spend only $2 billion in natural gas and oil royalties and we're going to save everything else. That forces us to raise taxes when we want to spend new money and that's a good way of adding fiscal discipline to our behaviour.'”
Never again will this government or the people of this province have to set aside another tax dollar on debt.