By placing its hopes on future revenue growth, the government is risking the province’s fiscal and economic health
By Steve Lafleur
and Ben Eisen
The Fraser Institute
VANCOUVER, B.C., May 18, 2017 /Troy Media/ – In a recent conference call with reporters, Alberta Finance Minister Joe Ceci said his government “has a clear plan to return [the budget] to balance.”
This is news to Albertans, since the latest budget only contains estimates up to the 2018-19 fiscal year (for which a deficit of $8.4 billion is projected). And while Ceci targets a return to balance by 2023-24, the government has not produced a plan to make any meaningful progress in that direction.
Let’s consider the Alberta government’s latest fiscal plan, which includes a substantial $10.3-billion deficit this year. After that, the plan forecasts minimal progress in deficit reduction, with the deficit falling to $8.4 billion over the next two years.
At this pace, it would take nearly a decade to get back to balance (by around 2026-27). This is a slow, passive approach to deficit reduction. And crucially, the government’s forecasts rely heavily on optimistic oil price projections that may well not come to pass. In the event they don’t, even the minimal deficit reduction the government now forecasts may not materialize.
Ceci nonetheless suggests that the pace of deficit reduction will approximately double in coming years, leading to the elimination of the deficit by 2023-24. But without any publicly available forecasts on spending and revenue so far into the future, it’s anybody’s guess how the government plans to achieve this faster rate of deficit reduction.
It’s obviously politically attractive to set out a long timeline for returning to budgetary balance. Doing so delays tough decisions. But by hoping for future revenue growth to close the deficit rather than a clear plan to reform and reduce spending now, the government is risking the province’s fiscal and economic health.
A lot can happen over such a long period. If revenues from resources don’t materialize or if the province experiences another economic slowdown, a balanced budget would be pushed even further into the future. That would then mean more debt passed to future generations of Albertans.
A more prudent approach to shrink the deficit would target the spending side of the ledger. Consider that Alberta’s program spending this year is forecast to be approximately 11 per cent higher than in 2015-16, when Premier Rachel Notley’s government took power. Had the government simply held inflation-adjusted per-person spending at the high levels it inherited, Alberta’s deficit would be billions of dollars smaller this year.
Again, the government is avoiding tough choices on spending that would reduce the deficit now. Instead, it’s relying on future revenue gains to hopefully eliminate the deficit much later. The potential costs to this risky strategy are substantial. The government is racking up $46 billion of net debt between 2015-16 and 2019-20. How much the government plans to add by 2023-24 is not known. What we do know is that the cost of servicing the provincial debt (interest payments) is projected to double between this year and 2018-19, to $2 billion annually.
Ceci is right – a clear plan to return to budgetary balance is important. Unfortunately, he hasn’t provided one. Doing so is crucial to avoid running up deficits that will lead to ever-increasing debt interest payments.
Better to tackle the problem now than waiting and hoping.
Steve Lafleur and Ben Eisen are analysts with the Fraser Institute’s Alberta Prosperity Initiative.
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