By Ben Eisen
and Steve Lafleur
The Fraser Institute
The Alberta government is choosing policies similar to the ones that have dampened economic growth in Ontario for years.
A recent analysis from the federal government compared the economic damage done to Ontario’s auto sector during the financial crisis at the end of the 2000s and into this decade to the damage to Alberta’s energy sector during the recent stretch of low energy prices.
Eisen
Comparing the two provinces is interesting because of the similarity in strategies.
Specifically, like Ontario, Alberta is running large, sustained budget deficits. In fact, Alberta is faring even worse than Ontario did in the years following the financial crisis when it comes to controlling the size of annual budget deficits.
Ontario’s fiscal performance in the years during and after the Great Recession was nothing short of disastrous. The province consistently ran large budget deficits and racked up debt at record speed. After adjusting for population and the size of provincial economies, Ontario piled up debt at a much faster rate than any other province between 2003 and 2015.
So it’s alarming that Alberta is now running deficits that are even larger than those run in Ontario during the very worst years of the recession.
Consider Ontario’s worst fiscal year, 2009-10, when the provincial government ran a budget deficit of $19.3 billion. That amounts to $1,481 per person. Ontario’s deficit in that year and several others partly drove its rapid and economically damaging escalation in debt.
Lafleur
Now consider Alberta. It just released its first-quarter fiscal update, which projects it will run a budget deficit of $10.9 billion. That’s about 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 one-third of Ontario’s. Alberta’s 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, approximately 55 per cent larger than Ontario’s deficit in 2009-10.
The picture looks even more bleak if you take a slightly longer view and consider that Alberta expects to make very little progress in reducing its deficit 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 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 its economic growth prospects. It has certainly saddled current and future generations of taxpayers with increased debt-service payments.
It’s sobering, therefore, 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 pace of debt accumulation and work quickly to bring provincial expenditures in line with revenues. That way, chronic deficits and annual multibillion-dollar increases in overall debt won’t become the norm, as they have in Ontario.
Ben Eisen and Steve Lafleur are analysts with the Fraser Institute’s center for Provincial Prosperity Studies.
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