Budget increases debt burden for future generations of Albertans
The Notley government has delivered Alberta’s 2018 budget and the figures would be shocking if Albertans weren’t already accustomed to similar numbers. The operating deficit is expected to be $8.8 billion in 2018/19, down slightly from its peak of $10.8 billion two years ago.
It’s difficult to contextualize such a large number, but let’s try. Alberta’s deficit amounts to approximately $2,000 for every man, woman and child in the province. Given the last two deficits were even bigger, it’s not hard to see why the province’s debt is piling-up quickly.
The government tried to allay concerns about the deficit by presenting a “path to balance” by 2023/24 in this year’s budget. Unfortunately, the projections for later years are far too vague to inspire confidence that a solid plan exists.
But even if the government’s deficit-reduction timeline goes according to plan (far from certain), the slow path to balance means the province will continue adding debt by the bucketful for many years. Specifically, by 2023/24, Alberta’s total net debt is projected to reach $56 billion, approximately $12,500 per person. This figure is remarkable when you consider in 2015/16 the province was “net debt free,” meaning its financial assets exceeded its debt.
Nevertheless, concerns about Alberta’s growing debt are sometimes waved away because Alberta’s overall debt level remains the lowest in Canada. But Alberta may soon zoom past other provinces when it comes to per person debt. Consider that per-person debt in Saskatchewan today is less than $11,000. In British Columbia, it’s expected to be $10,000 in 2020/21. Unless either province adds substantial debt in the next few years, Alberta will likely pass both provinces.
More amazingly, at $12,500 net debt per person, Alberta would have 60 per cent as much per person debt as Quebec, a province whose reputation for fiscal mismanagement (which it is working to erase) was built over decades.
So what are the consequences of all this new debt? How will it affect regular Albertans?
Government debt is no different than household debt in that (all else equal) when debt levels rise, so do interest payments. In Alberta’s case, that means less money for services such as health care and education, or tax relief. And it means an increased burden for future generations of Albertans.
So even if the budget is balanced by 2023/24, all of the debt added between now and then will remain on the books, and future taxpayers will pay the interest. The government’s “path to balance” is so vague, while you wouldn’t know it from looking at the budget, our own research shows per-person interest payments will more than double between now and 2023/24, reaching $600 per person.
The Notley government’s 2018 budget shows no willingness to reform and reduce provincial spending, a main cause of this debt accumulation. This year, total spending will be up 14.5 per cent from what the government inherited in 2015/16. This is a key reason the deficit remains so large. And while the government promises greater restraint going forward, given that it overshot its budget spending target by approximately $1 billion in 2017/18, such claims should be taken with a grain of salt.
Alberta’s finances are in disarray. Restoring them to order should be a top priority. Unfortunately, this budget was complacent about saddling future generations of Albertans with a mountain of debt and the accompanying debt interest payments.
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