Fraser Forum

Dear Minister Ceci, when you’re in a hole, stop digging

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Finance Minister Joe Ceci (pictured above) released Alberta’s Second Quarter Fiscal Update this week, confirming that the province’s budget deficit this year will be even bigger than forecasted in his spring budget. While the budget planned for a $10.4 billion deficit, the already large deficit is now expected to reach $10.8 billion.

So why has the deficit grown?

Minister Ceci was quick to blame the wildfire in Fort McMurray, but this argument doesn’t withstand scrutiny. It’s true that disaster-assistance spending is now forecasted to be $1 billion higher than originally budgeted. But what complicates the story is that provincial revenues have gone up, too, and by more than enough to cover unanticipated emergency spending. In fact, revenues are now expected to be $1.3 billion higher than predicted in the spring. So enough additional revenue has been raised to cover disaster spending, and then some.

So why has the deficit grown by more than $400 million since the spring? The simple answer is that the government is ratcheting up spending in other areas as well. In fact, program spending (all spending except for debt service payments) is up $700 million from what was initially budgeted, even after removing $1 billion for unplanned emergency spending.

After adding this additional program spending to the spending hikes that were already planned in the spring budget, a picture emerges of an imprudent approach to public spending, given the province’s fiscal circumstances. In fact, total provincial spending this year is now forecasted to be 7.9 per cent higher than in 2015/16. Again, if we remove the unplanned emergency expenditures, there’s still an increase in total spending of 5.8 per cent.

Given the size of the budget deficit facing the province and the substantial run-up in debt expected in coming years, such a substantial spending increase seems out of touch with the fiscal realities facing Alberta.

Unfortunately, imprudent spending growth is nothing new. Successive governments in Edmonton have increased spending rapidly, which is why Alberta is now running its eighth deficit in nine years. In fact, if the provincial government had increased spending more prudently (at the combined rate of inflation plus population growth) since 2004/05 the province would have run a significant surplus rather than a deficit last year and would expect a deficit this year only a tenth the size of what we are facing.

While it wouldn’t be fair to solely blame the Notley government for Alberta’s fiscal problems, it continues to make the same mistakes that created the problems and is in the process of making our fiscal challenges more severe.

The government found itself in a fiscal hole upon taking office but has made things worse by digging the hole even deeper. The consequences of that decision will be felt by future generations of Albertans who will be responsible for servicing and repaying the resulting public debt.


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