Alberta Premier's budget flip flop

When governments enter an election year, the political temptation to play fast and loose with budget numbers is strong. The most famous example of this was probably the 1996 budget in British Columbia. That year, then-B.C. Premier Glen Clark’s office injected sunshine into revenue forecasts, this in order to trumpet a balanced budget on the campaign trail. His office did so over the objections of Finance Ministry officials. Post-election, once that became known, the “fudge-it” budget scandal permanently tarred the NDP government.

Fast forward to recent comments from Premier Alison Redford on why Alberta now faces a deficit estimated at between $2.3 billion and $3-billion this year. (That compares to an $892 million deficit forecast in the February budget). As an explanation, Premier Redford recently told reporters that “The reality is the economic downturn has gone in a way that no one expected it to.”

That explanation doesn’t square with the facts. To understand why, let’s look back at the February budget.

In that budget, government estimates on oil and gas prices mirrored private sector forecasts as of late 2011 and early 2012, when budget documents were prepared. However, by budget-time in February, it was clear those forecasts were off.

The government can’t be blamed for not anticipating a more bearish outlook by early February; it can be faulted for not budgeting more conservatively to begin with, including being more cautious on oil and gas price estimates.

However, while the province at least matched private sector forecasts on energy prices, the government deliberately ignored private sector estimates on other critical matters.

For example, Budget 2012 forecast that Alberta’s economy would grow by 3.8 per cent in both 2012 and 2013. That was, respectively, 23 per cent and 19 per cent higher than private sector estimates.

Similarly, the government assumed real personal income growth of 6.2 per cent in 2012 and 6.0 per cent in 2013. That was 38 and 28 per cent above private sector forecasts for those two years.

On corporate profits, the February budget assumed growth of 11.8 per cent in 2012. That was artificially induced optimism—five times the private sector estimate. The budget also predicted 17.5 per cent growth in 2013. That was three times as optimistic as the private sector forecast.

To claim, as the premier now does, that the provincial government was recently blindsided by the economy is historical revisionism. The province’s own budget documents clearly matched up more bearish private sector forecasts up against optimistic government estimates—and the government itself created the latter set of numbers.

Moreover, the famous quip from the late New York Senator, Daniel Patrick Moynihan applies here. “You are entitled to your own opinion,” said Moynihan, “but you are not entitled to your own facts.” To wit, the facts do not back up the premier’s assertion.

Besides, here’s an odd contrast. In her recent remarks, the premier asserted that “I think that you have clearly seen, through our first-quarter update and what's going on in the world, that the world has changed.”

In fact, the province’s first quarter financial update bragged about how great the Alberta economy was doing! “Alberta’s economy continues to perform in 2012, despite challenges in the global economic climate,” announced the Ministry of Finance in August, at the very same time it predicted a much higher deficit.

The province listed these positive indicators: “Alberta to lead all provinces in growth;” “Manufacturing shipments are up 10.6 per cent…behind only Newfoundland and Saskatchewan;” “Farm cash receipts rose by a record 28.3 per cent;” “Employment is up 3.2 per cent … leading all provinces;” “Alberta currently has the lowest unemployment rate in the country;” “Housing starts are up 46 per cent…the highest increase in the country” and “Retail sales have grown by 8.8 per cent … the fastest growth among all provinces.”

All were “indications that Alberta’s economy is solid” trumpeted the August update.

Right. So the premier argues the economy has gone south despite how in the quarterly forecast she referenced, that same update busily boasted how well Alberta is doing.

So which is it?

Is Alberta’s economy doing great as the first quarter forecast asserted? If the answer is “yes, then the obvious question is why the provincial government cannot balance the books in such good times?

Or is the economy doing worse? If that’s the case, then the other question is relevant: why did the province give Albertans unreasonably optimistic budget numbers in February? Why did it quite clearly ignore more cautious private sector forecasts on so many items?

Politicians who want to play with budget numbers in advance of an election should avoid the temptation. It is a Faustian bargain. It usually comes back to haunt them.