Alberta’s first-quarter fiscal update reveals worsening fiscal picture

Alberta Finance Minister Joe Ceci (pictured above) unveiled the province’s first-quarter fiscal update today. Unfortunately, the province’s budgetary situation looks even worse than it did when the government released its budget in April.

The province is projected to run a $10.9 billion deficit in the 2016/17 fiscal year—up $500 million from the initial $10.4 billion deficit projected in the budget. For context, that means this year’s annual deficit will amount to approximately $2,500 per Albertan.

Troublingly, neither the budget nor today’s fiscal update presents a plan to balance the budget during the current mandate and, as a result, the province expects to accumulate tens of billions of dollars in new debt in the years ahead.

So why is Alberta’s deficit so big?

Projected revenue is actually up by $708 million from the April budget estimates. This is largely because oil prices have increased significantly since then with the yearly average projected price of West Texas Intermediate at $42, up from $36. However, events such as the Fort McMurray wildfire and increased crop insurance claims have helped drive expenditures up by more than enough to offset those revenue gains.

Of course, governments will sometimes face unexpected and unavoidable expenses such as those stemming from the disaster at Fort McMurray. This shouldn’t, however, be allowed to distract from the need for governments to prudently manage day-to-day operating spending. To be clear, sustained program spending growth by successive governments is the primary reason for the big deficits and fiscal challenges facing the province today.

While it’s common to blame the province’s deficit exclusively on the decline in oil prices, the province was already running deficits while oil prices were at historic highs. This year’s deficit will be the eight in nine years, and the province will have run 14 deficits in 15 years if it does not balance the budget until 2023/24.

The province kept running deficits despite high energy prices and strong revenue growth because successive governments have failed to exercise spending restraint. Had the province simply increased spending since 2004/05 to account for population growth plus inflation, the province would be spending roughly $10 billion less, meaning the deficit would be a fraction of the size it is today. Certainly the decline in oil prices has made the province’s deficits grow much larger. But it’s important to recognize the imprudent spending growth was causing a misalignment between revenues and expenditures even when energy prices were high.

Today’s fiscal update shows that Alberta’s budget deficit this year is even bigger than we previously thought. Again, as the province seeks to address this problem, it’s important to recognize the reason for the fiscal trouble we are in. Our fiscal predicament is fundamentally not the result of natural disasters, low energy prices or anything else beyond our governments’ control—it is ultimately the result of sustained government spending increases overseen by successive Albertan governments over an extended period of time.