Alberta’s run of deficits tower over Ontario’s worst

Over the past decade, Ontario emerged as the poster child for poor fiscal management in Canada, due largely to the province’s deep run of deficits.

However, thanks to a decade of rapid spending growth and painful decline in oil prices, Alberta’s current run of deficits is even worse than the biggest deficits of Ontario’s recent depressing fiscal history.

Consider this. Up until the start of Alberta’s recent recession, Ontario’s per-person deficits were more than twice as large as any deficits run by any other large province since the turn of the century, peaking at $1,661 per Ontarian in 2009/10. (All dollar amounts are in 2015 dollars.)

Remarkably, Alberta’s budget deficit in 2015/16 was $2,513 per person—about 50 per cent larger. What’s worse, Alberta is set to run another deficit of almost the same size this year.

Moreover, Alberta’s budget plan calls for continued deficits, which will be consistently larger than Ontario’s during its recent fiscal crunch, for the remainder of its fiscal plan.

To simplify slightly, deficits are the difference between what a government spends on its operating expenses and what it collects during a given year. Deficits matter because they contribute to a province’s overall debt burden—debt refers to liabilities acquired over a province’s entire history, not just a single year. The bigger the annual deficits, the faster the debt adds up, which means more taxpayer money spent on interest payments and a bigger burden passed on to future generations.

The silver lining for Albertans is that their province entered the current string of large budget deficits with a lower baseline debt burden than Ontario in 2008/09. In fact, until last year Alberta was the only province with no net debt, meaning that its financial assets exceeded its debts. Due to this better starting point, Alberta currently has a substantially smaller debt burden than Ontario despite the big deficits currently being run.

Specifically, Ontario’s per-person net debt (a measure that adjusts for financial assets) has stabilized at approximately $22,000 whereas Alberta became a net debtor only last year, and so does not yet carry a substantial net debt burden.

But crucially, the gap between the two provinces is shrinking quickly. Alberta’s fiscal plan calls for the province’s net debt to reach approximately $9,500 per person by 2019/20. In other words, just four years removed from being Canada’s only “debt free” province, Alberta will have racked up approximately 40 per cent as much debt per-person as heavily indebted Ontario.

So it’s not hard to see that Alberta’s per person debt burden could quickly catch up to Ontario’s, and much faster than some might assume, unless the pace of debt accumulation is slowed considerably.

In the years following the 2008/09 recession, Ontario ran budget deficits the likes of which hadn’t been seen in any large province in Canada since the mid-1990s. But Alberta, with its annual oceans of red ink, is Canada’s new poster child for large sustained budget deficits.