Spending growth by successive Alberta governments primary reason for big deficit

Albertans are well aware that their provincial government is set to run a budget deficit this year that may exceed $10 billion. Many may assume this is simply due to a decline in government revenue, driven by lower resource prices. But in a recent study, we showed that spending growth by successive Alberta governments is in fact the primary reason for Alberta’s big deficit.

Our study showed that the pattern of spending increases was not started by the sitting government—successive Progressive Conservative governments got the ball rolling more than a decade ago.

However, we also showed that the new NDP government has made the same mistakes as its predecessors by continuing the trend of sustained spending growth.

Alberta Finance Minister Joe Ceci (pictured above left) quickly shot back, describing his government’s approach to fiscal management as “prudent” and stating that “severe cuts” would make a bad situation worse.

The government has an incentive to claim it faces a binary choice between its own spending trajectory and “severe cuts” to core public services. But this is a false choice. In fact, there’s a wide range of options in between.

Consider that despite a daunting budget deficit of more than $10 billion, the government has made no meaningful efforts to stem the flood of red ink by making even small reductions to government spending or even to slow the rate of spending growth. In fact, it has significantly increased the rate of spending growth compared to what has prevailed over the past few years.

For context, it’s important to recognize that despite the fiscal challenges facing the province, Alberta actually plans to increase spending this year faster than any other provincial government in Canada.

The chart below shows that Alberta will increase program spending by 7.5 per cent in 2016/17. That’s nearly twice as fast as program spending is growing in British Columbia, and more than three times as fast as the average of all provinces excluding Alberta.

Of course, some of this spending was necessitated by the Fort McMurray wildfires—but even if we exclude the roughly $1 billion in associated spending, program spending in Alberta is growing at 5.4 per cent this fiscal year, which is still higher than any other province, and more than twice the average rate of increase in the nine other provinces (2.2 per cent).

If Alberta’s spending choices this year seem out of line with what other provinces are doing, they seem even more unusual compared to what’s being done by provincial governments in other energy provinces that now face difficult fiscal circumstances. Consider the chart above shows Saskatchewan and Newfoundland are actually decreasing their spending his year.

In short, in the face of a $10 billion deficit, Alberta is increasing its spending significantly more than any other province. Given the fiscal challenges facing Alberta, this approach to public spending seems out of touch with fiscal reality. 

Surely “severe cuts” to core public services are not the only alternative to the government’s spending trajectory. There are many options in between. For example, the government could introduce modest spending reductions, or could increase spending at a pace more closely aligned with other provinces. Either of these options would result in smaller deficits and less debt than the government’s current spendthrift approach.

There’s no doubt that the government was dealt a bad fiscal hand, but it has made a bad situation worse by ramping up spending faster than any other province and growing the deficit as a result. Minister Ceci says that leading the country in spending growth despite a huge deficit is “prudent.” It’s up to Albertans to decide if they agree.