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By Tegan Hill
The spike in oil prices fuelled by the Iran war and closing of the strait of Hormuz, a vital energy corridor used to transport one-fourth of the world’s seaborne oil, may help temper the Alberta government’s $9.4 billion budget deficit—or even eliminate it. But that won’t solve Alberta’s budget problem; it will only hide it until oil prices inevitably decline again.
Alberta’s budget problem has never been revenue but rather runaway spending. Today, program spending is 75 per cent higher per person (inflation-adjusted) since the historic Klein reforms, which set the stage for a decade of fiscal stability and prosperity.
Many Albertans will remember the Klein reform era. After resource revenue dried up, the government no longer had sufficient revenue to support its high spending, which led to a significant run up in debt by 1992/93. In response, the Klein government introduced spending reform, requiring each ministry to justify its existence and find spending efficiencies, which helped quickly balance the budget by 1994/95, eventually pay off Alberta’s debt and set the stage for significant tax reform and the coveted Alberta tax advantage. Overall, the Klein reforms helped fuel a strong economy and higher living standards for Albertans.
But governments have a habit of repeating past mistakes. Resource revenue climbed in the late-1990s to mid-2000s and spending skyrocketed along with it. For perspective, per-person (inflation-adjusted) program spending jumped from $8,855 in 1996/97 to $15,772 in 2008/09. Today, spending remains at historically high levels—75 per cent higher than at the end of the Klein reforms.
That’s Alberta’s problem. Permanent spending levels are based on volatile temporary resource revenues, which can plummet at any time. The resulting deficits and debt cost Albertans. Indeed, at a minimum, Albertans must pay the government’s debt interest through their taxes. Debt interest costs will reach $3.4 billion—or $670 per Albertan—this fiscal year. Every dollar that goes towards debt interest is a dollar unavailable for services such as health care and education. And there’s a risk of higher taxes to pay for such debt.
In fact, the government already hiked taxes. In its recent budget, amid projected deficits till 2028/29, the Smith government increased the provincial property tax for homeowners and businesses, which will be passed on to everyday Albertans. The cost of the hike varies by city, but a typical Calgary homeowner can expect to pay an extra $340 this year. Again, the government’s high spending and debt accumulation is costing Albertans.
The Smith government faces a significant spending problem. And while it can’t be blamed for the decades-old run up in spending, at some point an Alberta government must step up and rectify the problem. It’s time to meaningfully reduce spending and set the province on a new fiscal path—much like the reforms during the Klein era.
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