If there was ever a place that was the “anti-Greece” when it comes to public finances, it must be Alberta. Compare Alberta to many places around the world, be it European fiscal disasters or even nearer to home, and in most decades, Alberta shines in comparison.
For instance, consider Quebec’s destructive anti-wealth creation policies, which made that province poor. (It was not always thus. A 1940 Royal Commission noted Quebec was once “long considered the fiscal Gibraltar of the Canadian provinces.”) Or consider Ontario, which wasted up to $1.1 billion on two electricity generating plants, cancelled because of local politics.
In that sense, Alberta is the “anti-Greece,” where prudence in finances has been seen properly as a worthy goal that avoids sending ever-more tax dollars to pay the interest on the debt, thus leaving more for day-to-day taxpayer priorities.
Now, normally, Alberta’s politicians are happy to trumpet the province’s bulging coffers when the province is in such an enviable position.
For example, in 1985 Alberta Finance Minister Lou Hyndman noted the net asset position of the general revenue fund as well as the positive balance in the Alberta Heritage Savings and Trust Fund: “There are few governments in the world that can match the financial strength of the province of Alberta,” he said in his March budget speech of that year.
More recently, in a June 2012 news release, the provincial government trumpeted how Alberta was the only province “in a net financial position.”
But that boasting always tapers off whenever provincial finances spiral downwards, either because of declining resource revenues or permanently higher spending patterns.
In the mid-1980s, just after Hyndman’s boast, the province’s financial fortunes rapidly declined into red ink, staying there for nine years, and the province plunged into net debt. More recently, the boasting ended when Alberta’s net financial position atrophied and provincial politicians had to instead announce they will be borrowing more for infrastructure rather than reduce spending in other areas.
The result of Alberta’s declining political attachment to fiscal prudence is five massive deficits since the recession of 2008-2009 and a hit to Alberta’s net financial assets. In just six years, the province’s financial assets have dropped in net value by two-thirds to $12.1 billion by 2012-13 from $34.5 billion just before the 2008 recession, a decline of $22.4 billion. (This figure does not include spending on the June floods, as the numbers are taken from the province’s annual report with a year-end in March.)
For students of history, the recent decline in Alberta’s financial assets mimics the plunge between the mid-1980s and to 1994 when the province found itself in net debt of $20.1 billion (all figures adjusted for inflation).
As the earlier average annual decline in net financial assets amounted to $4 billion, compared to the most recent average decline in Alberta’s “net wealth” of just over $3.7 billion annually, the province is thus repeating, almost dollar for dollar, the 1980s-1990s-era annual decline in financial assets.
It might be argued that some of the decline is to be expected, given the post-recession decrease in resource revenues compared to higher revenue years prior to it. Indeed, some decline was expected, but a massive and often unremarked contribution to Alberta’s asset decline was the mismanagement of the spending side of the ledger.
Today, program spending is $2,861 higher per person in real terms relative to the turn of the millennium, and $874 higher per person relative to 2006-07 — the year when Alberta’s own-source revenues were at their peak.
While the province has lately moderated any additional program spending growth beyond population growth and inflation, Alberta’s per capita program spending last year was still at near-record highs, at $10,564 per person. That level was exceeded only in the recession year of 2008-09. Those who wonder how Alberta just lost two-thirds of its financial assets might wish to look at the program spending side of the provincial ledger. Part of the reason for the decline is right there.
Mark Milke is a senior fellow with the Fraser Institute and author of Alberta’s Double-Dip Decline in Financial Assets. This column was provided by Troy Media (www.troymedia.com).