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Alberta — squandering riches? Fraser Institute report says province’s finances in worse shape than other energy-producing jurisdictions, blames too much spending Gary Park For Petroleum News
Based on a couple of new statistics, there would seem to be little to find for nitpicking with Alberta’s economic performance.
The oil- and gas-laden province has posted a net employment gain over the past year of 81,800 jobs, while the rest of Canada lost 9,500. For May alone, Alberta reported a trade surplus of C$7.4 billion, close to the deficit in the other nine provinces.
Bloomberg has calculated that a continuation of these trends would see Alberta sail past Quebec to become the second-largest provincial economy after Ontario within three years.
Benjamin Reitzes, a senior economist at BMO Capital Markets, said “higher oil prices will only exacerbate the regional split,” as energy starts to outpace the manufacturing exports from Quebec and Ontario.
But the question raised by the Fraser Institute, a right-wing think tank, is how well Alberta is managing its windfall.
It has found room to point an accusing finger at Alberta, arguing the government’s finances are in worse shape than other energy-producing jurisdictions in Canada and the United States, notably Saskatchewan, Newfoundland, Alaska, North Dakota and Texas.
A 66-page report said that Alberta was one of only three among the 10 jurisdictions it studied to post a deficit in 2011-12, the most recent period for which comparable data was available.
Drawing on savings The institute said Alberta has drawn on its savings to pay for operations, driving program spending up by C$22 billion in the four years since the budget year of 2005-06.
Livio Di Matteo, a co-author of the study, said Alberta has been loaded up with debt because of increased spending, not a shortage of revenues.
A spokeswoman for Finance Minister Doug Horner insisted spending did not exceed population growth in the years before 2013, adding that one of the government’s key priorities is “bringing our operating spending in check. The concerns (raised by the Fraser Institute) are concerns that we have already addressed,” she said.
The official noted that the province has already turned a projected deficit of C$1.97 billion in 2013-14 into a surplus of C$755 million.
She said Alberta is the “lowest tax jurisdiction by far” of all Canadian provinces, while U.S. states are not saddled with the same health care costs.
The report estimated that when resource revenues were removed, Alberta dropped from having the fourth highest average surplus (C$763 per capita) over 2000-11 to having the second largest average per capita debt (C$1,626).
It said Alberta‘s net debt position declined from a net asset position of C$31.5 billion in 2007-08 to C$12.1 billion in 2012-13
Savings trust at US$12 billion Although Alberta’s Heritage Savings Trust Fund, based on surplus resource revenues, is about US$12 billion, its value per capita is one-twentieth that of Alaska’s Permanent Fund of US$44.85 billion in 2012-13 (based on the relative value of the two currencies), with the per capita value at US$61,321 in Alaska compared with US$3,084 in Alberta.
The Alberta fund was estimated at one-third the value of Wyoming’s sovereign wealth fund and less than half the value of New Mexico’s, with Alberta recording the slowest growth of six funds at 24 percent from 2001 to 2013, while New Mexico grew by one-third, Alaska by three-quarters and Wyoming by three-fold.
The Fraser Institute said that over the 2000-11 period, Alaska maintained the highest average per capita spending of US$14,033, with Alberta at US$6,948, with the ratio of average government expenditures to gross domestic product at 25 percent in Alaska and 13.1 percent in Alberta.
As of Jan. 1, 2013, general corporate income tax rates were 9.4 percent in Alaska and 10 percent in Alberta, with neither jurisdiction collecting general sales taxes.
The report said that based on its comparisons “it is clear that Alberta has an opportunity to improve its mix of taxes by shifting away from income taxes, both personal and corporate, and introducing a sales tax.”
In taking that step, Alberta would not only bring its tax mix in line with competing energy-producing provinces and states but would improve the efficiency of its tax system, the institute said.
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