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Alberta facing deep cuts, big fights
Review calls for province to swallow some bitter medicine to rescue ailing finances, tied to spending with low resource revenues Gary Park for Petroleum News
For a brief few years from 2004, Alberta was an object of both envy and exasperation for the rest of Canada as it proudly and loudly proclaimed its debt-free status, 10 years after setting a goal to wipe out a C$23 billion burden.
The target was largely achieved through an unmatched gusher of oil and natural gas revenues.
Then the pressure mounted on successive governments to free up more of those riches for public services, disregarding Alberta’s legislated commitment to never again fall back into debt.
The upshot over the past four years, amid sickly commodity prices, has been a rapid growth in budgetary burdens, with the net debt soaring from C$13 billion to C$60 billion, putting the province on track to hit C$102 billion in 2023.
Panel probes financial challenges Recently elected Premier Jason Kenney has let it be known that will not happen during his watch.
He campaigned last spring on a consistent message that Alberta “is drowning in debt,” a line that apparently resonated with voters who gave him a thumping majority.
On taking power he named a panel led by Janice MacKinnon, a former finance minister in Saskatchewan under a left-wing New Democratic Party government, to probe his province’s financial challenges.
The findings were released Sept. 2 with a blunt opening line that Alberta “faces a critical financial situation that demands decisive action. At the same time, this is an opportunity for the province to look beyond just short-term quick fixes to reduce spending.”
The panel seemed to view its priority as delivering a harsh assessment of Alberta’s outlook along with a stark warning that the province is unlikely to ever again see oil prices climb above US$100 a barrel or gas recapture its peak of about C$16 per thousand cubic feet.
Resource revenues key “What typically happens in Alberta is that, when natural resource revenues go up, so does spending. But the reverse doesn’t happen,” said the report entitled a Blue Ribbon Panel on Alberta’s Finances.
By failing to reduce spending in step with sharp declines in resource revenues “this exacerbates the structural imbalance between revenue and expenses and leads to rapid increases in the province’s debt and eventually necessitates painful fiscal adjustments,” the panel said.
One of the most telling statistical tables, covering Canada’s four largest provinces, showed per capita spending in 2017 was C$13,819 in Alberta, C$13,539 in Quebec, C$10,825 in British Columbia and C$10,281 in Ontario, while the average for all nine provinces (excluding Alberta) was C$11,368.
The conclusion was that if Alberta lowered its annual spending to C$40 billion from the current C$50 billion and simply matched the average spending of the “big three,” Alberta would not have a deficit. In fact it would have a budget surplus this year of almost C$4 billion.
Without a “course correction,” the panel estimates Alberta will see the interest on its debt soar to C$3.7 billion a year from C$1.9 billion.
Sales tax not in study The panel’s mandate forbid it from building any calculations around a provincial sales tax in Alberta, which refuses to budge from its treasured status of being the only one of 10 Canadian provinces without such a tax.
That leaves little choice but to embark on a drastic austerity program through spending cuts that will be announced in the Kenney government first budget expected in late October.
The most obvious targets are health care, education and the public sector that will put the government at loggerheads with unions and cold involve a showdown over wage restraint legislation.
Kenney’s Blue Ribbon Panel delivered a concise message. “Procrastinating will only worsen the problem, make the choices more difficult, and delay the time when Albertans can reap the benefits of balancing the budget. Raising taxes is not the answer,” it said.
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