Bookended by two charts – one showing the recent drop in natural gas prices and the other provincial revenues from natural gas – Finance Minister Iris Evans delivered the bad news to Albertans: the province’s debt is now pegged at $6.9 billion.
The charts, and Ms. Evans’ talking points, were all aimed at making the not-so-subtle argument that this deficit could not be avoided and that it was all due to plummeting resource revenues. But is that the truth or spin? Does Alberta have a revenue problem or a spending problem?
To be fair, natural gas prices have certainly fallen. Battered by a rising Canadian dollar, resource revenues in 2009-10 are lower than expected. Lower, but not non-existent. Oil prices are higher than expected, and the province will still collect nearly $4 billion in revenues from non-renewable resources this year.
Program spending is also up from budget, by $72 million, as is capital plan spending (up $500 million). And while this may not be the foundation of this year’s deficit, it is indicative of the overall situation. The Alberta government doesn’t have a revenue problem, it has a spending problem.
You might ask, how can that be? This time last year we had an $8.5 billion surplus, and now we have a $6.9 billion deficit – the only thing that changed is a world financial crisis, right?
Sure, but in reality we didn’t have an $8.5 billion surplus last year. We had oil prices that had temporarily spiked to all time highs and a government who acted like a nogged-up Clark Griswold, spending a yet-to-arrive Christmas bonus.
Regardless, by last year, the bed had been made. Deficits were virtually assured for 2009, barring oil and gas prices again shooting to sky-high levels.
In fact, even if natural gas prices rebound to average $3.75/gj (as projected in the update), and oil was $109US/barrel, the government would still be running a deficit today.
Long before any ‘world financial crisis,’ in 2007, the Canadian Taxpayers Federation (CTF) warned that unless the government curbed its rampant increase in spending, by 2009 they would be running a deficit. And since the 1990s, the CTF has advocated the province limit the growth in its annual spending to some rate, such as the combined inflation and population growth rate.
Had the province taken that advice, starting in 2005 after it was debt-free, today the province would be running a $44 million surplus.
That still would have allowed the province to catch up on some infrastructure and increase program spending by nearly 6 per cent each year. Instead, the province jacked spending on average by 11.5 per cent each year since 2005.
Granted, not all can be blamed on the Stelmach government, as the current premier only took over the reigns in late 2006. Yet, Budget 2007 and Budget 2008 increased program spending by 17 and 12 per cent respectively (a combined $8.7 billion jump).
And it’s not like the government didn’t see this coming as well. Premier Stelmach’s first finance minister, Dr. Lyle Oberg, said during his 2007 budget address: “We just can’t keep raising our spending at these levels – even if strong energy prices and economic growth continue …The facts are clear. Hiking our operating spending by 10 per cent … can’t continue. If we did that, we would have a deficit.”
They did, and we have.
The CTF and the former finance minister are right: Alberta has a spending problem, not a revenue problem.