How to not spend $41 billion

One the most important principles of economics is ‘trade-offs.’

Derek Fildebrandt

Alberta Director of the Canadian Taxpayers Federation

One the most important principles of economics is ‘trade-offs.’ That is, that using resources for one thing means that they cannot be used for something else. When you drop $100 on a family trip to the Calgary Zoo, you do not have $100 to spend on groceries or to sack away into the car-replacement fund.

Regular Albertans understand ‘trade-offs’ in their private lives, but Alberta’s government has had a harder time grasping the concept.

The Fraser Institute’s Mark Milke released a study examining just this: what trade-offs has the Alberta government made over the last decade?

In 2004, Alberta’s government spent $24.1 billion on programs. This worked out to $8,965 per person, on programs, the same as pre-deficit-fighting levels in 1993 (and yes, the Fraser Institute accounted for inflation to arrive at the numbers).

But since 2004 and to 2013, Alberta’s government spent $300.5 billion on programs. That was $41 billion more than the combined rates of inflation or population growth.

In other words, had Alberta’s government limited program spending increases to the rates of inflation and population growth, it could have maintained program services at already historically high levels.

Where did all of that money go? In a 2012 study, Kennth Bossenkool and Ben Eisen found that in the 10 years since 2000, increases in government employee compensation costs consumed “95 per cent of the increase in provincial revenues over the past decade.” They also concluded that those same government employees are now paid more (sometimes much more) than their colleagues in other provinces.

In short, between 2000 and 2012, Alberta’s government revenues grew by $13 billion a year, of which 95 per cent went to government employee compensation.

Back to the $41 billion in excess spending: So what were the trade-offs for that $41 billion dollars? What could we have done differently?

Behind Door Number One: the Heritage Savings Trust Fund. Between 2005 and 2012, the province deposited $4.5 billion into the Heritage Fund. That $41 billion funneled into the black hole of programs could have meant deposits into the Heritage Fund nine-times what was actually deposited. This would not just have left Albertans with a nice savings account based on the principle alone, but would have earned a hefty return that could see investments returned back to the government or to taxpayers.

Or behind Door Number Two: Capital spending on important infrastructure. Alberta is growing fast and that obviously requires some new schools, hospitals and roads.

Had the province taken all or part of the extra $41 billion directed at programs, it could have avoided borrowing for capital projects. Instead, the province went into debt to pay for infrastructure. This has taken Alberta from a paid-in-full, debt-free status to $10.5 billion in just the last few years, headed towards $21 billion fast.

Or behind Door Number Three: Tax relief. It shouldn’t come as a surprise to readers that the Canadian Taxpayers Federation (CTF) thinks that $41 billion back in the hands of taxpayers is better than $41 billion in the hands of bureaucrats.

Alberta already has the lowest overall tax burden in Canada, but Albertans still fork over 38.5 per cent of their to government in all taxes combined. For lower-income Albertans, that’s still too much. Raising the basic personal exemption on income tax – the amount you can earn before paying taxes – would disproportionately see lower and middle-income Albertans keep more of their earnings, while keeping Alberta’s single-rate tax in place to keep us competitive.

Instead, Alberta’s government chose the easy way out: bloat itself on program spending until the province’s massive increase in revenue isn’t enough, spent most of the Sustainability Fund, and put the rest on the credit card.

In hindsight, no one alternative option would likely have been “correct” on its own, but rather a combination of savings, increased capital spending and tax relief would have served Albertans better.

If your kids are nearby, consider sharing with them a lesson in how to not spend $41 billion. To drive the lesson home, tell them that if the government let you keep more of your money, you could take them to the zoo this Sunday, on debt-free roads.

 

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