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Oil prices not only culprit with deficit in Alberta; Fraser

Posted on October 22, 2015 by Vauxhall Advance

By Nikki Jamieson
Vauxhall Advance

A recent study says that Alberta could have ran a surplus this year.

The Fraser Institute, an independent think-tank, has published the released study, ‘Alberta’s Budget Deficit: Why Spending Is To Blame’, on government spending.

According to the study, if the Albertan government had exercised more fiscal restraint during the good times, we would be in a very different position then we are today.

“The narrative that we hear from the province, is that Alberta is in a deficit of $5.9 billion, because oil prices tanked, the economy is not doing well,” said Charles Lamman, director of Fiscal Studies at the Fraser Institute and co-author of the study.
“But we looked into the data, and found that’s simply not true, Alberta has been in a deficit when oil was well over $90 a barrel, its been in deficit when oil’s been below $90 a barrel. The real culprit here, is successive governments, not being able to control the growth in government spending.”

The study looked at the government’s spending over the fiscal years of 2004-2005 to 2014-2015. It revealed that during this time period, program spending increased by 98.3 per cent, while the inflation and population growth combined increased by 52.1 per cent and the provincial GDP grew by 88.6 per cent.

It argues that had government spending kept pace with the increase of population and inflation, we would have a $4.4 billion surplus, instead of an expected $5.9 billion deficit.

Even if it kept pace with the GDP growth, we would still be enjoying a $1.9 billion surplus today.

“Spending outpaced the growth rate in the economy. So, because of this problem of spending increasing spending rapidly during the good times, when a negative shock occurs, the government has been unable to weather that storm,” he said.“The main point of the study really is where they could be today. If we had governments, over the last decade, limiting the growth of their spending to cover inflation, to cover a growing population, the province would be looking at a (surplus), instead of a (deficit).”

In the past eight years, the Alberta government has ran seven deficits, and is in danger of becoming a net deficit province; which is when the value of government debt is greater than the value of government assets.

Lamman reiterates that just because the province had money then, it doesn’t mean they should have spent it all.

“The issue is the good times won’t last forever. And if you spend like the good times will last forever, then you’ll get into a very tough situation.”

That doesn’t mean that the province can’t get out of the hole they find themselves in.

While not discussed in the study, Lamman notes that other provinces – such as Saskatchewan and Alberta in the 1990s – have found themselves in a similar position and through wide-spread reforms, have gotten themselves out of that situation.

“The issue is we need governments to spend prudently in the good times so they’re prepared, if and when the bad times come. The situation in Alberta has not been such,” said Lamman.

“We’ve had successive governments over the past ten years spend quite rapidly, and that’s really the reason we’re potentially facing a $5.9 billion deficit,” said Lamman.

“With more prudent spending, the government could in fact have been in a surplus right now, a very different fiscal situation.”

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