November 19th, 2017

Alberta new poster child for deficits


By Lethbridge Herald Opinon on June 14, 2017.

Province’s run of deficits towers over Ontario’s worst

Ben Eisen and Steve Lafleur

THE FRASER INSTITUTE – VANCOUVER

Over the past decade, Ontario emerged as the poster child for poor fiscal management in Canada, due largely to the province’s deep run of deficits.

However, thanks to a decade of rapid spending growth and painful decline in oil prices, Alberta’s run of deficits is even worse than the biggest deficits of Ontario’s recent depressing fiscal history.

Up until the start of Alberta’s recent recession, Ontario’s per-person deficits were more than twice as large as any deficits run by any other large province since the turn of the century, peaking at $1,661 per Ontarian in 2009-10. (All amounts are in 2015 dollars.)

Remarkably, Alberta’s budget deficit in 2015-16 was $2,513 per person – about 50 per cent larger. What’s worse, Alberta is set to run another deficit of almost the same size this year.

Moreover, Alberta’s budget plan calls for continued deficits – which will be, per person, consistently larger than Ontario’s during its recent fiscal crunch – for the remainder of its fiscal plan.

Deficits are the difference between what a government spends on operating expenses and what it collects during a given year. Deficits contribute to a province’s overall debt – debt refers to liabilities acquired over a province’s entire history, not just a single year. The bigger the annual deficits, the faster the debt adds up, which means more taxpayer money spent on interest payments and a bigger burden passed on to future generations.

The silver lining for Albertans is that their province entered this string of large budget deficits with a lower baseline debt than Ontario in 2008-09. In fact, until last year Alberta was the only province with no net debt, meaning its financial assets exceeded its debts. Due to this better starting point, Alberta has a substantially smaller debt burden than Ontario despite the big deficits being run.

Ontario’s per-person net debt (a measure that adjusts for financial assets) has stabilized at approximately $22,000 whereas Alberta became a net debtor only last year, and so doesn’t yet carry a substantial net debt.

But the gap between the two provinces is shrinking quickly. Alberta’s fiscal plan calls for the province’s net debt to reach approximately $9,500 per person by 2019-20. Just four years removed from being Canada’s only debt-free province, Alberta will have racked up approximately 40 per cent as much debt per person as heavily-indebted Ontario.

So it’s not hard to see that Alberta’s per-person debt could quickly catch up to Ontario’s – and much faster than some might assume, unless the pace of debt accumulation is slowed considerably.

In the years following the 2008-09 recession, Ontario ran budget deficits the likes of which hadn’t been seen in any large province in Canada since the mid-1990s.

But Alberta, with its oceans of red ink, is Canada’s new poster child for large sustained budget deficits.

Ben Eisen and Steve Lafleur are analysts with the Fraser Institute and co-authors of Race to the Bottom: Comparing the Recent Deficits of Alberta and Ontario. Distributed by Troy Media.


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