Jack Mintz: Now that Alberta has a balanced budget, it should eliminate its debt altogether

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Alberta has turned the corner. It will be the first province to balance its budget in 2022-23 as Canada recovers from the pandemic-induced recession. Balancing the deficit is certainly “luck” with oil prices better than expected but it is also because of “sweat” by constraining spending that was a major challenge with a recession.

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Jack Mintz: Now that Alberta has a balanced budget, it should eliminate its debt altogether Back to video

It is therefore a remarkable achievement for Alberta to balance its budget given the depth of its financial difficulties in the fiscal year 2020-21. With a devastating Russian-Saudi price war, soon followed by Covid-lockdowns, oil prices plummeted to below US$20 per barrel in spring 2020. Alberta’s economy was battered like no other province in Canada. The provincial government’s 2020-21 deficit of $17 billion was bigger than any other province, once adjusting for size.

However, deficits were not unusual to Alberta. Except for 2014-15 when Alison Redford’s government balanced its books, Alberta was in the red for a decade and half since the 2007-8 fiscal year. During most years until 2015, those oil prices were never so high, above US$90 (in 2020 prices).

Deficits are not just a matter of how well the economy is doing. It also depends on whether a government wants to spend more money than it receives in taxes. The Alberta government, blessed with resource revenues, could afford to keep taxes low with lavish public spending for several decades. Even with buoyant resource revenues from 2005 to 2014, Progressive Conservative governments couldn’t avoid running deficits. The oil price collapse and federal hostility to oil and gas development led to tough times for Alberta’s NDP when they took over. In Keynesian fashion, the Notley government pumped up program spending accompanied by higher personal and corporate taxes, leading to little economic or fiscal improvement.

By the time the Kenney government was elected in May 2019, Alberta’s deficit was $8 billion with per capita public services costing $10 billion more than the per capita average of three large provincial governments. Instead of spending rising by four per cent, as it did during the NDP years, the Kenney government kept program spending from rising by little more than two per cent annually, even with one-time COVID-related spending. If spending kept rising by four per cent instead, the deficit would be close to $3 billion. Finance Minister Travis Toews would not have been able to announce a balanced budget Thursday.

You know when a finance minister is happy to deliver a balanced budget when he becomes philosophical. Early in his speech, Toews quoted Winston Churchill’s famous line when he was the British Chancellor of the Exchequer from 1924-1929: “In finance everything that is agreeable is unsound and everything that is disagreeable is sound.”

The Kenney government certainly felt the sting of its fiscal decisions. To control public sector costs, it pushed for salary freezes or reductions in pay. This led to hostile relations with doctors and nurses during the pandemic, which became fodder for opposition party criticism. Budgets shifted post-secondary financing from government grants to tuition fees to the dismay of professors and students. Municipal mayors, with large reserve funds available to them, criticized the provincial government for a lack of capital funding. The list goes on.

That has now changed. The 27-page strategic plan laid out by the government emphasizes three priorities: enhancing government services, growing Alberta’s economy and fiscal sustainability. It is easy to judge the spending priorities by the number of times they are mentioned in the plan: health (57 times), work (47 times) and investment (43 times). Spending, excluding one-time COVID and recovery costs, will rise by four per cent.

Taxation is not a priority in this budget (mentioned only 11 times in the strategic plan). Perhaps, it is saved for the pre-election budget next year as this one was focused on spending. The fiscal target — keeping the debt below 30 per cent of GDP — has already been satisfied.

Indeed, the government has no fiscal target if it is running surpluses. The modest surpluses available this coming year and thereafter will be presumably used to reduce debt. The forecasts are based on reasonable oil prices (US$70 in 2022-23, US$69 in 2023-24, and US$66.50 in 2024-25) but, what happens if they are higher resulting in larger surpluses? Will money go to debt reduction, new spending or tax cuts?

If Minister Toews finds Winston Churchill’s argument difficult when budgets are in deficit, he will find it even harder with surpluses. Special interest groups viciously fight over the pie for new spending or tax credits. It will be a free-for-all.

At the same time, Alberta will be faced with age-old question as to how to get off the resource revenue roller coaster? For 2022-23, non-renewable resource revenues are expected to be $13.8 billion (22 percent of total revenues). With the forthcoming energy transition in the coming years, will the province want to do something with those revenues to support long-term fiscal sustainability?

These funds could be invested in a fund to support future health care, which accounts for two-fifths of the budget. Or, following Norway, they could be invested in the politically forgotten Alberta Heritage Fund to support the general budget forever. Or they could be used to reduce debt, which eventually removes $3 billion in annual borrowing expenses.

Given projected surpluses of a half of a billion dollars each year, it will only take 180 years to eliminate today’s taxpayer-funded debt. If Albertans want to maintain the current level of public services, maybe it is time they reformed taxes to provide a more stable source of revenues with royalties used to fund long-term sustainability.

Regardless, reducing debt makes sense. Minister Toews needs to amend his fiscal target that Ralph Klein government adopted in the 1970s. That target should be zero debt and it should be a goal by 2030.

Jack Mintz is the President’s Fellow, School of Public Policy, University of Calgary and is chair of the Alberta Premier’s Economic Recovery Council.