Shocking, isn’t it? The Alberta government – the richest government in all the land – is running a deficit.

No, not really. Anyone who has looked through the Alberta government’s books for any period of time could see this one coming.

In fact, in 2007, the Canadian Taxpayers Federation (CTF) authored a report entitled Trouble on the Horizon, warning “if this government continues to act as recklessly as they have over the past decade, they will begin to run deficit budgets as quickly as Budget 2009 and as late as Budget 2012.”

The “recklessness” came in two ways: the over-reliance on the high price of oil and gas to prop up revenues, and the insanely large hikes in spending.

To be fair, few knew there would be such a significant drop in the price of oil and natural gas.

Nevertheless, the CTF report warned: “One lesson to be learned from [Don Getty’s experience in 1986] is not to believe non-renewable resource revenues will continue to stay high, just because they have been high for the past few years. The Alberta government has no control over the price of oil or natural gas; both are set on a world market. They can fall just as easily as they climbed.”

The deficit warning issued by the CTF in 2007 wasn’t based on a doomsday scenario where oil and gas prices would plummet. Those warnings were based on oil and gas royalty revenues staying fairly constant.

In fact, the government’s own assumptions published a year ago put oil and gas prices at $74/barrel and $6.40/GJ respectively for 2009-10.

Yet, even if oil prices average $74/barrel and natural gas prices average $6.40/GJ during the 2009-10 fiscal year, the government will still run a $1-billion deficit. Why? Because despite running the largest deficit in this province’s history, they still managed to increase operating spending by $1.1-billion in this budget.

In 2009-10, Alberta will spend $9,957 per Albertan, second only to Newfoundland and Labrador, but still $1,300 more than the government of British Columbia.

This government does not have a revenue problem it has a spending problem.

Had the government limited the increase in its annual program spending to the combined inflation and population growth rate starting in 2005 once the debt had been retired, this year the government would be running a $2.9-billion surplus, rather than a $4.7-billion deficit.

Apparently you can’t increase spending by 13 percent a year (Alberta’s five-year average increase) forever. Who knew? Oh right…

What’s next? The government claims it will try to find $2-billion to narrow next year’s gap. While many assume this means spending cuts, the government hasn’t yet, however, ruled out tax hikes as a way to create an additional $2-billion.

But why not make the cuts today, in Budget 2009? Clearly this government figures the longer they wait, the more likely oil and gas prices will rebound, the recession will end and they can resume spending like frat boys on a Friday night.

If prices don’t rebound and the recession continues, Albertans had better start bracing for tax hikes. Better not say you weren’t warned.

By: Scott Hennig
Posted: April 07, 2009
Topic: Alberta

Contact the regional director Scott Hennig for further information.

Type: Commentary

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