Alberta must get its fiscal house in order without another oil boom

But any plan for fiscal austerity can’t ignore the elephant in the room – extraordinary health-care spending

Paz GomezAlberta’s debt has grown exponentially over the last decade, surging from under $10 billion in 2010 to $98 billion in 2020. The COVID-19 pandemic has set off a trap that earlier provincial administrations laid by their excessive reliance on fossil-fuel revenues.

On Feb. 25, Finance Minister Travis Toews announced the province would start 2022 with a deficit of $18.2 billion and an eye-popping debt of $115.8 billion, which could surpass $130 billion in the 2023-24 fiscal year.

At this stage, a hoped-for rise in oil prices would barely make a dent in the skyrocketing deficit. The only way out is to diversify while reducing costs and promoting entrepreneurship to grow the economy.

Higher oil prices offer no salvation

Alberta’s 2021 fiscal plan calls for $57 billion in spending. Fighting COVID-19 and its impact will cost almost as much as servicing the province’s debt ($2.9 billion versus $2.3 billion).

Projections estimate $43.7 billion in revenue from taxes over the 2020-21 fiscal year, including $2.9 billion from non-renewable resources and a slight increase over the following two years. Under this conservative assumption, Alberta will take 16 years to pay off its debt.

However, the province faces its worst financial crisis in decades. Kicking the can down the road no longer cuts it. Officials must pursue deep fiscal reforms to avoid passing liabilities to future generations and to stop relying on potentially higher oil prices.

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In a depressed global economy emphasizing trendy environmentalism, fossil fuels won’t pull Alberta out of the hole. They barely scratch the surface of the problem and additional taxes are out of the question. Higher tax rates in the past five years didn’t reduce deficits but rather led to more spending.

Officials must put responsibility back into prudent budgeting. Alberta’s financial future can’t rest on volatile natural resources; at the very least, budgeting should assume stable oil prices.

Rethink health care 

Across the world, the pandemic has challenged health-care systems and unveiled their shortcomings. Canada is no exception. Disruptive times require agile solutions, and businesses are better equipped than governments.

In October 2020, Alberta’s governing United Conservative Party passed a resolution at its annual convention to support the expansion of private health care. While the public sector deals with pandemic-related demand, private providers can relieve the pressure and help with bottlenecks in non-critical care. As wait times go down with privately-run surgery facilities and day clinics, the government can reduce its spending.

Increasing competition will also lead to cost-effective enhancements. By encouraging public-private co-operation, Canadians get the best of both worlds.

At $23 billion (not including COVID-19 expenses), health care eats up almost half of provincial spending. Any plan for fiscal austerity can’t ignore the elephant in the room, no matter how politically awkward it is.

Boost tech startups

During the pandemic, the tech industry grew exponentially in Alberta, underscoring its untapped potential to draw capital and high-paying jobs.

The Alberta government created grants for startups and reduced tax rates. However, seed funding and tax exemptions aren’t enough to foster and maintain a truly innovative scene post-COVID.

As Alex Danco of the successful startup Shopify wrote, government “money is advertised as ‘free’ but, in reality, it’s the most expensive kind of money you can imagine: it’s distracting; it begs justification; it kills creativity; and it turns your startup into a government work program.”

Alberta must become a competitive jurisdiction to do business and attract entrepreneurs. Reforms in labour regulations, digital payments, patent registry, the gig economy and venture capital are places to start.

Remove trade barriers

The Alberta government should keep boosting interprovincial trade. In 2019, it unilaterally removed eight exceptions put in place under the 2017 Canada Free Trade Agreement. Those barriers concerned public-land sale, controlled-land ownership, wildlife hunting, alcohol and the energy sector.

It should now move to unleash services, which make up the lion’s share of trade and will provide the most gains. A 2019 study by the International Monetary Fund found that “interprovincial trade in services (such as information services, finance, insurance and real estate services, warehousing, wholesale trade and professional services) accounts for more than a half of total interprovincial trade.”

A bet on the tech sector necessitates labour mobility so talent across Canada can relocate to Alberta. Nonetheless, increasing trade lifts all boats and a full liberalization can boost provincial gross domestic product by three per cent.

Alberta needs to diversify and open up its economy. The fixation on natural resources and a government monopoly over health care threatens the province’s sustainability.

Officials need to leave no stone unturned in pursuing spending cuts.

Paz Gómez is a research associate with the Frontier Centre for Public Policy.

Paz is one of our Thought Leaders. For interview requests, click here.


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