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Wednesday, July 27, 2005

alberta falling off the wagon?

Only one year after declaring Alberta a “debt-free” province, the Alberta Tories are talking about getting back in the business of borrowing money.

According to the Edmonton Journal, yesterday, "[Alberta Premier Ralph] Klein signaled he will back a proposal by Infrastructure and Transportation Minister Lyle Oberg to borrow money to help clear a $7.2-billion backlog of schools, highways and health centers that need to be replaced or repaired."

According to the Calgary Herald, "Premier Klein says there's merit to the idea of Alberta going back into debt to catch up with seven billion dollars in building projects."

Now, I think it about damn time they start working on this massive infrastructure debt and began investing in Alberta's lacking infrastructure (which is a result of Klein's cuts in the first place).

But, it left me thinking, will the Alberta Government be breaking the law if they borrow money?

According to Alberta's Fiscal Responsibility Act, which forbids the government from running a deficit and limits government spending:

"The Fiscal Responsibility Act sets requirements of the annual fiscal plan:
- It requires balanced budgets. Deficits are not allowed, as expense and capital must not be more than revenue."

Now, I honestly think this is probably the dumbest law ever thought up. How the heck is it supposed to be enforced? It was a cheap PR stunt from a government that was desperate to look fiscally responsible way back in 1993. Would the police arrest the Finance Minister for running a deficit?

Will Alberta be running a deficit if they borrow $7.2 Billion?

I'm no lawyer, but will they be breaking the law? Should I call the police?


Anonymous said...

There's a big difference between using debt to finance capital spending (e.g. building roads, hospitals, schools etc.) and using debt to finance day to day operations.

Deficit financing is bad news - that's using tomorrow's dollar to pay for today's expenses. Debt financing for things like roads that have a significant life isn't an inherently bad thing.

(and yes - the fiscal responsibility act is one of the daftest things ever created)

Senator Catalyst said...

Very true, on all accounts.

The fiscal responsibility act is about ego and bravado and machismo and all that other masculine posturing stuff. But more importantly, it's impractical!

As we've discussed before, the province is facing a rather chunky infrastructure deficit (it's also facing a plethora of other unfunded liabilities, but that's a matter for another day.) This 7 billion dollars will be a much needed injection, and if there ever were a time for the government to dig in... (or so I'm told by my economist buddies.)

Granted, Premier Klein is going to feel the sting of a confused electorate over this. He should have retired a month ago. Instead he chose ro eat his own leagacy?

c-lo said...

First, you can't arrest anyone if they break the law... they must break a criminal law.

And second, I would imagine if the government ran a deficit, a citizen could take them to Court to get an injunction on the spending, maybe even an opposition party.

Anyone know for sure?

Aaron said...

Balanced budgets do more to increase future budgets because nobody stops to point out that a surplus is by no means a 'balanced' budget. Everyone happily cheers as if the government turned a profit when it only underestimated revenues (or over-taxed, depending on your views).

The government can still borrow and maintain future balanced budgets because they only have the annual debt payment as an expense.

Chances are that the AB government could borrow on more favorable terms than most other governments due to the excellent economic outlook, which reduces this annual payment.

But didya know that the Alberta government has the power to create its own money? The socreds tried it, but it was funny money they came up with.

Allie said...

I don't like where this is going. I don't like the suggestion or the actual possibility.

Talk about adding to my already growing crisis of faith...

Bogg said...

Legislative bodies can't feter their own power. I don't think the law was valid to begin with.

Emil Vargas said...

They shouldn't put us back in debt b/c they might end up doing it again and again and again which is the mess most of Canada is in right now. With all the high oil prices we should have a huuuuuuuuge surplus to pay these infrastructure costs if they are such a priority. I don't know if they are since I don't live in my good ol Alberta right now. I live in another cowboy paradise, Texas.