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Tuesday, August 25, 2009

alberta's record deficit: a $16 billion switch.

On August 26, 2008, Finance Minister Iris Evans announced that the Government of Alberta was headed to a $8.5 Billion surplus. "It's clear that our economic outlook continues to be bright," Evans was then quoted.

On August 26, 2009, it is expected that the Government of Alberta will announce a $6.9 to $8 billion deficit. That is a $16 billion dollar difference in one year.

Once considered to be the land of endless money and honey, Toronto-style bragging rights included, Albertans have now found their government back in a place that our political leaders swore they would never take us. But as development of our bitumen-glazed energy beach has slowed to a more manageable pace and natural gas prices have dropped, is it fair to criticize a one or five year deficit in a province that has in many ways become a rentier state?

Personally, it is not so much the existence of a deficit that I have a problem with, as much as it is the sloppy political decisions that led us here. This won’t be a surprise to regular readers, but I sincerely believe that mediocre leadership from each end of the political spectrum is holding Alberta back. There are a lot of smart people in Alberta, so it's not as if there was a lack of warning to the Alberta Government to save while the boom was hot.

I don't usually like to be the person who says ‘I told you so,’ but in this case I’m going to take a bit of guilty pleasure out of it. For years, many of my PC-supporting friends would tell me again and again that because of the Fiscal Responsibility Act, Alberta was forever protected from future deficits. “Dave, you silly lefty,” they would tell me, “deficits are illegal in Alberta. Period.” I would of course respond with “it’s nothing a quick legislative amendment can’t change,” and we’d quickly go back to drinking our beer. Minister Evans introduced amendments to the Fiscal Responsibility Act in April 2009.

Aside from a significant downturn in resource revenue, our provincial leaders haven’t exactly been diligent in the area of smart planning. The lost revenue from the cancellation of approximately $1 billion dollars in Health Care Premiums and the 5-month long Alcohol Tax, as well as the continued support of the Carbon Capture Scheme (CCS), are the kind of decisions that have and will continue to contribute to the loss of billions of dollars of revenue.

As I wrote in my review of the 2009 Alberta Budget, before politicians and pundits begin talking about slashing spending and cutting services, let's please keep some perspective on economic growth:

Alberta's economy has depended on revenue from cyclically priced resource commodities for decades and has seen much worse economic times. After years of unsustainable growth, no one should be surprised that Alberta's economy has slowed down and now is facing a 1.8% contraction. With +$50 barrels of oil and 2% projected economic growth next year, Alberta is in a much better position than it was during previous economic recession. Let's please try to keep some historical perspective in mind when we're talking about these tough economic times.
Graham Thomson has an excellent column about Alberta’s record high deficit in today’s Edmonton Journal that should be recommended reading for those wanting more insight into Alberta’s fiscal situation.


Aaron said...

Here's an article from April that's quite relevant (pdf): LINK

Anonymous said...

Removing the health care premiums was still the right thing to do. It was a regressive flat tax that unfairly penalized people with low incomes and those who chose to do independent contracting (as opposed to employees, most of whom had their premiums paid by an employer).

Likewise the "sin taxes" on alcohol, tobacco and other goods are a poor attempt at social engineering that only result in increased quantities of black market goods.

If more dollars are need for the government coffers, then the easiest and simplest thing to do is to raise the provincial component of income tax. That way all of the pre-existing fairness inherit in the tax acts can continue to be applied and we don't have to pay for a duplicate beauracracy like we did to oversee the collection of Health Premiums.

Berry Farmer said...

C'mon, Dave, 'fess up.

Everyone likes to be the person who says, "I told you so."

Enjoy it!

Anonymous said...

Yeah, that's tough. Be the guy who can throw out a bunch of forecasts/punditry, then pick the one that worked, and brag about it.

Ever feel like working for Bay/Wall Street? You'll fit right in.

Rewind back a little farther. Before Iris' August quote, when the PCs first put out their budget, the Opposition parties criticized them for lowballing the numbers. Only after the next quarter's update, when the gov't was forced to increase revenue forecasts (due to longstanding reliance on third-party commodity price forecasts AND the forward strip) was there talk about a massive surplus... and even at that time, the Opposition said they were still underestimating the surplus.

FWIW, I had more respect for you when you were busy defending Taft's crew. This "Daveberta, Party of One" business is lame. On the other hand, if you are looking to replace Graham Thomson at the Journal, go ahead, no one will notice the difference, and CanWest will probably save some money.

Robin Creed said...


Anonymous said...

'For what it's worth'

FWIW, if you rewind back a little farther. Before Iris' August quote, when Ed should have listened to the NDP and shut down the tarsands, then we would already be out of this recession by now.

Anonymous said...

Yeah Dave. Do a better job at entertaining us anonymous commenters. It's boring working here at the PC caucus office. We need somthing to keep us occupied!

Michael in Calgary said...

Ha Ha. I love these anonymous comments. Keep up the great work Dave. It's because youre not spewing mindless partisan rhetoric that keeps me coming back to check every day.

Been in Alberta my whole life and can't for the life of me understand why we havent found a better way to find sources of funds to run the government. I had to shut down my plumbing company for 3 months this year on account of no work. No politician came to my rescue. I had to figure it out myself. I don't expect Ed to save me even if he wanted to.

Gauntlet said...

Great article Dave.

Just to add to it, they have made deficits legal, but they've left debt illegal. So they still can't spend more money than they actually have in the bank.

And depending on what the actual number turns out to be, we have money enough in the sustainability fund for approximately one more year at this rate.

One year.


Anonymous said...

Yeah well, Harper and the Cons said they wouldn't either and they just hit majority territory! Nobody's listening......

Merlin Durken said...

So, really we're still paying our health care premiums, too... they've just been assigned to Payables.

In good times the people get to work, and in bad times, we get the debt -- it's the best of both worlds! J

ch said...

Apparently it's raining.

Party of One said...

I've always thought that governing Alberta in boom times is akin to coaching the Edmonton Oilers in the early 80's. It really doesn't take a lot of skill when you have ALL the advantages.

The test of good government is how they manage in not so good times. It's also a good way to see exactly what priorities the government has, as we see what programs are cut. There's no room for rhetoric about supporting things merely for political gain.

Frankly, I'm not holding my breath for competant government. We're probably going to see much the same as Klein provided us: deep cuts to the bottom lines with NO planning. We'll just perpetuate the boom/bust cycle.

Ha, my verification word is "voten"!

Anonymous said...

Oh my god we are doomed, DOOMED, I tell you. I guess it's time to back go back to my cheap privatized liquor.

Lyle said...

Alberta = hell on earth

Anonymous said...

" I guess it's time to back go back to my cheap privatized liquor."

Make that your expensive privatized liquor--Alberta has the highest liquor prices in Canada.

Anonymous said...

"Alberta has the highest liquor prices in Canada."

I know that's why I have to buy the cheap stuff.

Anonymous said...

This post is worth checking out just for the picture

Seener Beaner said...

When the price of oil and gas was high, the royalties collected was far too little, and the reaction was slow. Now the revenue collection is even smaller. Nice long term planning. Grrr.. and see who has to suffer from this. It is always the health care profession and educational professionals who are first to see the chopping block.

Anonymous said...

Just for a little perspective folks...a response to Alberta Altruist that appears in a previous post on this blog. Maybe you should all realize that we might actually be lucky instead of whining.

AA, perhaps you are correct, though I doubt it. I certainly doubt "everyone in the industry seen (sic)..." In fact, AJM Petroleum Consultants was forecasting 2009 prices of around $6.75 in December 2008 and was still over $4.50 by March 2009. The US Energy Information Agency was forecasting $4.67 in March. Maybe you're just smarter than real energy economists. Btw, AA, I know that your type loves to point at BC and SK as the places where they are so much better off than we are. BC is forecasting a deficit of $3 billion this year, which will boost its net debt to $30 billion. SK's projected surplus has dived from $424 million to $50 million (and they still have a surplus only because they have transferred some money from their Crown Investment Corporation, deferred capital projects and frozen travel and hiring). Their total debt at the end of 2008 was $10.5 billion. Alberta's debt - ZERO, pal, with a $17 BILLION cushion. So much for lack of planning and lack of savings. We can have fun with numbers, too.

Anonymous said...

On reflection, I withdraw the "whining" remark above and apologize to anyone who might have been offended.

Justin said...

@ch - "Apparently it's raining."

Nice. I had heard that at some point in the future it might.

Anonymous said...

I love when people mis-spell the word "competent" when passing judgement.

Berry Farmer said...


Alberta Altruist said...

Anon 8:22
Boy I must have hurt your little feelers, do you feel out of sorts posting the same response twice. If it makes you feel better I will post my comment back to you again as well. Do you need a tissue?

Gee, I wonder who we is? Iris & Co.
If you are watching the US energy Information we trade on the AECO hub in Alberta. Your memory is short with all the wailing that was going on about using such a high number for your gas. You have fun with your numbers though. BTW my expertise is in the natural gas sector, not that you had to be a genius to see this price collapse.