The Alberta government’s plan to eliminate the budget deficit by 2022/23 is less aggressive — both by timeline and by the amount of spending reductions — than previous successful deficit-reduction plans by other governments across Canada, says a new report released Thursday by public policy think tank the Fraser Institute.
“The recent Alberta budget represents a real change in fiscal direction for the province, but when compared to other fiscal reforms of the recent past, it should be viewed only as a first step of a broader strategy,” said Ben Eisen, Fraser Institute senior fellow and co-author of What’s Changed, By How Much, and What Remains to be Done: An Analysis of Alberta’s Budget.
The report said the Alberta government plans to eliminate the deficit (which currently stands at $6.7 billion) by reducing program spending by 1.6 per cent over the next four years.
“Since 2008/09, Alberta has run a nearly uninterrupted string of budget deficits . . . We find that with the 2019 budget, the trajectory of government spending and the strategy for deficit reduction do represent a change in policy direction,” the report said.
While the previous budget was growing annually, the new budget forecasts nominal spending reductions over the next few years. But with the new government’s approach, “the government now forecasts that it will return to balance one year faster than under the pre-existing fiscal plan and accumulate less debt in the interim,” said the report.
“However, from a historical perspective, the spending reductions planned in Budget 2019 are substantially lower than those introduced in the 1990s by the governments of Roy Romanow, Jean Chretien, and Ralph Klein. The four-year time horizon to budget balance does contain risks; historically, successful efforts to eliminate large deficits in Canada have taken place over two or three years. Further, Budget 2019 does not go very far in restoring Alberta’s tax competitiveness, and though the province plans to reduce its reliance on resource revenue, the 2019 budget is only a first step in getting the province off the resource revenue “rollercoaster.”
The report cites previous governments which had more ambitious deficit-reduction plans such as:
- Prime Minister Jean Chretien’s federal government reduced program spending by 9.7 per cent from 1995 to 1997 and eliminated Canada’s deficit within three years;
- Premier Roy Romanow’s government in Saskatchewan called for reducing program spending by 8.9 per cent from 1992 to 1994 and eliminated that province’s deficit in two years; and
- Ralph Klein’s provincial government in Alberta budgeted to reduce program spending by 21.6 per cent from 1993 to 1997 and eliminated Alberta’s then substantial deficit, and subsequently eliminated provincial debt as well.
“Given the comparably small level of spending reductions in this government’s first budget, the road back to balance will take longer, and is riskier than if the province had pursued a more aggressive approach,” said Steve Lafleur, Fraser Institute senior policy analyst and study co-author.
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