Prior to a single drop of rain falling before the massive June floods, Alberta’s government was already on track to run a staggering $5.1 billion deficit. With most estimates, including the one made by Premier Redford, of the bill at “well over” $5 billion to taxpayers, an already serious fiscal situation has become more acute.
Recently, the Canadian Taxpayers Federation (CTF) released a 39-page report titled, Responsibly Rebuilding Alberta. The report estimates that Alberta’s current deficit will spike from $5.1 billion to approximately $8.1 billion as a result of the flood. Over the next three years, Alberta is likely to run a cumulative deficit of $14 billion. The flood didn’t create Alberta’s fiscal disaster, but it has made it worse.
Ralph Klein created the Sustainability Fund as a rainy day fund to cover temporary shortfalls in revenue and spikes in emergency spending – like the flood Alberta just suffered. This rainy day fund had $16.8 billion in it at the beginning of 2009-10. Since 2009 however, both the Stelmach and Redford governments drew down the fund until by the end of 2012-13 it had just $3.3 billion left in it. Based on pre-flood spending commitments and a deficit of $5.1 billion, Alberta’s government already intended to spend or borrow against the remainder of the fund.
And then the rainy day came.
Even if the flood never happened, Alberta’s government would have spent the entire Sustainability Fund and left the province in debt before the end of 2013-14. Now, this will simply happen sooner than expected.
In short, Alberta has massive bills and no money in the bank to pay for it. As a result, Alberta’s government is likely to borrow against our remaining savings and plunge the province headlong into debt. Alternatively, some may push to use the flood as a catalyst for tax increases.
If Alberta is to avoid massive tax hikes and minimize its plunge into debt, then major corrective action will be required. The CTF’s report calls on the government to reduce core government operating spending by $2.7 billion during the 2013-14 and 2014-15 fiscal years, and freeze the remaining operating budget for two years. This should be accompanied by extending the 2014-15 and 2015-16 capital plan over three years. Taken together, this would free up $4.4 billion to put towards emergency spending and allow for an eventual return to surplus budgets in three years.
The report’s list of the $2.7 billion in operating spending reductions is extensive, but focused primarily on bringing government employee wages and benefits into line with non-government workers, reducing corporate welfare and eliminating a number of wasteful programs.
Without a significant alteration of the government’s spending course, Alberta will pay for the entire flood – and more – with debt or higher taxes. If the province continues to follow the path of debt, they will soon have to borrow against the Alberta Heritage Trust Fund. The Heritage Fund itself is politically sacrosanct, so it is unlikely politicians would decide to openly spend it in the same fashion that they spent the Sustainability Fund. Instead, it is likely to be used as collateral as they borrow the old fashion way. It will not take long before we as a province owe more in debt than we possess in the Heritage Fund.
Make no mistake; Alberta cannot pull back from the “debt cliff” anymore. It was going to happen with or without the flood. The best that we can do as a province at this point is to minimize how far we fall, and climb out as soon as possible.
Derek Fildebrandt, Alberta director, CTF
