October 10, 2019 – Alberta has a once-in-a-generation opportunity to correct its economic and fiscal direction, says a new report from the C.D. Howe Institute.
In “Decision Time: The Alberta Shadow Budget 2019,” Calgary-based author Grant Bishop demonstrates how Alberta could return to a budget balance by 2022-23 and achieve a sustainable path for balanced budgets over the long term. Building on past C.D. Howe Institute research and the MacKinnon Report on Alberta’s finances, Bishop shows the magnitude of fiscal adjustment required of Alberta in order to rebalance both expenditures and revenues.
“Alberta is on an unsustainable fiscal course, with spending exceeding nationwide benchmarks,” notes Bishop. “In 2017, Alberta had the highest provincial spending per capita of any province, with spending 15 percent above the nationwide average.”
Without a change in course, Alberta’s structural deficit will widen as economic growth slows, demographics drive increased demand for spending, and debt service costs escalate.
“During times of flush resource revenues that masked growing public spending to taxpayers, Alberta’s program expenditures were allowed to grow at an unsustainable pace,” says Bishop. “Failing to change Alberta’s fiscal trajectory would increase the province’s ratio of net debt-to-GDP ratio from 8 percent in 2018-19 to over 30 percent by 2050.”
The Shadow Budget sets out how Alberta can balance the budget by 2022-23 and ensure that future generations share in the benefits of the province’s present wealth with a multi-pronged policy approach, including:
- Introducing a 3 percent consumption tax to replace revenue from reductions in rates on corporate and personal income;
- Saving revenues from exhaustible resource royalties into a heritage fund to provide intergenerational fairness; and
- Reducing costs for public service to be in line with Canada-wide benchmarks.
“Alberta’s upcoming budget will either confront Alberta’s present unsustainable fiscal outlook or postpone hard decisions, meaning more painful adjustments down the road,” says Bishop. “In making the difficult decisions ahead, Albertans must take a long and hard look at how the province compares to its peers and support action to ensure that Alberta remains a competitive place to live, work and invest.”
For more information contact: Grant Bishop, Calgary-based Associate Director, Research; or Nancy Schlömer, Communications Officer, C.D. Howe Institute, phone 416-865-1904 ext. 0247, email: nschlomer@cdhowe.org.
The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada's most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.