How Alberta Came to the Cliff of Debt and Tax Hikes

Alberta did not get to a state of massive, structural deficits by accident or without warning. The writing was on the wall that unsustainable spending increases before the recession of 2008 plunged Alberta into deficit, even had there not been a drop in revenues. The signs were clear after recovering from the recession that without major fiscal adjustments, Alberta would remain in a deficit position.

Between 2002 and 2012, provincial revenues increased by 63 per cent, or 21 per cent after adjusting for inflation and population growth. Yet, this explosion in revenue was not carefully managed and saved. Every dollar of it was spent, and more. During this period, spending increased by 67 per cent, or 25 per cent adjusting for inflation and population growth. The spread between the high growth in revenue and even higher growth in spending led Alberta to a deficit in 2008, and has compounded the problem since.

Back in 2007, the Canadian Taxpayers Federation (CTF) painted a clear picture for the Stelmach government of the looming fiscal situation. In that year’s pre-budget submission to the government, then CTF Alberta Director, Scott Hennig wrote:

Over-spending and over-reliance on unreliable non-renewable resource revenues created the problem Premier Klein had to fix. The same over-spending and over-reliance on unreliable non-renewable resource revenues plague the Alberta government today. If the Stelmach government continues “business as usual,” Alberta will in all likelihood be in a deficit position within two to five years [2009 to 2012].

These words were prophetic, as Alberta’s government did continue with “business as usual.” As 2012-13 comes to a close, Alberta faces a massive deficit and stares at the last reserves of the Sustainability Fund.

Hennig continued.

The premier at that time will be faced with three choices: cut spending, raise taxes or run a deficit to keep afloat… Decisive action must be taken in Budget 2008 to ensure drastic action isn’t required in Budget 2012-13.

In Budget, 2012-13, the government was required to take drastic action, but still didn’t. Rather than face one of the three options noted by Hennig, it decided upon a fourth: project overly optimistic revenue growth.

While the government projected all-time record high revenue take of $40.2 billion, the CTF estimates that this figure will likely be closer to $38.3 billion.

Without record high revenues to fund its continued spending binge, the government is now facing a reckoning greater than it would have, had it taken action earlier. This will require significant spending cuts or tax hikes to avoid borrowing, and is a direct result of the government’s failure to heed these warnings.

While seeking the leadership of the Progressive Conservative Party of Alberta, soon-to-be-premier Allison Redford pledged in writing to the CTF that, “I intend to balance the budget by 2013-14 without raising taxes.”

Yet, the Premier’s Principal Secretary, Lee Richardson, is floating trial balloons to test the reaction of Albertans to tax hikes. When journalists press the Premier if she would now raise taxes, she is evasive and inconsistent. What is clear, however, is that the government is considering tax hikes; if not for 2013, then for 2014. Like the government’s u-turn on debt, they are now testing the mood of the public and honing what language they will need to use to spin it.

Taking on debt and hiking taxes are presented as measures that are – or might be – required in light of recent developments; yet these circumstances are not new, and the government has been repeatedly warned since 2008.

The numbers make clear that Albertans don’t need a tax hike and they don’t need their government to saddle them with a burdening debt.

What is needed is for the government to face the reckoning that they have so far evaded and cut spending.

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