Alberta's Revenue Problem

Alberta's first quarter fiscal update was released this week and the news wasn't good. Alberta's deep reliance on resource revenues has forced the government into a harsh $6.9B deficit. With Ed Stelmach's backtracking on royalty rates and refusal to look at different tax structures, Alberta is left staring down the barrel at service cuts.

Given the economic boom that Alberta has experienced recently, there is no need for cuts to health care and education. First off, if we had a sustainable progressive taxation system, then we wouldn't have to worry about dropping energy prices effecting our public services. Secondly, if we had more lucrative royalty rates, we would have a much larger sustainability fund to draw from. Sure the boom wouldn't have been as dramatic, but then the bust wouldn't have hurt so much, either.

All in all, I consider this to be a revenue problem. The problem being, we rely on volatile revenue to deliver essential services - and that's no way to run a government.

Scott Hennig, leader of the most misrepresentatively named lobby group in Alberta (The Canadian Taxpayers Federation), argued with me recently on Twitter about my assertion that we have a revenue problem. He says we have a spending problem and pointed to dramatic increases in government spending since 2005 (near 11% per year, on average).

I decided to crunch some numbers to get a handle on the information. This graph shows the Alberta government's expenses and revenues on a per capita basis, adjusted for inflation (2002 dollars).

Government spending was slashed significantly in the mid 1990s under Premier Ralph Klein. It has only risen recently and it is still not at the level of service Albertans were experiencing before 1993. It is also noticable that the spending is reactive to fluctuations in revenue (driven by resource prices). The cuts in 2002 are only because revenues dipped in 2001.

Sure, spending increased since 2005, but much of that spending was on infrastructure that was neglected throughout the 90s and the early part of this century. The levels of delivered service is still well below what it was in the 80s - wait lists in health care are long and class sizes are large!

Here's another interesting look at government spending. This graph shows Alberta government and expenditures as a percentage of Gross Domestic Product.

In the early 90s government spending was in the 22% range, then under Ralph's reign it plummeted to near 13-14%. It stayed around there until 2002, where it took another hit and dropped to the 11.5% range. It has remained between 11 and 11.5% since 2004. What I find particularly interesting, is that government will reduce expenses whenever the economic climate justifies it, but does little to improve service when we are in a position to do so.

By comparing spending to GDP, we have a real sense of how much we are living up to our potential. As Alberta becomes more prosperous, should we not be allocating more resources to social services?

Ultimately, it comes down to this: We have great potential in Alberta to be one of the best places in the world to live - to ensure that everyone is looked after and prosperous. Instead, we don't plan and we squander our resources.