Ralph Klein’s passing has stimulated a number of paeans to his fiscal rectitude as a model for others. There is no denying the former Alberta premier’s impact on fiscal conservatism in Canada. He acted first and strongly. He righted Alberta’s deteriorating finances and then used exploding oil and gas revenues to get out of debt. Good instinct and good fortune combined.
Nostalgia is magnetic, but the lessons of Mr. Klein are not all that transferable for Conservatives, or across Canada for that matter. The stereotype this paints is of a prudent West and a profligate East. Debt was eliminated in Alberta but rose everywhere else. Alberta’s rising revenues made it the ‘cash cow’ for the country, subsidizing spendthrift governments in Quebec, Ontario, and the Maritimes.
Facts, like numbers, are stubborn things. And, in one eastern province, the facts tell a different story. Starting from the last full year of provincial debt in Alberta, 1999-2000, New Brunswick began its journey of paying down debt without access to oil and gas revenues. For the next seven years, until 2006-07, it was the only province other than Alberta and Saskatchewan to actually reduce its net debt. That means spending less and taking that surplus and paying down the debt. The only one, and with a Conservative premier too, Bernard Lord.
This is instructive, as what it means to be a fiscal conservative is preoccupying many Conservatives today. The federal government, avoiding spending cuts in its minority years, is wading into them in their majority years. Meanwhile, national debt is rising, not falling, with federal debt leading the way and a balanced budget not yet firmly in sight. Tough provincial budgets, particularly in Atlantic Canada, are being tabled to cope with deteriorating balances sheets. Alberta’s boom and bust budgeting is more bust than boom these days.
Recession-debt built up in Atlantic Canada and elsewhere over three downturns requires a different approach than Alberta under Mr. Klein – more scalpel than cleaver. Yet, any effort requires sustained political will and determination. Mr. Lord’s government had one bad year of deficits in 2003-03, but stuck the course to turn it back into a surplus and keep on paying debt down. By contrast, paying off its provincial debt once and for all, Alberta mostly spent and is now back in hock.
Two factors constrain fiscal conservatives in power today: lack of growth and lots of debt. Balancing the budget needs economic growth, not just spending restraint. But paying down the debt needs ongoing spending restraint, not just annual economic growth. Fiscal discipline tends to evaporate as growth balloons revenues.
In Atlantic Canada a double-whammy of anemic growth and growing debt is weighing down any immediate prospects of balanced budgets. Even then, net debt additions will impinge future spending priorities. Health care used to crowd everything else out; look for debt payments in the years ahead.
The federal Liberal government balanced the books in the late 1990s by massive cuts to provincial transfer payments for health, education, and social assistance. The federal Conservative government is just squeezing them, but it still hurts. Meanwhile, Ottawa’s fiscal position continues to trump all others, while Atlantic Canada’s gets worse. With Equalization up soon for renewal with all the attendant noise about ‘have’ and ‘have not’ provinces, this debate can only get heated.
It’s time to consider a different approach. As an incentive to balance the books, the region should seriously examine a ‘debt-for-equalization swap’. Ottawa would take on more of the region’s public debt, which it can afford to carry, in exchange for phased reductions in Equalization payments. This is not uncomplicated and would take time to fully implement. Penalties for going back into debt would likely have to be envisaged. It might be best done one province at a time. But with rising debt the new tide, this shift in priorities offers a longer-term basis for growth and prosperity in Atlantic Canada than anything we have seen from a federal government in a long while.
David McLaughlin was President and CEO of the National Round Table on the Environment and the Economy from 2007-12