In Monopoly, players can pick up a “Get out of jail free” card from the Chance pile. Selecting the card is, well, pure chance, an unearned act of grace. In the same way, Alberta – yet again – has picked up a “Get out of jail free” card when it comes to its fiscal position.
When oil and natural gas prices collapsed in 2009 and 2010, the province was flung into a rare deficit that, at one point, neared $5-billion. Even in the spring of 2011, the forecast deficit was $3.4-billion. That may sound small by U.S. (or even Ontario) standards, but deficits are political kryptonite in Alberta.
But, last week, the province said its financial picture has improved dramatically. The deficit is now expected to be a mere $1.3-billion (or 3 per cent of expenses) for the 2011-2012 fiscal year. It’s still a deficit, but closer to a rounding error. And the reason for this good fortune? Higher lease payments for Crown land and soaring crude oil and bitumen royalties. Thanks to strong demand from China and India, oil prices have bounced back up to the $80-$100 range.
We Albertans are deluding ourselves if we believe we’ve earned this turnaround by tightening our belts. Nothing could be further from the truth. In fact, forecast spending has risen by $650-million from the original spring budget (and only about a third of that is because of unexpected disasters such as forest fires). This dramatic reversal is a classic “Get out of jail free” card – pure chance, entirely unearned.
The six contenders vying to become the next Conservative leader and premier must be watching the Incredible Shrinking Deficit with some delight. Without question, it will be much more pleasant to assume a deficit of $1-billion rather than $5-billion. But the new premier will also be leading a province of citizens who may mistake the “shrinking deficit” headlines for a sustainable blueprint for living within their means.
Albertans are an interesting lot. We really like having no sales tax, a flat income tax of 10 per cent, and among the lowest taxes in Canada on other things such as gasoline. The fact that there’s no PST is considered by some Albertans as a birthright. And after watching the B.C. hullabaloo over its botched HST drama, no Alberta politician wants to go anywhere near a sales tax.
But Albertans also like their government spending. Depending on how you measure it, Alberta spends more per capita than any other province. There are some good reasons for that high spending. The province’s Tea Party wannabes and rabid fiscal conservatives aren’t entirely on the mark in their insistence that government spending is out of control. As former premier Ralph Klein noted, when people move to Alberta, they don’t bring their schools and hospitals with them. A rapidly growing province needs infrastructure. And education and health-care costs rise by a rate much higher than that measured by the consumer price index.
It’s easy for Albertans to defend low taxes. It’s also easy to defend spending on education and health care. But it’s wholly unsustainable to defend both at the same time. We’ve been burning through natural resource revenues to make up the gaping deficit hole. When those revenues dry up (as they did in 2009 and 2010), the province is thrown into a mini-crisis, sort of like when a Monopoly player is thrown into jail.
But when that player pulls his “Get out of jail free” card, happiness is restored. Life resumes. And Albertans carry on without learning any lesson – until the next time resource prices drop.
Todd Hirsch is a Calgary-based senior economist at ATB Financial. The opinions expressed are the author’s own.