The Alberta government is going back in time, borrowing from financial markets as its revenue take is $6.3-billion below its spending on current and capital public services. This is contrary to a sound public policy stance, whereby a jurisdiction with non-renewable resource revenues should be saving rather than borrowing funds.
As Norway and some other countries have done, resource economies have been replacing physical assets with financial assets, to ensure that future taxpayers have the same fiscal capacity for program and capital spending on health, education and other public services.
Since 1994, Alberta undertook a policy to eliminate deficits and retire its gross debt. As a result it “saved” 30 per cent of its natural resource revenue from 1994 to 2007, by debt retirement and investments in some asset funds. Net financial assets peaked in 2007 at $38-billion. However, with five years of deficits since 2008-9, net financial assets have plummeted moving closer to zero.
The current government argues that it is not wrong to borrow again to fund capital. This seemingly correct argument is contrary to sound public finance for jurisdictions with significant non-renewable resource revenues.
My argument is simple. Some debt for infrastructure is appropriate, since capital providing long-term benefits should not fall entirely on the existing population. However, provinces with natural resource revenues are borrowing significant amounts from the future already, since they are selling off physical assets that would provide revenues to support future generations.
Thus, if Alberta borrows $6.3-billion in debt and uses $7.2-billion of natural resource revenues on the public consumption and capital spending, it is borrowing $13.5-billion that will have to be covered by taxpayers in the future. This is the proper notion of debt, and suggests excessive borrowing relative to the size of its $40-billion overall budget.
The real problem for Alberta is a structural deficit whereby tax revenues are well below program spending. Existing taxpayers are living off the fat of the land.
Jack M. Mintz is Palmer Chair, School of Public Policy, University of Calgary.