When Ralph Klein came to power in 1992, he stopped at nothing to fulfill his promise to fix Alberta’s deficit. Infamously, he offered free one-way bus tickets to welfare recipients if they would leave the province. Some took him up on the deal, to the annoyance of politicians in Ontario and British Columbia, who had their own financial problems to worry about. Klein didn’t care. His province came first, and voters loved him for it.
Two decades later, welfare refugees don’t get much press, and deficit busting has turned into a decidedly regional issue. Alberta, which vanquished its debt years ago, is mopping up the tiny bit of red ink it has spilled since the recession and is predicting huge surpluses in the years ahead. Ontario, on the other hand, has added $100 billion to its debt since 2004 and is about to rack up billions more. The amount that Ontario spends every year paying interest on its debt—more than $9 billion—could fund every school in Alberta, including the universities. Premier Dalton McGuinty could hand every Ontario welfare recipient a bus ticket to Fort McMurray, and his government would still be deeply in the hole.
Two provinces going in opposite directions: It’s easy to paint this as the triumph of good policy over bad. One made tough decisions, cut government and kept itself lean. The other tinkered and fiddled, borrowing billions to keep its auto plants churning out gas guzzlers, even as oil prices soared. Like all good stories, this one has a hero and a villain. Except the story wouldn’t be true.
You want the champion of big government in Canada? Among the four largest provincial economies, it’s Alberta—by a mile. If Ontario spent the way Alberta does, it would be running deficits of more than $25 billion a year. No wonder McGuinty went off on an anti-Alberta tangent in February, declaring he’d rather be rid of the strong Canadian “petrodollar” than see the West’s energy economy thrive.
The hard-headed, small-government conservatives of Alberta spent $1,116 more per resident than did Ontario’s godless pinko spendthrifts in fiscal 2011. That figure includes public-debt charges, so it properly accounts for the sins of the past (see Rae, Bob). If you strip away interest charges and just look at program spending, the gap grows to about $1,750 a head. By that measure, Alberta spent 21% more.
It is not, by the way, simply a matter of Ontario having economies of scale. Alberta also spent 21% more per resident on programs than B.C., which is only slightly larger, and 21% more than tiny Nova Scotia.
A better explanation for the gap is Alberta’s rapid growth, which forces spending on new roads, buildings and public servants. Dealing with growth was the theme of the province’s $41-billion budget in February, the first of Alison Redford’s government: more cops, more health clinics, more schools. Being the country’s economic engine comes at a price.
Even so: growth can’t completely account for why Alberta spends so much. There are too many anomalies. Why does its government spend twice as much on agriculture programs as Saskatchewan, which has more farmland and almost as many farms? Why is its transportation budget twice as large as B.C.’s? Why has its parks budget ballooned 19% in just two years? I suspect the reason has to do with Alberta’s gusher of resource revenues—projected at $11 billion for the coming year—and the motto of democratic governments everywhere: We spend the money because it’s there!
Alberta’s voters don’t revolt against the big spending because they know they’ve got the lowest provincial income taxes in the land, the lowest fuel taxes and no provincial sales tax. (Yes, I know: Albertans also contribute far more to Ottawa than they get back in federal services, in part because they enjoy the highest incomes.) But this low-tax paradise has less to do with small government than with the good fortune to be sitting on one of the world’s most valuable stores of hydrocarbons.
It also has something to do with Alberta’s habit of spending oil-and-gas money as soon as it comes in. After building up the Heritage Fund to more than $12 billion by the mid-1980s, the province began to squander it, sucking out more than $30 billion. Today, after a long oil boom, the fund has $15.4 billion. It should be at least $50 billion, but that would have required higher taxes.
Redford is right when she says that other provinces, including Ontario, have something to gain from the development of the oil sands. It will bring new jobs and manufacturing activity. But she’s going to learn that outside of Alberta, a lot of people have a more jaundiced view. They see a rich province that wants to rapidly pump oil to get vastly richer, not with the intention of saving the money for a distant post-oil future but of using it to extend a tax advantage, which it will trumpet loudly to lure businesses and entrepreneurs and skilled workers away from the rest of the country. Alberta’s prosperity may be good for Canada, but it’s not without its ugly side.