Parliamentary Budget Officer Yves Giroux says he will be monitoring the Alberta government strategy of both cutting taxes and chopping spending, warning such a plan is not necessarily viable in the long term as demands for government services such as health care increase.
In his first trip to Alberta in his official capacity, Mr. Giroux said his office will release a new report early next year examining fiscal sustainability of the federal, the provincial and territorial governments.
“If you want to become sustainable, return to a sustainable track, you cannot cut both at the same time,” said Mr. Giroux, who spoke to reporters after a presentation to University of Calgary School of Public Policy students.
His previous report on the topic was in the fall of 2018. At that time, his office said from a national perspective, Alberta and Ontario account for almost all of the office’s finding that provincial and territorial finances are not sustainable in the long term.
That report said rising health-care costs because of an aging population will drive a deterioration in provincial and territorial governments’ finances. The report said permanent tax increases or spending reductions will be required to stabilize net debt-to-GDP ratios.
The Alberta government is pursuing a different strategy: one of trying to spur an economic recovery and new industry activity with a dramatic cut to corporate tax rates.
The province’s governing United Conservative Party says corporate tax revenues will drop in the next couple of years as the rate cut takes full effect. But it forecasts that new energy-sector activity will eventually lead to increased returns from personal income taxes, the resource revenue stream and still-low corporate taxes. The province says with this focus, it can eliminate the province’s $8.7-billion deficit by the 2022-23 fiscal year.
However, the plan is predicated on increasing oil prices and the construction of new pipelines. Critics say the province would be better off with a more stable stream of revenue, such as a sales tax. Concurrently, the government is cutting almost 3 per cent from its operating budget over four years – a move public-sector unions say could lead to the elimination of 7,000 positions in the near-term, including nurses.
Last month, Mr. Giroux’s office also downgraded its outlook for growth in the Canadian economy, saying real GDP growth is projected to be 1.7 per cent in 2020 and 1.6 per cent in 2021 – respectively 0.3 percentage points and 0.2 percentage points lower than he projected in June ahead of the federal election. The economic and fiscal outlook report said the downward revision stems from factors including lower provincial government spending in Alberta.
On Thursday, Mr. Giroux said lower Alberta government spending won’t be a major factor for the national economy but could have an impact at a regional level.
Mr. Giroux’s office provides independent and non-partisan economic and fiscal analysis to Parliament.
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