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Niels Veldhuis and Tegan Hill are economists at the Fraser Institute.

A projected $18.2-billion. That’s the huge number that Jason Kenney’s government has forecast for Alberta’s budget deficit this coming year. To put it another way, that’s a shortfall of $4,096 per Albertan.

In response, there have been calls for a provincial sales tax to help balance the budget, most notably from the Business Council of Alberta. But as management icon Peter Drucker once famously noted, “the right solution to the wrong problem is more dangerous than the … wrong solution to the right problem.” And while replacing other taxes (such as those on personal income) with a sales tax might make good policy sense, enacting new taxes to balance the budget would, on its own, fail to address the root cause of Alberta’s fiscal challenges: unsustainable spending.

While COVID-19 and the ensuing economic and social restrictions have taken a toll on Alberta’s finances, its fiscal problems predate the current crisis. The provincial government had already run deficits in 12 of the past 13 years, with pre-pandemic deficits totalling more than $50-billion. Add to that this year’s $20.2-billion deficit and the forecasted $18.2-billion, and the total budget deficits over 14 years will total a staggering $90-billion.

The provincial government ran deficits regardless of the party in power – the Alberta Progressive Conservatives, the province’s New Democrats, and United Conservative Party are all guilty. It ran deficits regardless of whether oil averaged more than US$90 per barrel, as it did for many years, or under US$40. It ran deficits when provincial revenues increased to $50-billion in 2018-19 from $39-billion in the 2008-09 fiscal year.

But a lack of revenue, low oil prices, or the ruling political party are not the only reasons for Alberta’s fiscal woes. The core common problem is an instinct for prolific and undisciplined government spending.

To truly understand the depth of Alberta’s longstanding spending problem, it’s important to understand recent history. Twenty years ago, the “Alberta Advantage” was strong. The province had come back from the fiscal brink, and through then-premier Ralph Klein’s reforms, it had eliminated its debt and had become the most attractive province for investment, thanks in part to a smaller government sector, less regulation and competitive taxes. In 2001-02, the average amount the provincial government spent per person was $6,573, lower than other provinces, including neighbouring British Columbia ($6,821).

Fast-forward nearly 20 years, and Alberta’s pre-COVID per-person spending has surged to $12,636, 20 per cent higher than B.C’s ($10,560) – yet critically, there’s no evidence Albertans are enjoying better public services.

Indeed, in 15 of the past 20 years (again, pre-COVID), the Alberta government increased spending significantly more than was necessary to account for inflation and population growth, with much of the increased spending going to government-sector compensation.

Had the provincial government stayed disciplined, and increased spending at a prudent rate – that is, accounting for inflation and population growth (i.e. 4.2 per cent per year on average) – total government program spending would have been $14-billion lower pre-COVID than it actually was ($42.1-billion compared to the actual $56.1-billion price tag in 2019-20).

Moreover, because total provincial government revenue was $46.2-billion in 2019-20, Alberta could have run a budget surplus in the year preceding COVID. Not only that, it would have been in surplus every year for the past 20 years.

All the evidence suggests that if Alberta increases taxes or adds new ones, the government won’t actually use the new tax revenue to balance the budget – it would simply fuel more spending. Indeed, consider that over the past five years, the province has seen a significant increase in personal income tax rates, business income tax rates and a carbon tax – and the province still ran deficits.

There will be an appropriate time to debate the design of Alberta’s tax system and whether or not the province should consider a sales tax to reduce or eliminate other, more economically damaging taxes. But we would be best served not to conflate this policy issue with the real reason for Alberta’s fiscal crisis, and the real fiscal issue the Kenney government must tackle.

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