By Steve Lafleur
and Ben Eisen
The Fraser Institute
When people think of the long lost “Alberta Advantage,” they often think first about the province’s tax advantage over other provinces. Specifically, the 10 per cent single rate personal and corporate income taxes that prevailed until 2015.Steve
But Alberta enjoyed another fiscal advantage – all other provinces paid large interest payments on their government debt each year while Alberta’s payments were trivial. Unfortunately this second Alberta Advantage is also slipping away.
In 2007-08, the Alberta government paid only $61 per capita in debt charges annually. Every other province paid much more, from more than $500 per person in British Columbia to more than $1,000 per person in Quebec and Newfoundland. Every other province spent more tax dollars than Alberta on interest payments, which meant less money available for public services (education, for example) or to keep taxes down in their provinces.
Why? Because every other province was heavily in debt and thus on the hook for much larger interest payments. Alberta was not. In fact, in 2007-08, Alberta had a substantial net asset position of $35 billion – that means its financial assets (such as the Heritage Savings and Trust Fund) substantially exceeded the value of its debts.Ben
But Alberta’s fiscal position has eroded since 2007-08, thanks largely to a long string of operating budget deficits under successive governments. Those deficits have exploded in the past few years. Alberta’s net debt now totals $30 billion and, the government projects, will hit $56 billion by 2023-24.
Consequently, Alberta government debt interest payments have skyrocketed, from $61 per person a decade ago to $442 in 2018-19. Given that the government of Premier Rachel Notley has no plans to balance the budget until 2023-24 (based on fairly optimistic assumptions) and will continue to add debt through capital spending (roads, etc.), it’s likely that number will steadily increase and Alberta will soon overtake other provinces. Alberta’s per-person interest payments are forecasted to overtake B.C. in 2020-21 and may soon leapfrog Saskatchewan as well.
Moreover, it’s not just lower-debt provinces such as B.C. and Saskatchewan that Alberta will overtake – the gap between Alberta and heavily-indebted provinces in Central Canada and the Maritimes is closing as well. According to Alberta government forecasts, debt service payments will continue to rise by approximately $100 per person per year through 2020-21. If this trend continues beyond that, Alberta will soon join Newfoundland and Quebec as the only provinces spending more than $1,000 per person on government debt service payments each year (a club that Ontario, Canada’s fiscal basket case, may also soon join).
The more money the government spends on servicing its provincial debt, the less is left over for priorities that Albertans value such as health care, education and tax relief.
The end of the other Alberta advantage – a near absence of debt service payments from the provincial budget – is bad news for Albertans, now and in the future.
Steve Lafleur and Ben Eisen are analysts with the Fraser Institute, and co-authors of The Decline of the Other Alberta Advantage: Debt Service Costs in Alberta are Rising.
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