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Alberta deficit would be $3B this year if NDP followed PCs’ 2015 budget plan: Fraser Institute

Alberta Progressive Conservative leader Jim Prentice listens to NDP leader Rachel Notley speak during the leaders debate in Edmonton on Thursday April 23, 2015. THE CANADIAN PRESS/Jason Franson

Editor’s note: This story originally stated the Alberta deficit would now be $3 billion had the PCs won the 2015 election. However, it has been clarified to say the Alberta deficit would be $3 billion had the budget plan laid out by the PCs in 2015 been followed.

Alberta’s deficit would be less than half of what it is right now had the NDP followed the spending plan laid out by the Progressive Conservatives in March 2015, a Canadian public policy think tank concludes in a new study.

And the deficit would be even lower if Rachel Notley’s government had frozen spending when it was elected, the study said.

The Fraser Institute study — titled Why Is Alberta’s Deficit Still So Big? — was released five days after Finance Minister Joe Ceci tabled his budget for 2018, which emphasized a “path to balance” as the province continues to recover from the sudden plunge in oil prices in 2014 that left Alberta’s economy reeling.

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READ MORE: Alberta Budget 2018: finance minister outlines plan to balance books in five years

WATCH: (From March 22, 2018) Finance Minister Joe Ceci says things in Alberta “are looking up.”

Click to play video: '‘Today in Alberta things are looking up’: Joe Ceci' ‘Today in Alberta things are looking up’: Joe Ceci
‘Today in Alberta things are looking up’: Joe Ceci – Mar 22, 2018

In a news release issued along with the study on Tuesday, one co-author said the crash in the price of oil is less relevant to the economy now than it was before.

“Commodity prices are rebounding and the recession is over, so it’s no longer reasonable to blame low oil prices for the size of Alberta’s deficits — government spending is to blame,” Ben Eisen said.

The authors of the Fraser Institute study came to their conclusions by comparing the Alberta NDP’s spending trajectory since assuming office with two “alternative scenarios”: the previous PC government’s spending plan and a hypothetical spending plan that would see spending frozen at levels they were at in March 2015.

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The authors then evaluated how the budget balance would have developed under each scenario and how its net debt position (subtracting the total value of the government’s liabilities and debts from the total value of its cash, cash equivalents and other liquid assets) would have turned out differently.

The study acknowledged the Notley government inherited a “difficult set of fiscal circumstances” from the PCs, including the staggering decline in the price of oil along with a deficit of about $6 billion. But the study said the NDP’s decision to restore $624 million in spending that had been trimmed in the PCs’ last budget while in power set it on a more troubled path.

READ MORE: Oil price crash reaches 2nd anniversary

Lori Williams, an associate professor of policy studies at Mount Royal University, told Global News she wasn’t sure “it makes much sense to use the PCs’ ‘inherited’ budget as a benchmark.”

“It was resoundingly criticized, and a key reason PC fortunes plummeted while the NDP’s popularity soared,” she said. “The PC budget included dozens of cuts, fee increases and tax increases to everyone but corporations… cuts are difficult to defend, and while Premier (Ralph) Klein managed to maintain support despite significant, poorly planned cuts, few politicians can pull this off.”

Williams also said she isn’t certain a PC government would have stuck to its spending plan had it won the election: “They would have been under intense pressure to increase spending.”

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MacEwan University political scientist Dr. Chaldeans Mensah pointed out the Fraser Institute report comes at the issue of public finances from a fiscally conservative perspective, focusing on the adverse impact of government program spending on the budget.

“The report has a point if one looks simply at the deficit numbers in relation to the spending plan of the former government,” Mensah said. “But it neglects to point out that the NDP campaigned to protect the public sector and the vulnerable in society.

“There is no question that its program spending has helped mitigate the adverse impact of the economic downturn and depressed resource sector on the public sector, but has done so at the expense of increasing deficit. Certainly, the public sector in Alberta has done very well in the economic downturn than it would been under a program of austerity by a fiscally inclined government.”

Williams suggested she believes the premise of the Fraser Institute study is ideologically motivated.

“The Fraser Institute is a conservative think-tank known for its advocacy [of] promoting fiscal restraint,” she said.

“It clearly has an interest in promoting conservative principles, policies, and governments, and wants to focus attention on the growing deficit.”

Different deficit projections

The Fraser Institute said the Alberta government’s projection that it will spend about $55.9 billion in 2017-18 is nearly $7 billion more than what the PCs forecast in their last budget.

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The study said Rachel Notley’s government would find itself with smaller deficits if it had “adhered to the spending plan it inherited from its predecessor,” the Progressive Conservative (PC) government led by former premier Jim Prentice.

Prentice’s 10-year fiscal recovery plan included putting an end to Alberta’ flat income-tax rate, raising taxes on Albertans who earn over $50,000 a year and hiking gasoline taxes. He also campaigned on ridding the province of over 2,000 public sector jobs, cutting dozens of agencies, boards and commissions and imposing wage freezes on unionized workers.

READ MORE: Platform planks of Alberta’s 4 main parties in 2015

“The deficit today would be approximately $3 billion — less than half of the $8.8-billion deficit actually posted last week,” the Fraser Institute news release reads, adding that if the NDP had frozen “nominal spending” at the level it was when it assumed office, Alberta would be on track for a deficit of just $1.5 billion next year.

Had they been re-elected in 2015, Mensah said the PCs likely would have embarked on an austerity-light approach to budgeting, with restrained spending, and would have had to find ways to address a serious shortfall to the government’s revenue stream from the resource sector.

But he pointed out no matter which party is in government, the fundamental problem is the ongoing revenue shortfall from over-dependence on oil and gas prices.

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“With pipeline bottlenecks, and low oil prices, the province is likely to face a continuing revenue shortfall, so the issue of having sustained revenue flow combined with restrained spending is likely to feature prominently in the next election.”

Different net debt projections

According to the Fraser Institute, an analysis of the three different spending models also shows Alberta’s net debt per person would be lower if the NDP had adopted the PCs’ spending plan or frozen spending after assuming office.

The study projects that under the PC spending plan, net debt per capita would have reached about $4,300 per person by 2019-20, less than half of the approximately $9,000 in per-capita debt expected under the NDP.

With a freeze of nominal program spending, the study authors forecast per-capita debt would have been just over one-third of what is projected by 2019-20.

View graphs from the Fraser Institute’s study in the gallery below:

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A graph showing net debt as a percentage of GDP under three different spending scenarios. COURTESY: Fraser Institute
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A graph showing net debt per capita under three different spending scenarios. COURTESY: Fraser Institute
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A graph showing net debt under three different spending scenarios. COURTESY: Fraser Institute
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A graph showing annual balance under three different spending scenarios. COURTESY: Fraser Institute
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A graph showing total spending under three different spending scenarios. COURTESY: Fraser Institute

“Slumping oil prices have been a convenient excuse for budget deficits by successive Alberta governments,” Steve Lafleur, a study co-author, said. “The evidence is clear — if the government had made different choices and opted to exercise spending restraint over the past three years, Alberta’s fiscal reality would be much brighter today.”

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READ MORE: Report indicates Calgary and Edmonton’s GDP could return to pre-recession levels this year

The NDP government has defended its spending plan and rejected the idea of slashing thousands of public sector jobs, saying its spending has been aimed at helping Albertans endure the economic impact of lower oil prices. It has also highlighted that it is maintaining Alberta’s debt-to-GDP ratio as one of the lowest in the country.

Premier Rachel Notley’s director of communications, Cheryl Oates, issued a statement in response to the Fraser Institute study on Tuesday evening. You can read the statement in its entirety below.

“In 2015, we inherited an economy in free fall. Due to an unprecedented crash in oil prices, Alberta experienced the worst recession in generations. We chose to respond by working to make life better and putting the priorities of regular people first.

Not only did these efforts help rebuild and re-energize our cities and towns, these efforts supported and created tens of thousands of jobs for Albertans when those jobs were needed most.

This recovery is proving things can be done differently, and that good things happen when governments proudly stand on the side of working Albertans. Our task is to make sure this recovery keeps working for working people.”

Mensah said he thinks the NDP deficits will be problematic for those who believe governments have to be restrained in their spending to meet available revenue.

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“For voters inclined towards fiscal prudence, the NDP has a lot more work to do to reinforce the credibility of its plans, and whether it has the inclination and political fortitude to get the plan implemented,” he said.

“This is going to be one of the issues for the next election: Which of the main parties offers a credible approach to dealing with budgetary challenges in a context of low commodity prices and uncertain market access for Alberta’s oil.”

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