Balancing Alberta’s budget by 2022 will require tough choices on spending, taxes: economist

Economist Trevor Tombe gives a presentation on the state of Alberta's economy and plans to balance the budget on Wednesday, May. 1, 2019. Global News

Premier Jason Kenney‘s plans to balance Alberta’s budget within three years won’t come without some tough choices, and it’s not going to solve the province’s future fiscal frustrations, according to University of Calgary economist Trevor Tombe.

The newly-sworn-in premier said Wednesday he was putting together a “blue ribbon panel” of people to help his government take a hard look at the province’s financial situation and how best to move forward with his newly-formed government.

“They’ll have a mandate to report back this coming summer on the real state of the province’s finances,” Kenney said, adding that an announcement could come on that as early as next week.

“That will then help to inform our budget planning.”

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Kenney said Albertans shouldn’t expect a budget “soon,” but through his election campaign, one of the main promises he made was getting the province not only out of the red, but to a $714-million surplus by 2023.

“I would expect a budget for 2019/2020 in the fall of this year,” Kenney said. “In the meantime, we will be operating on what are called special warrants.”

According to Tombe, balancing the budget by 2022 could work, but the new government would likely have to either implement a sales tax or make major cuts to spending.

“Given current policy, before any changes that the new government will make, the fiscal hole — in the long term — that Alberta faces is roughly equivalent to a 10 per cent sales tax on the revenue side or reducing program spending by one out of every six dollars spent,” Tombe said.

“That fiscal gap between what spending projections are and what revenue projections are, that’s large.

“Current policy, if we don’t do anything, we’re on track to have a debt-to-GDP ratio of about 50 per cent by 2040. That’s well beyond the highest point Alberta has ever seen, even during the Great Depression.”

Tombe said that large gap is one that many Canadian provinces face due to things like an aging population and increasing health-care costs. He added that the Kenney government will need to think more long term when it comes to things like spending on health care, as it’s currently the biggest area of spending.

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“Health spending accounts for well over 40 per cent of the budget and will approach 50 per cent in the coming years,” he said. “That means cost increases in that ministry do contribute in a big way to changes in the overall deficit.”

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Tombe said the current plan for balancing the budget depends on keeping government spending flat for the next three years, adding “that does help address the long-term fiscal challenge, but it doesn’t go all the way.”

“Roughly speaking, balancing by 2022 is about half the job,” he said. “What we do after 2022 is going to require more choices [to] be made, more fiscal adjustments [to] be made, either on the revenue side or the spending side.”

Listen below: A discussion about Alberta’s fiscal situation on 770 CHQR’s Afternoons With Rob Breakenridge.

He said much of that decision-making will be up to the soon-to-be-appointed blue ribbon panel.

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Tombe said a combination of tax hikes and spending cuts isn’t inevitable when the government does eventually table its first budget but it’s up to the government whether Albertans could see one or the other, or a mix.

“To maintain the effective size of government while the population is aging, it’ll require disciplined and sustained action over time — not an immediate drastic cut or any immediate large new tax,” he said. “But we do need to think about sustaining gradual action over time, in order to make a difference.”

— With files from 770 CHQR’s Adam Toy 

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