Canadian Manufacturing

Alberta deficit likely to exceed government forecast, hit $886M: Fraser Institute

Think-tank blames reliance on high GDP, corporate profit, personal income forecasts



Calgary—Alberta’s deficit will likely exceed the government forecast of $886-million in 2012/13, according to a new report from the Fraser Institute.

The report, Alberta’s 2012 Fiscal Time-Bomb, blames the anticipated deficit increase on unrealistic resource revenue and economic growth projections outlined in the government’s pre-election budget.

“The province has bet the budget on overly optimistic oil and gas prices,” Alberta policy research director and report author Mark Milke said in a statement. “It also wished upon a star by hoping for economic growth, corporate profits, and personal income significantly above private-sector forecasts.”

According to Milke, the province will continue its five-year fiscal decline.

A higher-than-forecast deficit means the rapid decline in Alberta’s net financial assets will continue, the report claims.

In just five years, Milke said, the value of Alberta’s net financial assets has dropped by over half, to $16.4-billion in 2011/12 from $34.1-billion in 2007/08, in inflation-adjusted dollars.

This sharp drop-off mimics a previous decline in the province’s finances that began in the mid-1980s and lasted until 1994.

“Alberta’s recession ended in mid-2009, yet the province has incurred deficits in every subsequent year and only forecasts a surplus as of 2013/14—five years after the recession ended,” Milke said.

To meet its near-billion dollar deficit forecast for 2012/13, the Alberta government relied on gross domestic product (GDP), corporate profit and personal income forecasts that were significantly higher than private-sector estimates, according to the report.

Milked offered up comparisons between government forecasts and actual numbers that support his claims.

According to Milke, the average private-sector forecast for GDP growth was 3.1 per cent in 2012 and 3.2 per cent in 2013; the Alberta government forecast sat at 3.8 per cent in both years.

The average private-sector forecast for real personal income growth was 4.5 per cent in 2012 and 4.7 per cent in 2013; the Alberta government forecasted 6.2 per cent growth in 2012 and 6.0 per cent in 2013.

Milke added the average private-sector forecast for growth in corporate profits was 2.3 per cent in 2012 and 6.2 per cent in 2013; the Alberta government forecasted growth of 11.8 per cent in 2012 and 17.5 per cent in 2013.

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