‘Prudent’ oil boom spending would have left Alberta with surplus, despite crude crash, report says

Fraser Institute study argues more prudent public spending could have left Alberta better-positioned for oil crash. PHOTO: Winterforce Media, via Wikimedia Commons

CALGARY—With the significant drop in oil prices over the past 14 months, the Alberta government has been sent scrambling to secure further sources of revenue in the face of a $5.9 billion deficit. Had the province spent “more prudently” throughout the oil boom, however, a new Fraser Institute study says, Alberta could be enjoying a surplus instead of being faced with a significant shortfall.

“The view that falling oil prices are chiefly to blame for Alberta’s deficit is false. The real source of the problem is many years of rapid growth in government spending,” Charles Lammam, director of fiscal studies at the Fraser Institute and co-author the report, said.

The report argues if the government had restricted spending increases since 2004 to keep pace with inflation and the growing provincial population, the surplus today would be $4.4 billion—a difference of over $10 billion when compared with the current $5.9 billion deficit. If the government curbed spending even slightly more modestly, the province would still enjoy a $1.9 billion surplus, the report says.

“Successive Alberta governments failed to restrain spending growth during the good times, and now that the boom has ended, the province is mired in red ink,” Lammam said.

Between 2004 and 2015, the report notes spending increased 98.3 per cent, at nearly double the rate of inflation and growth combined. It also outpaced provincial GDP growth, which registered an 88.6 per cent increase.

“Consequently,” the report says, “Alberta faces its seventh deficit in eight years and a return to a net debt position (where the total value of government debt exceeds financial assets) for the first time in more than 15 years.”