Alberta’s Budget Deficit: Why Spending Is to Blame

Alberta is headed toward its seventh deficit in eight years and the province is at risk of returning to a net debt position as early as next year. A popular narrative holds that the recent fall in oil prices is responsible for the deterioration of Alberta’s fiscal position. This view is not supported by the evidence. Instead, the reason Alberta now faces a large budget deficit is spending growth over the past decade.

Between 2004/05 and 2014/15, government program spending increased by 98.3%, nearly double the rate of inflation plus population growth (52.1%) and significantly above the rate of economic growth (88.6%) in the province. Had the provincial government restrained program spending growth to keep pace with inflation plus population growth since 2004/05, the government would be looking at a $4.4 billion surplus rather than a deficit of $5.9 billion for the 2015/16 fiscal year. Alternatively, had the provincial government increased program spending at the rate of economic growth since 2004/05, the government could have expected a $1.9 billion surplus this year.

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